-----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, GdPYp5AJZgsfDKBYzFsvo1ozHr4uwzl8W0pU/ArC6ulLIrYjb030+hGbUuzDbsuR /H8CJ2rhqqkBCHDFfI9GZA== 0001005477-01-002484.txt : 20010409 0001005477-01-002484.hdr.sgml : 20010409 ACCESSION NUMBER: 0001005477-01-002484 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K SEC ACT: SEC FILE NUMBER: 001-16403 FILM NUMBER: 1589679 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: 6094414517 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-K SEC ACT: SEC FILE NUMBER: 000-31657 FILM NUMBER: 1589680 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-K SEC ACT: SEC FILE NUMBER: 001-15064 FILM NUMBER: 1589681 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-K 1 0001.txt FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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) (Registrant's telephone number, including area code): (609) 441-4517 ------------------------ Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share American Stock Exchange $110,000,000 principal amount of 11% First Mortgage Notes American Stock Exchange due September 29, 2005 - ------------------------------------ ------------------------------------ Title of each class Name of exchange on which registered Securities registered pursuant to Section 12(g) of the Act: None - -------------------------------------------------------------------------------- (Title of Class) 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 |_|
Registrant Class Outstanding at March 21, 2001 - ------------------------ ----------------------------- ----------------------------- GB Property Funding Corp. Common stock, $1.00 par value 100 shares GB Holdings, Inc. Common stock, $.01 par value 10,000,000 shares Greate Bay Hotel and Common stock, no par value 100 shares Casino, Inc.
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the indicated part or parts of this report. NONE 1 PART I ITEM 1. BUSINESS 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 ("GBLLC"), whose sole member as a result of the same reorganization was PPI. 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 located 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 as a special purpose subsidiary of Holdings for the purpose of borrowing funds for the benefit of GBHC. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owned a land parcel adjacent to GBHC. Throughout this document, references to Notes are referring to the Notes to Consolidated Financial Statements contained herein. 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"). On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of Unsecured Creditors and High River Limited Partnership and its affiliates (the "Plan") for the Debtors. High River Limited Partnership ("High River") is an entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino Control Commission (the "Commission") approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date") (see Note 2). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. 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" ("SOP 90-7"), and include disclosure of liabilities subject to compromise (see Note 5). In addition, as a result of the Confirmation Order and the occurrence of the Effective Date, and in accordance with SOP 90-7, Holdings' has adopted "fresh start reporting" in the preparation of the accompanying consolidated financial statements. Holdings' emergence from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting and are not comparable to consolidated financial statements presented prior to September 30, 2000. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities. On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock 2 owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued by GB Property Funding (the "New Notes"). Holders of the Old Notes received a distribution of their pro rata shares of (i) the New Notes and (ii) 5,375,000 shares of the New Common Stock (the "Stock Distribution"). Holdings and GB Property Funding listed the New Common Stock and New Notes, respectively, on the American Stock Exchange on March 27, 2001. The Sands For a description of the Sands' facilities, please refer to "Item 2. - Properties." Business Strategy. Traditionally, the Sands' marketing strategy in the highly competitive Atlantic City market has consisted of seeking higher-value repeat patrons. In the past, the Sands has been successful in its marketing efforts towards these premium patrons through its offering of private, limited-access facilities, related amenities and use of sophisticated information technology to monitor patron play, control certain casino operating costs and target marketing efforts toward frequent visitors with above average gaming budgets. While the Sands strived to maintain market share within this segment, competition within the industry for both the premium patron (both table and slot) and to provide a premium facility with amenities for this type of patron reduced the Sands ability to attract this type of player on a profitable basis in recent years. The Sands is determined to introduce the "Value Gaming" concept. The general concept in "Value Gaming" is to provide the customer with the best possible gaming experience for the amount of time that the customer is on property. Whether that experience is enhanced by competitive odds on games, the ability to find a food outlet that provides an affordable quality food product, or superior service, the overall experience for the patron has been expanded and the ability to increase subsequent trips dramatically improved. With the ongoing upgrades to the property, the Sands will be able to broaden its appeal to both the higher-value repeat patrons, as well as increase its marketing effort towards the mid-level and mass segment of the gaming market. Although the Sands' facility will still not compare in size, rooms and amenities to other premium properties in Atlantic City, the Sands' strategy to introduce the concept of "Value Gaming" to the market should appeal to all segments and provide for a competitive offset to the shortfall in property size. As part of the Sands capital expenditure program, certain improvements, additions and enhancements have been made, or are planned to be made, to the facility, including slot machines and other gaming equipment. These additions and enhancements will primarily benefit the slot patron and will compliment the "Value Gaming" marketing strategy. The Sands uses sophisticated information technology that enables it to track and rate patrons' play through the use of identification cards, which it issues to patrons ("casino players' cards"). All Sands' slot machines are connected with, and information with respect to table games activity can be input into, a computer network. When patrons insert their casino player's card into slot machines or present them to supervisors at table games, meaningful information, including amounts wagered and duration of play, is transmitted in real-time to a casino management database. The information contained in the database facilitates the implementation of targeted and cost effective marketing programs, which appropriately recognize and reward patrons during current and future visits to the Sands. Certain of these marketing programs allow patrons to automatically obtain complimentaries based on levels of play. Such complimentaries include free meals, hotel accommodation, entertainment, retail merchandise, parking, and 3 sweepstakes giveaways. Management believes that its ability to reward its customers on a "same-visit" basis is valuable in encouraging the loyalty of repeat visits. The computer systems also allow the Sands to monitor, analyze and control the granting of gaming credit, promotional expenses and other marketing costs. Management primarily focuses its marketing efforts on patrons who have been identified by its casino management computer system as profitable patrons. Management believes that its philosophy of encouraging participation in its casino player's card program, using the information obtained thereby to identify the relative playing patterns of patrons and tailoring specific marketing programs and property amenities to this market segment enhances profitability of the Sands. The Sands also markets to the "mass" casino patron market through various form of direct and indirect advertising, and group and bus tour programs. Once new patrons are introduced to the Sands' "Value Gaming" concept and the casino player's card program, management uses its information technology capabilities to directly market to these patrons to encourage repeat patronage. Competition. The Sands faces intense competition from the eleven other existing Atlantic City casinos. According to reports of the Commission, the twelve Atlantic City casinos currently offer approximately 1.2 million square feet of gaming space. Bally's Park Place opened its "Wild Wild West Casino" in 1997 and a new parking and bus facility adjoining Pacific Avenue in 1998. Caesars constructed a new entrance to its facility on Pacific Avenue, added additional casino space and opened a new hotel tower in 1998. After completion of the acquisition of Caesars by Park Place Entertainment Corp. (PPE), in December 1999, PPE connected Caesars to Bally's Park Place and added slot machines in the connecting space. In January 2001, over the objections of the Sands, the Commission determined that the proposed acquisition of the Claridge Hotel and Casino ("the Claridge") by PPE, which is located adjacent to the Sands and with whom the Sands jointly operates the "People Mover" walkway from the boardwalk, would not violate the Casino Control Act's prohibition against undue economic concentration. If the Claridge Chapter 11 Plan is confirmed by the Bankruptcy Court, and if PPE acquires the Claridge, PPE has indicated that it may connect the Claridge to its Bally's Park Place Casino, which is already interconnected to the PPE controlled Caesars Hotel and Casino. Upon that acquisition by PPE, PPE would control four, the Trump Organization would control three and the Harrah's Organization would control two of the Atlantic City casinos. PPE also controls the so-called Traymore site located between the boardwalk and the Sands and has announced that it may develop another hotel-casino complex on this site but has not announced specific plans at this time. In addition, several companies have announced plans to build and operate additional casino/hotels over the next few years. For example, Boyd Gaming Corporation in partnership with MGM Mirage is currently constructing a 40 story 2,010-room hotel and 120,000 square foot casino in the Marina District of Atlantic City that is expected to be completed in the summer of 2003. The Borgata development will be situated on approximately 30 acres and will also include specialty restaurants, distinct boutiques, a European style spa and several entertainment venues. In connection with that project, construction is nearly complete on a tunnel to connect the Atlantic City Expressway with the Marina District. Other casino companies and individuals have submitted applications and have been qualified in New Jersey to hold casino licenses. Tropicana Atlantic City has announced plans to construct a 502-room hotel tower, a 25-room conference center, a 2,400 space-parking garage and an expanded casino floor. The plans will also include a 200,000 square foot themed shopping, dining and entertainment complex called The Quarter. Tropicana intends to break ground before the end of 2001 and to complete the project in the second half of 2003. Accordingly, the existing and future competing forces could have a materially adverse impact on the operations of the Sands. The Casino Reinvestment Development Authority ("CRDA") is a governmental agency that administers the statutorily mandated investments required to be funded by casino licensees. Legislation enacted during 1993 and 1996 allocated an aggregate of $175 million of CRDA funds and credits to subsidize and encourage the construction of 4 additional hotel rooms by Atlantic City casino licensees. Competitors of the Sands that have the financial resources to construct hotel rooms can take advantage of such credits more readily than the Sands. The Sands has an approved hotel expansion program with the CRDA. Plans have been announced by other casino operators to complete expansions within the required subsidy period. The expansion of existing gaming facilities and the addition of new casinos will continue to increase competition within the Atlantic City market. In this highly competitive environment, each property's relative success is affected by a great many factors that relate to its location and facilities. These include the number of parking spaces and hotel rooms it possesses, proximity to Pacific Avenue, the Boardwalk and to other casino/hotels and access to the main expressway entering Atlantic City. GBHC believes that in prior years its operating strategy enabled the Sands to compete against most other Atlantic City casino/hotels. However, many of its competitors have greater financial resources for capital improvements and marketing and promotional activities than GBHC and, as a result, the Sands' facilities and amenities fell behind many of the other casinos during its bankruptcy. In order to improve GBHC's competitive position, GBHC sought the approval of the Bankruptcy Court for a capital expenditure program to renovate the majority of its hotel rooms and suites and to purchase approximately 700 slot machines. The Bankruptcy Court approved the capital expenditure program in the amount of approximately $13.6 million in March 1998. In addition, the lack of access to Pacific Avenue hampered the Sands' efforts to expand its "drive-in" patron base. However, in 1999, the Sands acquired land parcels on Pacific Avenue and demolished the existing structures and constructed a new front entrance to the Sands' facility on Pacific Avenue, which opened in June 2000. The Sands is currently engaged in the construction of a new three story addition to its property, which it expects to complete in phases in 2001 and which will provide for additional casino space, additional retail space and meeting rooms, relocate the hotel entrance to Pacific Avenue, and convert the existing hotel entrance into a bus depot. In order to enhance its competitive position in the marketplace, the Sands may determine to incur substantial additional costs and expenses to maintain, improve and expand its facilities and operations. Those activities may require Holdings to consider seeking additional financing. In connection with, among other things, obtaining any such financing, Holdings and its subsidiaries may seek to amend or supplement the terms of existing financing arrangements. A significant amount of the Sands' revenues is derived from patrons living within a 120-mile radius of Atlantic City, New Jersey, particularly northern New Jersey, southeastern Pennsylvania, and metropolitan New York City. Proposals to allow casino gaming in certain areas of Pennsylvania and New York have been defeated within the past three years. If casino gaming were to be legalized in those areas or in other venues that are more convenient to those areas, it could have a material adverse effect on the Sands. Gaming is currently conducted on Indian lands in nearby states, including the Foxwoods and Mohegan Sun Casinos in Connecticut and the Turning Stone Casino in Oneida, New York near Syracuse. In addition, slot machines are allowed at racetracks in the State of Delaware and the allowed number of such machines increased in 1999. Industry Developments. New Jersey regulators have approved a number of significant changes to the regulations governing the casino industry in recent years. Significant deregulation of the industry began in 1995 with the enactment of legislation amending the New Jersey Casino Control Act (the "Casino Act") and has continued with additional rule modifications to stimulate industry growth. Partly as a result of such regulatory changes, industry-wide revenues in New Jersey have shown steady increases from $4.0 billion in 1998, to $4.1 billion in 1999 and to $4.3 billion in 2000. Casino/hotel operators have also benefited in recent years from a trend toward increased slot play as slot machines have become increasingly more popular than table games particularly with frequent patrons and with 5 recreational and other casual visitors. Casino operators have been catering increasingly to slot patrons through new forms of promotions and incentives such as slot machines that are linked among the various casinos enabling the pay out of large pooled jackpots, and through more attractive and entertaining gaming machines. Slot machines generally produce higher margins and profitability than table games because they require less labor and have lower operating costs. As a result, slot machine revenue growth has outpaced table game revenue growth in recent years. In 2000, according to Commission filings, slot win accounted for nearly 72% of total Atlantic City gaming win. Table games remain important, however, to a select segment of gaming patrons and they help create gaming ambience and a varied gaming experience. Casino Credit. Casino operations are conducted on both a credit and a cash basis. Patron gaming debts incurred in accordance with the Casino Act are enforceable under New Jersey law. For the year ended December 31, 2000, gaming credit extended to Sands' table game patrons accounted for approximately 25% of overall table game wagering, and table game wagering accounted for approximately 18.3% of overall casino wagering during the period. At December 31, 2000, gaming receivables amounted to $19.8 million before an allowance for uncollectible gaming receivables of $11.2 million. Management believes that such allowance is adequate. License Agreement. GBHC's rights to the trade name "Sands" (the "Trade Name") were derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands for these rights were equal to the amounts paid to the unaffiliated third party. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, GBHC was assigned by High River the rights under a certain agreement with the owner of the Trade Name to use the Trade Name as of the Effective Date. High River received no payments for its assignment of these rights. Payment is made directly to the owner of the Trade Name. The calculation of the license fee is the same as under the previous agreement. Such charges amounted to $66,000 for the three months ended December 31, 2000 and $215,000, during the nine months ended September 30, 2000. For the years ended December 31, 1999 and 1998, such charges amounted to $278,000 and $275,000, respectively. The Sands Management Contract. Prior to July 8, 1998, 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 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 for, the software used in its operations from the same affiliate of GBCC. On September 28, 1998, and as a result of another settlement agreement, 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. Employees and Labor Relations. In Atlantic City, all employees, except certain hotel employees, must be licensed under the Casino Act. Due to the seasonality of the operations of the Sands, the number of employees varies during the course of the year. At December 31, 2000, the Sands had approximately 3,000 employees. The Sands has collective bargaining agreements with three unions that represent approximately 1,100 employees, most of whom are represented by the Hotel, Restaurant Employees and Bartenders International Union, AFL-CIO, Local 54. The collective bargaining agreement with Local 54 expires in September 2004. Management considers its labor relations to be good. 6 Casino Regulation Casino gaming is strictly regulated in Atlantic City under the Casino Act and the regulations of the Commission, which affect virtually all aspects of the operations of the Sands. The Casino Act and regulations affecting Atlantic City casino licensees concern primarily the financial stability, integrity and character of casino operators, their employees, their debt and equity security holders and others financially interested in casino operations; the nature of casino/hotel facilities; the operation methods (including rules of games and credit granting procedures); and financial and accounting practices used in connection with casino operations. A number of these regulations require practices that are different from those in casinos in Nevada and elsewhere, and some of these regulations result in casino operating costs greater than those in comparable facilities in Nevada and elsewhere. Casino Licenses. The Casino Act requires that all casino owners and management contractors be licensed by the Commission and that all employees (except for certain non-casino related job positions), major shareholders and other persons or entities financially interested in the casino operation be either licensed or approved by the Commission. A license is not transferable and may be revoked or suspended under certain circumstances by the Commission. A plenary license authorizes the operation of a casino with the games authorized in an operation certificate issued by the Commission, and the operation certificate may be issued only on a finding that the casino conforms to the requirements of the Casino Act and applicable regulations and that the casino is prepared to entertain the public. Under such determination, GBHC has been issued a plenary casino license. The plenary license issued to the Sands was renewed by the Commission in September, 1996 and extended through September 30, 2000, subject to review of the Sands' financial stability during 1997 and to the submission of financial projections in 1998 and 1999 for calendar years 1999 and 2000, respectively. The 1997 review took place and the 1999 and 2000 financial projections were filed and the Sands license was due for renewal in 2000. At its September 13, 2000 meeting, the Commission approved the renewal of the Sands casino license for a period of four years. The Casino Act provides for a casino license fee of not less than $200,000 based upon the cost of the investigation and consideration of the license application, and a renewal fee of not less than $100,000 or $200,000 for a one year or four year renewal, respectively, based upon the cost of maintaining control and regulatory activities. In addition, a licensee must pay annual taxes of 8% of casino win (as defined in the Casino Act), net of a provision for uncollectible gaming debts of up to 4% of casino win ("Gross Revenue"). During the years ended December 31, 2000, 1999 and 1998, the taxes and the license and other fees incurred by the Sands amounted to $22.7 million, $22.2 million and $21.5 million, respectively. The Casino Act also requires casino licensees to pay an investment alternative tax of 2.5% of Gross Revenue (the "2.5% Tax") or, in lieu thereof, to make quarterly deposits of 1.25% of quarterly Gross Revenue with the CRDA (the "Deposits"). The Deposits are then used to purchase bonds at below-market interest rates from the CRDA or to make qualified investments approved by the CRDA. The CRDA administers the statutorily mandated investments required to be funded by casino licensees and is required to expend the monies received by it for eligible projects as defined in the Casino Act. The Sands has elected to make the Deposits with the CRDA rather than pay the 2.5% Tax. The Sands has, from time to time, contributed certain amounts held in escrow by the CRDA to fund CRDA sponsored projects. During December 2000, the Sands contributed $3,310,000 of its escrowed funds to a CRDA sponsored project and will receive a cash refund of $828,000 in consideration for the contribution. Prior to this, the CRDA had granted the Sands waivers of certain of its future Deposit obligations in consideration of similar contributions. The Sands had made such contributions of Deposits during the years ended December 31, 2000, 1999 7 and 1998 totaling $142,000, $176,000 and $146,000, respectively, resulting in waivers granted by the CRDA for those periods totaling $72,000, $90,000 and $74,000, respectively. Intangible assets aggregating $1,211,000 and $1,413,000, have been recognized on the accompanying consolidated balance sheets at December 31, 2000 and 1999, respectively, and are being amortized over a period of ten years commencing with the completion of the projects. Amortization of intangible assets totaled $202,000, $967,000 and $203,000 for the years ended December 31, 2000, 1999 and 1998, respectively. In 1999, GBHC wrote off an intangible asset in the amount of $765,000 because the project no longer provided any benefit to the company. The Casino Act also imposes certain restrictions upon the ownership of securities issued by a corporation that holds a casino license or is a holding company of a corporate licensee. Among other restrictions, the sale, assignment, transfer, pledge or other disposition of any security issued by a corporate licensee or holding company is subject to the regulation of the Commission. The Commission may require divestiture of any security held by a disqualified holder such as an officer, director or controlling stockholder who is required to be qualified under the Casino Act. Note holders are also subject to the qualification provisions of the Casino Act and may, in the sole discretion of the Commission, be required to make filings, submit to regulatory proceedings and qualify under the Casino Act. If an investor is an "Institutional Investor" such as a retirement fund for governmental employees, a registered investment company or adviser, a collective investment trust, or an insurance company, then, in the absence of a prima facie showing by the New Jersey Division of Gaming Enforcement that the "Institutional Investor" may be found unqualified, the Commission shall grant a waiver of this qualification requirement with respect to publicly traded debt or equity securities of parent companies or affiliates if the investor will own (i) less than 10% of the common stock of the company in question on a fully diluted basis, or (ii) less than 20% of such company's overall indebtedness provided the investor owns less than 50% of an outstanding issue of indebtedness of such company; the Commission, upon a showing of good cause, may, in its sole discretion, grant a waiver of qualification to an "Institutional Investor" not satisfying the above percentage criteria. An "Institutional Investor" must also purchase securities for investment and have no intent to influence the management or operations of such company. The Commission may, in its sole discretion, grant a waiver of the qualification requirement to investors not qualifying as "Institutional Investors" under the Casino Act if such investors will own less than 5% of the publicly traded common stock of such company on a fully diluted basis or less than 15% of the publicly traded outstanding indebtedness of such company. ITEM 2. PROPERTIES The Sands is located in Atlantic City, New Jersey on approximately 6.1 acres of land one-half block from the Boardwalk at Brighton Park between Indiana Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently consists of a casino and simulcasting facility with approximately 77,000 square feet of gaming space containing approximately 1,987 slot machines and approximately 92 table games; a hotel with 532 rooms (including 59 suites); six restaurants; one cocktail lounge; two private lounges for invited guests; an 800-seat cabaret theater; retail space; an adjacent nine-story office building with approximately 77,000 square feet of office space for its executive, financial and administrative personnel; the "People Mover", an elevated, enclosed, one-way moving sidewalk connecting the Sands to the Boardwalk using air rights granted by an easement from the City of Atlantic City; and a garage and surface parking for approximately 1,750 vehicles. Effective September 2, 1998, and as part of a certain settlement agreement, Lieber obtained the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, New Jersey (the "Pacific Avenue Hotel"). The purchase price of the Pacific Avenue Hotel was $10 million. Demolition of the existing structures was completed in 1999 and construction of the new front entrance to the Sands' facility on Pacific Avenue was completed in June 2000. In addition, a nearby building in Atlantic City that houses an auto shop facility and a warehouse in Mystic Island, New 8 Jersey also support the Sands' operations. GBHC's capital expenditure program includes the ongoing renovation of the majority of its hotel rooms and suites and the purchase of slot machines. In April 2000, GBHC entered into an agreement with the entities controlling the Claridge to acquire the Claridge Administration Building. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing and $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 the Claridge. The present value of the $2.0 million consideration has been recorded in other current and other noncurrent liabilities sections of the balance sheet. On December 27, 2000, the Sands, considering the renewal options, entered into a long-term lease agreement with the Madison House Group, LP to lease the approximate 210-room Madison House non-casino hotel. The initial lease period is from December 2000 to December 2012 with lease payments ranging from $1.8 million per year to $2.2 million per year. In addition, the Sands has two renewal options which, if exercised, will extend to December 2030. Lease payments during the two renewal options range from $2.2 million per year to $3.1 million per year. It is the intention of the Sands to maintain and operate the Madison House in the same quality as the Sands, making those rooms available to Sands casino customers and the general public. The Madison House is already physically connected at two floors to the existing casino hotel complex and the present intention of the Sands is to upgrade and combine the rooms into approximately 105-125 business suites. The Sands also intends to seek to have these rooms "qualified" by the Commission, which, if approved, would allow the Sands to have additional casino square footage for the additional slot machines contemplated as part of its current 2001 construction project. ITEM 3. 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 and Note 2). In 1998, GBHC also filed an action in the Bankruptcy Court to recover the rights to purchase the Pacific Avenue Hotel against GBCC, certain affiliates of GBCC, and certain former directors of GBHC and to enjoin the use of the Federal net operating losses (Federal NOL's) of Holdings and its subsidiaries. That action was settled and, among other things, GBHC recovered the rights to purchase the Pacific Avenue Hotel, the parties entered into certain general releases, and Holdings and its subsidiaries agreed to be included in the consolidated tax return of GBCC for calendar years 1997 and 1998. 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 expects to file another appeal for 2001. 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 counsel, Holdings does not expect the settlement or resolution of these proceedings to have a material adverse impact upon the consolidated financial position or results of operations of Holdings. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the year ended December 31, 2000, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise, except for voting on the Plan. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS GB Property Funding's common stock, 100 shares with a par value of $1.00 per share, is its sole voting security; all 100 shares are owned by Holdings. GBHC's common stock, 100 shares with no par value per share, is its sole voting security; all 100 shares are owned by Holdings. Prior to the Effective Date, Holdings' common stock, 1,000 shares with a par value of $1.00 per share, was its sole voting security. All 1,000 shares were owned by PCC until December 31, 1998. Effective after December 31, 1998, PCC transferred 21% of its stock ownership in Holdings to PBV. As a result of a confirmed Plan of Reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to GBLLC. Upon the Effective Date, the stock of Holdings owned by PBV and GBLLC was cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of New Common Stock was issued and outstanding. Holdings has not paid any dividends in the past and has no plans to pay any in the future. The New Common Stock and the New Notes were listed on the American Stock Exchange on March 27, 2001. To Holdings' knowledge, no significant trading has occurred since such listing date. As of such date, other than certain of the shares of the New Common Stock owned by Icahn, substantially all of the shares of the New Common Stock are held by Cede & Co. as nominee. ITEM 6. SELECTED FINANCIAL DATA GB Holdings, Inc. and Subsidiaries The following table sets forth selected financial information for Holdings, and is qualified in its entirety by, and should be read in conjunction with, Holdings' Financial Statements and notes thereto contained elsewhere herein. The data as of December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999, and 1998 have been derived from the audited financial statements of Holdings contained in Item 8 below. The Company implemented SOP 90-7 and as such, adopted "fresh start reporting" as of September 30, 2000. The Company's emergence from its Chapter 11 proceedings resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. Accordingly, the Company's consolidated financial statements for periods prior to September 30, 2000 are not comparable to consolidated financial statements presented on or subsequent to September 30, 2000. Column headings have been included on the accompanying Consolidated Statements of Operations and Consolidated Balance Sheet to distinguish between the pre-reorganization and post-reorganization entities. 10 GB HOLDINGS, INC. AND SUBSIDIARIES (dollars in thousands except income per share and common shares) Statement of Operations Data:
Post-reorganization Pre-reorganization ------------------- ------------------------------------------ October 1, 2000 January 1, 2000 Year Ended through through December 31, December 31, 2000 September 30, 2000 (1) 1999 (1) ----------------- --------------------- ------------------- Net revenues $ 56,569 $ 191,207 $ 246,895 ------------ ------------ ------------ Expenses: Departmental ............................... 55,285 160,729 215,272 General and administrative ................. 2,175 7,663 10,586 Depreciation and amortization .............. 3,834 9,414 16,215 ------------ ------------ ------------ Total Expenses ............................ 61,294 177,806 242,073 ------------ ------------ ------------ Income (loss) from operations .............. (4,725) 13,401 4,822 ------------ ------------ ------------ Non-operating income (expense): Interest income ............................ 1,338 518 649 Interest expense ........................... (3,133) (366) (295) Reorganization costs ....................... 34 (2,807) (2,154) Gain (loss) on disposal of assets .......... (11) (10) 259 ------------ ------------ ------------ Total non-operating expense, net .......... (1,772) (2,665) (1,541) ------------ ------------ ------------ Income (loss) before income taxes, extraordinary and other items .............. (6,497) 10,736 3,281 Valuation provision on affiliate receivables -- -- -- Write off deferred financing costs .......... -- -- -- ------------ ------------ ------------ Income (loss) before income taxes, and extraordinary item ..................... (6,497) 10,736 3,281 Income tax provision ........................ -- -- (133) ------------ ------------ ------------ Income (loss) before extraordinary item ..... (6,497) 10,736 3,148 Extraordinary item - early extinguishment of debt, net of related tax benefits .......... -- 14,795 -- ------------ ------------ ------------ Net inome (loss) ............................ $ (6,497) $ 25,531 $ 3,148 ============ ============ ============ Basic income (loss) per common share: Before extraordinary item .................. $ (0.65) $ 1.07 $ 0.32 Extraordinary item ......................... -- 1.48 -- Net income (loss) per share ................. $ (0.65) $ 2.55 $ 0.32 ============ ============ ============ Weighted average common shares (2) (2) outstanding ................................ 10,000,000 10,000,000 10,000,000 ============ ============ ============ Pre-reorganization ---------------------------------------------------------- Year Ended Year Ended Year Ended December 31, December 31, December 31, 1998(1) 1997 1996 ------------ ------------ ------------ Net revenues $ 237,344 $ 256,255 $ 264,761 ------------ ------------ ------------ Expenses: Departmental ............................... 202,532 215,907 235,285 General and administrative ................. 12,497 17,409 18,486 Depreciation and amortization .............. 12,795 14,062 19,310 ------------ ------------ ------------ Total Expenses ............................ 227,824 247,378 273,081 ------------ ------------ ------------ Income (loss) from operations .............. 9,520 8,877 (8,320) ------------ ------------ ------------ Non-operating income (expense): Interest income ............................ 961 1,680 1,590 Interest expense ........................... (313) (23,260) (22,236) Reorganization costs ....................... (4,069) (505) -- Gain (loss) on disposal of assets .......... 252 59 13 ------------ ------------ ------------ Total non-operating expense, net .......... (3,169) (22,026) (20,633) ------------ ------------ ------------ Income (loss) before income taxes, extraordinary and other items .............. 6,351 (13,149) (28,953) Valuation provision on affiliate receivables -- (9,650) -- Write off deferred financing costs .......... -- (4,265) -- ------------ ------------ ------------ Income (loss) before income taxes, and extraordinary item ..................... 6,351 (27,064) (28,953) Income tax provision ........................ -- (10,902) (2,417) ------------ ------------ ------------ Income (loss) before extraordinary item ..... 6,351 (37,966) (31,370) Extraordinary item - early extinguishment of debt, net of related tax benefits .......... -- 310 -- ------------ ------------ ------------ Net inome (loss) ............................ $ 6,351 $ (37,656) $ (31,370) ============ ============ ============ Basic income (loss) per common share: Before extraordinary item .................. $ 0.64 $ (3.80) $ (3.14) Extraordinary item ......................... -- 0.03 -- Net income (loss) per share ................. $ 0.64 $ (3.77) $ (3.14) ============ ============ ============ Weighted average common shares (2) (2) (2) outstanding ................................ 10,000,000 10,000,000 10,000,000 ============ ============ ============
Balance Sheet Data:
Post-reorganization Pre-reorganization ------------------------ -------------------------------------------------------- December 31, September 30, December 31, December 31, December 31, December 31, 2000 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- --------- Total assets ......................... $ 264,247 $ 272,676 $ 208,416 $ 199,148 $ 187,728 $ 224,438 Total long-term obligations .......... 110,838 110,858 197,898 198,234 205,932 203,942 Shareholder's equity (deficit) ....... 118,503 125,000 (39,593) (42,741) (58,600) (20,944)
- ---------- (1) On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. The accrual of interest expense on the First Mortgage Notes, the Subordinated Notes (as hereafter defined) and other affiliate advances for periods subsequent to the filing was suspended. (2) Income (loss) per share information is presented on a pro forma basis for periods presented prior to the Effective Date. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K contains forward-looking statements about the business, financial condition and prospects of Holdings, GB Property Funding and GBHC. The actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties. Such risks and uncertainties are beyond management's ability to control and, in many cases, cannot be predicted by management. When used in this Annual Report on Form 10-K, the words "believes", "estimates", "anticipates", "expects", "intends" and similar expressions as they relate to Holdings, GB Property Funding and GBHC or its management are intended to identify forward-looking statements (see "Private Securities Litigation Reform Act" below). 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 Old Notes. GBHC was unable to obtain additional borrowings from affiliates or other sources and, accordingly, on January 5, 1998, the Debtors filed petitions for relief under the Bankruptcy Code in the Bankruptcy Court. On August 14, 2000, the Bankruptcy Court entered the Confirmation Order confirming the Plan for the Debtors. On September 13, 2000, the Commission approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date") (see Note 2). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. Accordingly, the accompanying consolidated financial statements have been prepared in accordance with SOP 90-7 and include disclosure of liabilities subject to compromise (see Note 5). In addition, as a result of the Confirmation order and the occurrence of the Effective Date, and in accordance with SOP 90-7, Holdings has adopted "fresh start reporting" as of September 30, 2000. The emergence of Holdings from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting and are not comparable to consolidated financial statements presented prior to September 30, 2000. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities. 12 On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued (the "New Notes"). Holders of the Old Notes received a distribution of their pro rata shares of (i) the New Notes and (ii) 5,375,000 shares of the New Common Stock (the "Stock Distribution"). Operating Activities At December 31, 2000, consolidated Holdings had cash and cash equivalents of $77.9 million. GBHC had cash and cash equivalents of $18.1 million. GBHC generated cash flow from operations of $11.8 million for the year ended December 31, 2000 compared to $18.6 million for the year ended December 31,1999. GBHC utilized cash generated by its operations, in part, during 2000 to fund capital additions of $17.3 million and to make obligatory investments of $2.8 million. Financing Activities On the Effective Date, GB Property Funding's existing debt securities, consisting of the Old Notes, and all of Holdings' Old Common Stock owned by PBV and GBLLC were cancelled. Also, on the Effective Date, 10,000,000 shares of New Common Stock were issued and outstanding. Of the 10,000,000 shares, 5,375,000 shares were distributed to the holders of the Old Notes in a pro rata distribution, and 4,625,000 shares were purchased by High River for $65 million. New Notes in the amount of $110,000,000 were issued and distributed to the holders of the Old Notes in a pro rata distribution. Total scheduled maturities of long term debt in 2001 are $467,000. 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 prior to the Effective Date, which were part of the security for the Old Notes, were remitted to the Indenture Trustee as reductions to the outstanding principal of the Old Notes. Proceeds from the sale of such assets, amounting to $4,000 and $263,000 for the years ended December 31, 2000 and 1999, respectively, were remitted to the Indenture Trustee. Although the payments were remitted to the Indenture Trustee as reductions on principal in accordance with the Order of the Bankruptcy Court, the Indenture Trustee advised Holdings (i) that such payments were retained by the Indenture Trustee pursuant to the terms of the Indenture in partial satisfaction of the fees and expenses incurred by the Indentured Trustee in the Chapter 11 proceeding and (ii) that the Indenture Trustee included the amount of such payments in its fee application before the Bankruptcy Court for the benefit of the holders of the Old Notes. Investing Activities Capital expenditures at the Sands during 2000 amounted to approximately $17.3 million. In order to enhance its competitive position in the market place, the Sands may determine to incur additional substantial costs and expenses to maintain, improve and expand its facilities and operations. Holdings may require additional financing in connection with those activities. In connection with, among other things, obtaining any such financing, Holdings and its subsidiaries may seek to amend or supplement the terms of existing financing arrangements. 13 In 1998, and as part of a certain settlement agreement, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, New Jersey (the "Pacific Avenue Hotel") from another affiliate of GBCC for payment of $1.3 million and a payment of $500,000 on the Effective Date. The purchase price of the Pacific Avenue Hotel was $10 million. With Bankruptcy Court approval, Lieber closed on that purchase with funds advanced by GBHC in 1999. Demolition of the Pacific Avenue Hotel was completed in 1999 and construction of the new front entrance to the Sands' facility was completed in June 2000. GBHC also entered into an agreement with the entities controlling the Claridge, subject to Bankruptcy Court approval, to acquire the Claridge Administration Building ("CAB"), which was situated between GBHC's existing main entrance and the new Pacific Avenue 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 obtained Bankruptcy Court approval of the assumption of the PM Agreement, as modified above and by the reduction of the monthly license fee to $20,000 a month after the 40 months elimination of the license fee. In April 2000, closing took place on the CAB. GBHC demolished the CAB and will incorporate the land as part of its 2001 capital improvement plan. The Sands is required by the Casino Act to make certain quarterly deposits based on gross revenue with the CRDA in lieu of a certain investment alternative tax. Deposits made in 2000 totaled $2.8 million and are anticipated to be approximately $3.1 million during 2001. The Sands has agreed to contribute certain of its future investment obligations to the CRDA in connection with the renovation related to the Atlantic City Boardwalk Convention Center. The projected total contribution will amount to $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. Certain CRDA Bonds totaling $441,000 were redeemed during the year ending December 31, 2000. Summary On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. 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 Old Notes and the Subordinated Notes for periods subsequent to the filing was suspended. On August 14, 2000, the Bankruptcy Court confirmed the Plan and on September 29, 2000 the Plan became effective. Continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. Management believes that cash flows generated from operations during 2001, as well as available cash reserves, will be sufficient to meet its operating plan and provide for scheduled capital expenditures. 14 RESULTS OF OPERATIONS General The comparison of operating results for the years ended December 31, 2000, 1999 and 1998 is performed by comparing the operating results for the 2000 combined pre and post - reorganization periods to the actual results of 1999 and 1998 since operations have remained similar and such comparisons would not be misleading. The Sands income from operations for the year ended December 31, 2000 was $8.7 million compared to $4.8 million in 1999 and $9.5 million in 1998. Net Revenues increased slightly in 2000 ($900,000, 0.4%) as compared to 1999, and operating expenses decreased by $3.0 million (1.2%) for the same period. These operating expense decreases were due to decreases in depreciation and amortization of $3.0 million (18.3%), food & beverage $1.3 million (12.6%) and general and administrative of $800,000 (7.1%) partially offset by an increase in casino expenses of $2.6 million (1.3%). Operating results during 1999 were positively impacted by increased table drop and slot handle. The increased volume of play was slightly offset, however, by decreased table and slot hold percentages in 1999 compared to 1998. The negative publicity surrounding the Sands filing for bankruptcy protection on January 5, 1998 affected operating results for 2000, 1999 and 1998. 15 Gaming Operations Information contained herein, regarding Atlantic City casinos other than the Sands, was obtained from reports filed with the Commission. The following table sets forth certain unaudited financial and operating data relating to the Sands' and all other Atlantic City casinos' capacities, volume of play, hold percentages and revenues:
Year Ended December 31, ----------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (Dollars In Thousands) Units: (at year-end) Table Games - Sands 92 100 99 - Atlantic City (ex. Sands) 1,238 1,245 1,305 Slot Machines - Sands 1,987 2,001 2,025 - Atlantic City (ex. Sands) 34,291 32,688 33,855 Gross Wagering (1) Table Games - Sands $ 471,769 $ 461,512 $ 426,343 - Atlantic City (ex. Sands) 7,157,418 7,182,588 7,211,706 Slot Machines - Sands 2,114,444 1,985,311 1,886,901 - Atlantic City (ex. Sands) 35,714,927 33,935,558 31,925,805 Hold Percentages (2) Table Games - Sands 14.10% 14.60% 15.20% - Atlantic City (ex. Sands) 15.50% 15.40% 15.40% Slot Machines - Sands 7.60% 7.90% 8.00% - Atlantic City (ex. Sands) 8.20% 8.20% 8.40% Revenues (2) Table Games - Sands $ 66,456 $ 67,301 $ 64,744 - Atlantic City (ex. Sands) 1,110,512 1,104,835 1,109,111 Slot Machines - Sands 160,223 157,141 151,749 - Atlantic City (ex. Sands) 2,923,224 2,795,221 2,668,533 Other (3) - Sands 3,077 3,033 2,875 - Atlantic City N/A N/A N/A
(1) Gross wagering consists of the total value of chips purchased for table games (excluding poker) and keno wagering (the "Drop") and coins wagered in slot machines ("Handle"). (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." The Sands' hold percentages and revenues are reflected on an accrual basis. Comparable accrual basis data for the remainder of the Atlantic City gaming industry as a whole is not available; consequently, industry hold percentages and revenues are based on information available from the Commission and are possibly higher than if computed on the accrual basis. (3) Consists of revenues from poker and simulcast horse racing wagering. Comparable information for the remainder of the Atlantic City gaming industry is not available. 16 Patron Gaming Volume Information contained herein, regarding Atlantic City casinos other than the Sands, was obtained from reports filed with the Commission. Table game drop at the Sands increased by $10.3 million (2.2%) in 2000 compared to 1999 and by $35.2 million (8.2%) in 1999 compared to 1998. By comparison, table game drop at all other Atlantic City casinos reflected a decrease of 0.4% in each year. As a result, the Sands table game market share (expressed as a percentage of the entire Atlantic City gaming industry (the "industry") aggregate table game drop) increased to 6.2% during 2000 from 6.0% in 1999 and from 5.6% in 1998. 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"). During 2000, the number of table games decreased 8.0% at the Sands, compared with a decrease of 0.6% at all other Atlantic City casinos. Table game drop in 1999 increased due to the volume of play from rated players. Aggregate gaming space at all other Atlantic City casinos decreased by approximately 29,000 square feet at December 31, 2000, compared to December 31, 1999. The amount of gaming space at the Sands remains virtually unchanged. Slot machine handle increased $129 million (6.5%) in 2000 compared to 1999 and by $98.4 million (5.2%) in 1999 compared to 1998. By comparison, the percentage increase in slot machine handle for all other Atlantic City casinos was 5.2% in 2000 compared to 1999 and 6.3% in 1999 compared to 1998. The Sands' market share of slot machine handle as a percentage of total industry slot handle has remained fairly stable at 5.6% in 2000, 5.5% in 1999, and 5.6% in 1998. 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 significantly in 2000, but the number of slot machines decreased slightly as compared to 1999 and 1998. On an industry-wide basis, both total available gaming space and the number of slot machines decreased in 2000 compared to 1999. While the number of slot machines decreased slightly at the Sands during 2000, during the last half of 1998, 1999 and 2000 approximately 800 older, less popular slot machines were replaced with new and more popular machines as part of the Sands capital expenditure program. Revenues Casino revenues at the Sands increased by $2.3 million (1.0%) in 2000 compared to 1999 and by $8.1 million (3.7%) in 1999 compared to 1998. Increases in both table game and slot machine wagering were partially offset by decreases in table game and slot machine hold percentages in 2000 and 1999 compared to the respective prior year. Rooms' revenue increased $207,000 (2.2%) in 2000 compared to 1999 and by $73,000 (0.8%) in 1999 compared to 1998. The increase in 2000 was driven by a higher average daily room rate partially offset by a decrease in occupancy. The increase during 1999 was a result of higher occupancy partially offset by a decrease in the average daily room rate. Food and beverage revenues increased $453,000 (1.6%) in 2000 compared to 1999 and by $2.5 million (9.8%) in 1999 compared to 1998. The increase in 2000 was due to an increase in the revenue per cover. The growth in 1999 was due to an increase in both the number of covers and in revenue per cover. 17 Other revenues decreased $1.5 million (24.5%) in 2000 compared to 1999 and increased $2.2 million (58.2%) in 1999 compared to 1998. The decrease in 2000 compared to 1999 was a result of a reduction in theater entertainment offerings. The increase in 1999 resulted from an increase in the number of theater entertainment offerings and the opening of a gift shop. Promotional Allowances Promotional allowances represent the estimated 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 at the Sands, these allowances increased to 57.4% in 2000 from 54.9% in 1999 and 53.1% in 1998. The increase in 2000 is primarily attributable to changes in marketing programs and other promotional activities aimed at increasing gaming volume from rated players. Departmental Expenses Casino expenses at the Sands increased $2.6 million (1.3%) in 2000 compared to 1999 and by $11.2 million (6.0%) in 1999 compared to 1998. Continuing efforts to rebuild the patron base resulted in increased expenditures for marketing and advertising related to the Sands desire to develop programs and create market awareness for the purpose of driving additional patron volume. This increase in expenditures and related patron volume activity also resulted in an increase in the allocation of rooms, food and beverage and other expenses to casino expenses. Rooms expense decreased $89,000 (3.1%) in 2000 compared to 1999 and by $316,000 (10.0%) in 1999 compared to 1998. These decreases resulted 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. The 2000 decrease was partially offset by an increase in payroll and benefits. Food and beverage expense decreased $1.3 million (12.6%) in 2000 compared to 1999 and increased $276,000 (2.8%) in 1999 compared to 1998. The decrease in 2000 was due to more expenses being allocated to casino expenses due to the rise in food and beverage complimentaries. The increase in 1999 was due to increased food and beverage volume and related variable costs due to increased casino patronage. This increase was offset by the increase in the allocation of food and beverage costs to casino expense. Other expenses decreased $493,000 (11.6%) in 2000 compared to 1999 and increased by $1.6 million (62.9%) in 1999 compared to1998. The decrease in 2000 was due to cost savings with respect to reduced theater entertainment. The 1999 increase resulted from increased costs associated with increased theater entertainment and additional costs of goods relating to merchandise sold by a new gift shop. These increases were offset by the increase in the allocation of other expenses to casino expense. General and Administrative Expenses General and administrative expenses decreased $748,000 (7.1%) in 2000 compared to 1999 and by $1.9 million (15.3%) in 1999 compared to 1998. The decrease in 2000 was a result of reduced expenses in general insurance and electricity line items. In 1999 compared to 1998, management fees incurred by the Sands decreased by $2.4 million as a result of the filing of the Rejection Motion and the Settlement Agreement and 18 Second Settlement Agreement. There were no management fees incurred in 2000. The decrease in 1999 was partially offset by increased wages and benefits, particularly in the Facilities department, due to deferred maintenance in recent years. Depreciation and Amortization Depreciation and amortization expense decreased by $3.0 million (18.3%) in 2000 compared to 1999 and increased by $3.4 million (26.7%) in 1999 compared to 1998. The decrease in 2000 was due to a smaller contribution liability to the CRDA compared to 1999 and the redemption of bonds. The increase in 1999 was due to the expense associated with the recognition of the present value of a future donation liability to the CRDA for $2.7 million and the write-off of a deferred asset related to a previous CRDA donation in the amount of $765,000. Interest Income and Expense Interest income increased by $1.2 million (186.0%) in 2000 compared to 1999 and decreased by $312,000 (32.5%) in 1999 compared to 1998. The increase in 2000 was a result of interest earnings on the $65 million cash received on the Effective Date. The decrease in 1999 was because interest earned in 1998 included a one-time interest payment on an obligatory investment. Interest earned on cash balances accumulated as a result of the Chapter 11 filing (i.e., from not making debt service payments) is reflected in the accompanying consolidated financial statements as a reduction of reorganization costs while in reorganization. Interest expense increased $3.2 million (1086.0%) in 2000 compared to 1999 and decreased by $18,000 (5.8%) in 1999 compared to 1998. The increase in 2000 was a result of the issuance of the New Notes on the Effective Date. As a result of the Chapter 11 filing, the accrual of interest expense on the Old Notes, the Subordinated Notes (as hereafter defined) and other affiliate advances for periods subsequent to the filing were suspended. Non-recurring Items At December 31, 1997, GBHC reserved as uncollectible the balance of an advance to an affiliated company in the amount of $5.7 million together with interest amounting to $4.0 million. The $5.7 million advance as well as accrued interest amounting to $6.4 million along with the corresponding reserve was fully written off with the implementation of fresh start accounting in September, 2000. Income Tax Provision Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). 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, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC. 19 At December 31, 2000, Holdings and its subsidiaries have deferred tax assets including State net operating losses and Federal credit carryforwards. The State net operating losses ("State NOL's") begin to expire in the year 2003 for state tax purposes. A portion of the credit carryforwards, if not utilized, will begin to expire each year through 2004. The remaining credit carryforwards expire through the year 2019. In addition, as part of a certain settlement agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of Holdings and its subsidiaries through December 31, 1998 to offset federal taxable income of GBCC and other members of its consolidated tax group. Subsequent to the Deconsolidation, Holdings had approximately $2.8 million in Federal NOL's, which were all utilized in the 1999 consolidated federal tax return of Holdings. 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 December 31, 2000. The Internal Revenue Service has completed an examination of the consolidated federal income tax returns of HCC for the years 1993 and 1994 in which Holdings was included. The results of this examination resulted in a reduction of Federal NOL's of Holdings prior to the Deconsolidation. However, since the Federal NOL's were fully reserved for as required by SFAS 109, this reduction did not impact Holdings statement of operations for the period as reported. The Internal Revenue Service is continuing to examine the consolidated federal income tax returns of HCC for the years 1995 and 1996 and the consolidated federal income tax returns for GBCC for the years 1997 and 1998 in which Holdings' was included (the "Audit"). As a result of such Audit, GBCC management has disclosed in its annual SEC Form 10-K, filed for the year ended December 31, 2000, that it is presently unable to estimate the impact of the Audit on the consolidated financial position or results of operations of GBCC. Holdings is 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. Any such use of these NOL's, by either HCC and GBCC, are subject to the terms of a certain settlement agreement. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, Holdings outstanding debt was discharged (see Note 2). Pursuant to the Internal Revenue Code, debt that is cancelled or discharged under the Bankruptcy Code does not generate taxable income in the current period to the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced. This attribute reduction is effective for tax purposes beginning January 1, 2001. Management currently estimates that approximately $14.3 million of Holdings tax attributes relating to the tax bases of noncurrent assets will be reduced as of January 1, 2001. Holdings also had a change of ownership as defined under Internal Revenue Code Section 382 upon the effective date of the plan. Management currently estimates there will be no significant limitations on the ability of the company to use its tax credit carryforwards on a post confirmation basis as a result of this change of ownership. 20 Extraordinary Item Holdings recorded an extraordinary gain of $14.8 million during 2000 as a result of the discharge of debt and satisfaction of claims associated with the company's emergence from Chapter 11 (see Note 2). 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 was reflected as a reduction to reorganization and other related costs. Reorganization cost increased $619,000 (28.7%) in 2000 compared to 1999 and decreased $1.9 million (47.1%) in 1999 compared to 1998. This increase is attributed to expenses associated with the fees that were required to be paid under the Plan. 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. 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. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-K and other materials filed or to be filed by Holdings, GB Property Funding or GBHC with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made by such companies) contains statements that are forward-looking, such as statements relating to plans for future expansion, future construction costs and other business development activities as well as other capital spending, economic conditions, financing sources, competition and the effects of tax regulation and state regulations applicable to the gaming industry in general or Holdings, GB Property Funding and GBHC in particular. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of Holdings, GB Property Funding or GBHC. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to 21 fluctuations in interest rates), domestic or global economic conditions, changes in federal or state tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates and foreign currency exchange rates. Holdings, GB Property Funding and GBHC do not have securities subject to interest rate fluctuations and have not invested in derivative-based financial instruments. 22 ITEM 8. INDEX TO FINANCIAL STATEMENTS
Page ---- GB Holdings, Inc. and Subsidiaries Report of Independent Public Accountants .................................................... 24 Consolidated Balance Sheets of GB Holdings, Inc. and Subsidiaries as of December 31, 2000 (Post-reorganization), September 30, 2000 (Post-reorganization) and December 31, 1999 (Pre-reorganization) ........ 25 Consolidated Statements of Operations of GB Holdings, Inc. and Subsidiaries for the Period October 1, 2000 through December 31, 2000 (Post-reorganization), January 1, 2000 through September 30, 2000 (Pre-reorganization) and the Years Ended December 31, 1999 and 1998 (Pre-reorganization) ........................................................................ 27 Consolidated Statement of Changes in Shareholder's Equity (Deficit) of GB Holdings, Inc. and Subsidiaries for the Period October 1, 2000 through December 31, 2000 (Post-reorganization), January 1, 2000 through September 30, 2000 (Pre-reorganization) and the Years Ended December 31, 1999 and 1998 (Pre-reorganization) .......................................................... 28 Consolidated Statements of Cash Flows of GB Holdings, Inc. and Subsidiaries for the Period October 1, 2000 through December 31, 2000 (Post-reorganization), January 1, 2000 through September 30, 2000 (Pre-reorganization) and the Years Ended December 31, 1999 and 1998 (Pre-reorganization) ........................................................................ 29 Notes to Consolidated Financial Statements of GB Holdings, Inc. and Subsidiaries ............................................................................ 30
23 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To GB Holdings, Inc.: We have audited the accompanying consolidated balance sheets of GB Holdings, Inc. and subsidiaries (the Company, a Delaware corporation) as of December 31, 2000 (post-reorganization), September 30, 2000 (post-reorganization) and December 31, 1999 (pre-reorganization), and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the periods from October 1, 2000 through December 31, 2000 (post-reorganization), January 1, 2000 through September 30, 2000 (pre-reorganization) and the two years in the period ended December 31, 1999 (pre-reorganization). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GB Holdings, Inc. and subsidiaries as of December 31, 2000 (post-reorganization), September 30, 2000 (post-reorganization) and December 31, 1999 (pre-organization), and the results of their operations and their cash flows for periods from October 1, 2000 through December 31, 2000 (post-reorganization), January 1, 2000 through September 30, 2000 (pre-reorganization), and the two years in the period ended December 31, 1999 (pre-reorganization) in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Roseland, New Jersey February 16, 2001 24 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
Post-reorganization Pre-reorganization -------------------------------------- ----------------- December 31, 2000 September 30, 2000 December 31, 1999 ----------------- ------------------ ----------------- Current Assets: Cash and cash equivalents $ 77,903,000 $ 85,678,000 $ 20,897,000 Accounts receivable, net of allowances of $11,408,000, $10,366,000 and $11,413,000, respectively 10,972,000 8,411,000 9,864,000 Inventories 2,851,000 2,590,000 3,784,000 Deferred income taxes and income tax receivable 1,159,000 1,159,000 3,478,000 Prepaid expenses and other current assets 3,687,000 2,563,000 2,502,000 ------------- ------------- ------------- Total current assets 96,572,000 100,401,000 40,525,000 ------------- ------------- ------------- Property and Equipment: Land 54,814,000 54,654,000 50,777,000 Buildings and improvements 81,203,000 79,631,000 185,508,000 Equipment 18,252,000 16,795,000 108,260,000 Construction in progress 6,763,000 3,252,000 2,295,000 ------------- ------------- ------------- 161,032,000 154,332,000 346,840,000 Less - accumulated depreciation and amortization (2,706,000) -- (189,805,000) ------------- ------------- ------------- Property and equipment, net 158,326,000 154,332,000 157,035,000 ------------- ------------- ------------- Other Assets: Obligatory investments, net of allowances of $8,418,000, $9,806,000 and $9,122,000, respectively 7,918,000 9,286,000 8,386,000 Other assets 1,431,000 1,460,000 2,470,000 ------------- ------------- ------------- Total other assets 9,349,000 10,746,000 10,856,000 ------------- ------------- ------------- $ 264,247,000 $ 265,479,000 $ 208,416,000 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 25 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Post-reorganization Pre-reorganization -------------------------------------- ----------------- December 31, 2000 September 30, 2000 December 31, 1999 ----------------- ------------------ ----------------- Current Liabilities Not Subject to Compromise: Current maturities of long-term debt $ 467,000 $ 483,000 $ 79,000 Accounts payable 9,822,000 6,026,000 4,849,000 Accrued liabilities - Salaries and wages 4,424,000 4,151,000 3,458,000 Interest 3,092,000 67,000 -- Reorganization costs 1,280,000 2,385,000 1,843,000 Insurance 2,411,000 2,335,000 1,872,000 Other 5,336,000 6,067,000 5,879,000 Due to affiliates -- 290,000 1,099,000 Other current liabilities 4,283,000 3,957,000 4,322,000 ------------- ------------- ------------- Total current liabilities 31,115,000 25,761,000 23,401,000 ------------- ------------- ------------- Liabilities Subject to Compromise -- -- 217,028,000 ------------- ------------- ------------- Long-Term Debt 110,371,000 110,375,000 839,000 ------------- ------------- ------------- Deferred Taxes and Other Noncurrent Liabilities 4,258,000 4,343,000 6,741,000 ------------- ------------- ------------- Commitments and Contingencies Shareholders' Equity (Deficit): New preferred stock, $.01 par value per share; 5,000,000 shares authorized; 0 shares outstanding -- -- -- New common stock, $.01 par value per share; 20,000,000 shares authorized; 10,000,000 shares outstanding 100,000 100,000 -- Old common stock, $1.00 par value per share; 1,000 shares authorized and outstanding -- -- 1,000 Additional paid-in capital 124,900,000 124,900,000 27,946,000 Accumulated deficit (6,497,000) -- (67,540,000) ------------- ------------- ------------- Total shareholders' equity (deficit) 118,503,000 125,000,000 (39,593,000) ------------- ------------- ------------- $ 264,247,000 $ 265,479,000 $ 208,416,000 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 26 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Post-reorganization Pre-reorganization ------------------- ------------------------------------------------------- October 1, 2000 January 1, 2000 Year Ended Year Ended through through December 31, December 31, December 31, 2000 September 30, 2000 1999 1998 ----------------- ------------------ ------------- ------------- Revenues: Casino $ 52,026,000 $ 177,731,000 $ 227,475,000 $ 219,368,000 Rooms 2,307,000 7,173,000 9,273,000 9,200,000 Food and beverage 7,201,000 21,122,000 27,870,000 25,381,000 Other 951,000 3,549,000 5,960,000 3,767,000 ------------- ------------- ------------- ------------- 62,485,000 209,575,000 270,578,000 257,716,000 Less - promotional allowances (5,916,000) (18,368,000) (23,683,000) (20,372,000) ------------- ------------- ------------- ------------- Net revenues 56,569,000 191,207,000 246,895,000 237,344,000 ------------- ------------- ------------- ------------- Expenses: Casino 51,439,000 149,087,000 197,906,000 186,761,000 Rooms 664,000 2,106,000 2,858,000 3,174,000 Food and beverage 2,292,000 6,685,000 10,274,000 9,998,000 Other 890,000 2,851,000 4,234,000 2,599,000 General and administrative 2,175,000 7,663,000 10,586,000 12,497,000 Depreciation and amortization, including write off of net CRDA obligations 3,834,000 9,414,000 16,215,000 12,795,000 ------------- ------------- ------------- ------------- Total expenses 61,294,000 177,806,000 242,073,000 227,824,000 ------------- ------------- ------------- ------------- Income (loss) from operations (4,725,000) 13,401,000 4,822,000 9,520,000 ------------- ------------- ------------- ------------- Non-operating income (expense): Interest income 1,338,000 518,000 649,000 961,000 Interest expense (contractual interest of $16,545,000 for the nine months ended September 30, 2000 and $22,079,000 and $22,106,000 in 1999 and 1998, respectively) (3,133,000) (366,000) (295,000) (313,000) Reorganization and other related costs 34,000 (2,807,000) (2,154,000) (4,069,000) Gain (loss) on disposal of assets (11,000) (10,000) 259,000 252,000 ------------- ------------- ------------- ------------- Total non-operating expense, net (1,772,000) (2,665,000) (1,541,000) (3,169,000) ------------- ------------- ------------- ------------- Income (loss) before income taxes and extraordinary item (6,497,000) 10,736,000 3,281,000 6,351,000 Income tax provision -- -- (133,000) -- ------------- ------------- ------------- ------------- Income (loss) before extraordinary item (6,497,000) 10,736,000 3,148,000 6,351,000 Extraordinary gain on pre-petition debt discharge -- 14,795,000 -- -- ------------- ------------- ------------- ------------- Net income (loss) $ (6,497,000) $ 25,531,000 $ 3,148,000 $ 6,351,000 ============= ============= ============= ============= Basic income (loss) per common share: $ (0.65) ============= Weighted average common shares outstanding 10,000,000 =============
The accompanying notes are an integral part of these consolidated financial statements. 27 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) For the Period October 1, 2000 through December 31, 2000 (Post-reorganization), January 1, 2000 through September 30, 2000 (Pre-reorganization) and the years Ended December 31, 1999 and 1998 (Pre-reorganization)
Common Stock Additional ----------------------------- Paid-in Accumulated Shares Amount Capital Deficit ---------- ------------- ------------- ------------- BALANCE, January 1, 1998 (Pre-reorganization) 1,000 $ 1,000 $ 18,438,000 $ (77,039,000) Capital contribution -- -- 9,508,000 -- Net income -- -- -- 6,351,000 ---------- ------------- ------------- ------------- BALANCE, December 31, 1998 (Pre-reorganization) 1,000 1,000 27,946,000 (70,688,000) Net income -- -- -- 3,148,000 ---------- ------------- ------------- ------------- BALANCE, December 31, 1999 (Pre-reorganization) 1,000 1,000 27,946,000 (67,540,000) Net income pre-reorganization 25,531,000 Cancellation of old common stock pursuant to the plan for reorganization (1,000) (1,000) 1,000 -- Issuance of new common stock pursuant to the plan for reorganization 10,000,000 100,000 64,954,000 -- Elimination of accumulated deficit pursuant to the plan of reorganization -- -- (42,009,000) 42,009,000 Additional paid in capital pursuant to the plan of reorganization -- -- 74,008,000 -- ---------- ------------- ------------- ------------- BALANCE, September 30, 2000 (Post-reorganization) 10,000,000 100,000 124,900,000 -- Net loss post-reorganization -- -- -- (6,497,000) ---------- ------------- ------------- ------------- BALANCE, December 31, 2000 (Post-reorganization) 10,000,000 $ 100,000 $ 124,900,000 $ (6,497,000) ========== ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 28 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Post-reorganization Pre-reorganization ------------------- ------------------------------------------------- October 1, 2000 January 1, 2000 Year Ended Year Ended through through December 31, December 31, December 31, 2000 September 30, 2000 1999 1998 ----------------- ------------------ ------------ ------------ OPERATING ACTIVITIES: Net income (loss) $ (6,497,000) $ 25,531,000 $ 3,148,000 $ 6,351,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary gain on prepetition debt discharge -- (14,795,000) -- -- Write off of reorganization related costs -- -- 262,000 942,000 Depreciation and amortization, including write off of CRDA obligations 3,834,000 9,414,000 16,215,000 12,795,000 (Gain) Loss on disposal of assets 11,000 10,000 (259,000) (252,000) Provision for doubtful accounts 1,423,000 1,637,000 2,418,000 1,667,000 Deferred income tax provision (benefit) -- -- (133,000) 0 Increase in accounts receivable (3,157,000) (184,000) (4,854,000) (1,301,000) Increase in accounts payable and accrued expenses 1,266,000 2,975,000 1,096,000 3,505,000 Net change in other current assets and liabilities (907,000) 1,239,000 872,000 (44,000) Net change in other noncurrent assets and liabilities (102,000) (9,889,000) (175,000) (2,800,000) ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities (4,129,000) 15,938,000 18,590,000 20,863,000 ------------ ------------ ------------ ------------ INVESTING ACTIVITIES: Purchase of property and equipment (2,934,000) (14,422,000) (18,676,000) (7,972,000) Purchase of Lieber Check Cashing (net of cash acquired) -- -- -- (245,000) Proceeds from disposition of assets -- 13,000 259,000 259,000 Proceeds from sale of investments 111,000 330,000 2,000 177,000 Obligatory investments (803,000) (2,014,000) (2,786,000) (2,820,000) ------------ ------------ ------------ ------------ Net cash used in investing activities (3,626,000) (16,093,000) (21,201,000) (10,601,000) ------------ ------------ ------------ ------------ FINANCING ACTIVITIES: Proceeds from issuance of common stock -- 65,000,000 -- -- Repayment of long-term debt (20,000) (64,000) (336,000) (289,000) Borrowings from affiliates -- -- -- -- ------------ ------------ ------------ ------------ Net cash (used in) provided by financing activities (20,000) 64,936,000 (336,000) (289,000) ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (7,775,000) 64,781,000 (2,947,000) 9,973,000 Cash and cash equivalents at beginning of period 85,678,000 20,897,000 23,844,000 13,871,000 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ 77,903,000 $ 85,678,000 $ 20,897,000 $ 23,844,000 ============ ============ ============ ============
29 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 ("GBLLC"), whose sole member as a result of the same reorganization was PPI. 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 located 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 as a special purpose subsidiary of Holdings for the purpose of borrowing funds for the benefit of GBHC. Holdings has no operating activities and its only significant asset is its investment in GBHC, and as of the Effective Date, defined below, $59.3 million in cash (see Note 2). Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owned a land parcel adjacent to 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"). On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of Unsecured Creditors and High River Limited Partnership and its affiliates (the "Plan") for the Debtors. High River Limited Partnership ("High River") is an entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino Control Commission (the "Commission") approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date") (see Note 2). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. 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" ("SOP 90-7"), and include disclosure of liabilities subject to compromise (see Note 5). In addition, as a result of the Confirmation Order and the occurrence of the Effective Date, and in accordance with SOP 90-7, Holdings has adopted "fresh start reporting" in the preparation of the accompanying December 31, 2000 consolidated financial statements. The emergence of Holdings from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting and are not comparable to consolidated financial statements presented prior to September 30, 2000. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities. 30 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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. (2) Financial Reorganization On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued by GB Property Funding (the "New Notes"). Holders of the Old Notes received a distribution of their pro rata shares of (i) the New Notes and (ii) 5,375,000 shares of the New Common Stock (the "Stock Distribution"). In addition, $65,000,000 in cash was obtained from affiliates of the majority shareholder. Pursuant to SOP 90-7, "fresh start reporting" has been reflected as of September 30, 2000 in the accompanying consolidated financial statements because: (i) the sum of the allowed claims, plus postpetition liabilities, exceeded the reorganization value of the preconfirmation assets of the emerging entity and (ii) Holdings experienced a change of control (as defined in SOP 90-7). SOP 90-7 requires under these circumstances the creation of a new reporting entity and the recordation of assets and liabilities at their fair values. In support of the restructuring process, the Debtors retained an independent third party to determine, among other things, the value of the equity of Holdings. This independent third party set the value of the equity between a range of $11 and $14 per share. The Bankruptcy Court, considering the testimony of that third party and others offered at the confirmation hearing on the Plan, accepted this range and used the mid-point of $12.50 per share for the purpose of determining the value of the unsecured portion of the claim of the holders of the Old Notes. For these reasons, Holdings has set the value of the post confirmation assets of the reorganized entity based upon that value of the equity and the New Notes and by the post petition liabilities assumed. The resulting difference between the equity, New Notes and post petition liability assumed and the liabilities subject to compromise and equity eliminated has been allocated to long term assets based upon a pro rata determination of their fair values, as required by SOP 90-7. The discharge of debt and "fresh start reporting" have been reflected in the accompanying September 30, 2000 consolidated financial statements. Holdings' post confirmation consolidated balance sheet as of 31 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 reflects the adoption of "fresh start reporting" and becomes the opening balance sheet for the "reorganized" corporation. The gain from the discharge of debt has been reflected as an extraordinary item. The effect of the adoption of "fresh start reporting" on the consolidated balance sheet as of September 30, 2000 is reflected in the following table: Adjustments to Record the Plan of Reorganization (Dollars In Thousands)
Pre-reorganization Post-reorganization Consolidated Reorganization Fresh Start Consolidated Balance Sheet Adjustments Adjustments Balance Sheet --------- --------- --------- --------- Assets Current Assets: Cash & cash equivalents $ 26,373 $ 59,305 $ -- $ 85,678 Accounts receivable, net 8,411 -- -- 8,411 Other current assets 9,699 (3,387) -- 6,312 --------- --------- --------- --------- Total Current Assets 44,483 55,918 -- 100,401 Property & Equipment, net 165,090 -- (10,758) 154,332 Other Assets 11,576 -- (830) 10,746 --------- --------- --------- --------- Total Assets $ 221,149 $ 55,918 $ (11,588) $ 265,479 ========= ========= ========= ========= Liabilities & Shareholders' Equity (Deficit) Current Liabilities: Current maturities of long-term debt $ 483 $ -- $ -- $ 483 Accounts payable 6,026 -- -- 6,026 Accrued expenses 15,295 -- -- 15,295 Other current liabilities 3,957 -- -- 3,957 --------- --------- --------- --------- Total Current Liabilities 25,761 -- -- 25,761 Liabilities Subject to Compromise 216,140 (216,140) -- -- Long-Term Debt 375 110,000 -- 110,375 Deferred Taxes and Other 7,730 (3,387) -- 4,343 --------- --------- --------- --------- Total Liabilities 250,006 (109,527) -- 140,479 --------- --------- --------- --------- Shareholders' Equity (Deficit): Common stock - old 1 (1) -- -- Common stock - new (10,000,000 shares) -- 100 -- 100 Additional paid in capital 27,946 150,551 (53,597) 124,900 Accumulated earnings (deficit) (56,804) 14,795 42,009 -- --------- --------- --------- --------- Total Shareholders' Equity (Deficit) (28,857) 165,445 (11,588) 125,000 --------- --------- --------- --------- Total Liabilities & Shareholders' Equity (Deficit) $ 221,149 $ 55,918 $ (11,588) $ 265,479 ========= ========= ========= =========
32 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assuming the reorganization had been effective January 1, 2000, depreciation and amortization expense would have decreased an estimated $1,100,000 and interest expense would have increased an estimated $9,008,000 for the year ended December 31, 2000. On a pro forma basis, reorganization costs of $2,773,000 and the extraordinary gain on pre-petition debt discharge of $14,795,000 would not have been reported in 2000. (3) Summary of Significant Accounting Policies The significant accounting policies followed in the preparation of the accompanying consolidated financial statements are discussed below. The preparation of financial statements in conformity with 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. Casino revenues, promotional allowances and departmental expenses - The Sands recognizes the net win from gaming activities (the difference between gaming wins and losses) as casino revenues. Casino revenues are net of accruals for anticipated payouts of progressive and certain other slot machine jackpots and certain progressive table game payouts. Such anticipated jackpots and payouts are reflected as current liabilities on the accompanying consolidated balance sheets. The estimated value of rooms, food and beverage and other items that were provided to customers without charge has been included in revenues and a corresponding amount has been deducted as promotional allowances. The costs of such complimentaries have been included in casino expenses on the accompanying consolidated statements of operations. Costs of complimentaries allocated from the rooms, food and beverage and other operating departments to the casino department were as follows:
Post-reorganization Pre-reorganization ----------------- --------------------------------------------------------------- October 1, 2000 January 1, 2000 Year Ended Year Ended through through December 31, December 31, December 31, 2000 September 30, 2000 1999 1998 ----------------- ------------------ ----------- ----------- Rooms $ 1,630,000 $ 4,299,000 $ 5,422,000 $ 5,120,000 Food and Beverage 6,867,000 18,745,000 23,703,000 21,872,000 Other 602,000 3,172,000 5,127,000 2,934,000 ----------- ----------- ----------- ----------- $ 9,099,000 $26,216,000 $34,252,000 $29,926,000 =========== =========== =========== ===========
Cash and cash equivalents - Cash and cash equivalents are generally comprised of cash and investments with original maturities of three months or less, such as commercial paper, certificates of deposit and fixed repurchase agreements. 33 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Allowance for doubtful accounts - The allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses. Provisions for doubtful accounts amounting to $1,423,000 for the period October 1, 2000 through December 31, 2000 and $1,637,000 for the period January 1, 2000 through September 30, 2000 were recorded in the accompanying consolidated statements of operations. Provisions for doubtful accounts amounting to $2,418,000 and $1,667,000 were recorded in the accompanying consolidated statements of operations for the years ended December 31, 1999 and 1998, respectively. Inventories - Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Property and equipment - Property and equipment have been recorded at cost and are being depreciated utilizing the straight-line method over their estimated useful lives as follows: Buildings and improvements 25-40 years Operating equipment 3-7 years Interest costs related to property and equipment acquisitions are capitalized during the acquisition period and are being amortized over the useful lives of the related assets. Deferred financing costs - The costs of issuing long-term debt, including all underwriting, legal and accounting fees, were capitalized and are being amortized over the term of the related debt issue. Deferred financing costs of $180,000 were incurred in connection with Holdings' offering of $110,000,000 11% First Mortgage Notes. For the three months ended December 31, 2000, $10,000 of deferred financing costs were amortized. There was no amortization of deferred financing costs for the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998. Long-lived assets - Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for 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 of September 30, 2000, assets were valued in accordance with SOP 90-7 (see Note 2). As a result of its review, Holdings does not believe that any material impairment currently exists related to its long-lived assets. 34 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Accrued insurance - 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 insurance includes estimates of such accrued 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. Income taxes - Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). 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, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC (see Note 6). Income (Loss) Per Share Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), requires, among other things, the disclosure of basic earnings per share for public companies. Since the capital structure of Holdings is simple, in that no potentially dilutive securities were outstanding during the periods presented, only basic income (loss) per share disclosure is required. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Additionally, SFAS 128 requires among other things, the income (loss) per share effect of extraordinary items and is computed by dividing the extraordinary item by the weighted average number of common shares outstanding. On a pro forma basis, for periods presented prior to the Effective Date, the income per share would have been as follows:
Pre-reorganization ------------------------------------------------------------------ January 1, 2000 Year Ended Year Ended through December 31, December 31, September 30, 2000 1999 1998 ------------------ -------------- -------------- Basic income per common share: Before extraordinary item $ 1.07 $ 0.32 $ 0.64 Extraordinary item 1.48 -- -- Net income per share $ 2.55 $ 0.32 $ 0.64 ============== ============== ============== Weighted average common shares outstanding 10,000,000 10,000,000 10,000,000 ============== ============== ==============
35 New Accounting Pronouncement - In June 1999, the Financial Accounting Standards Board adopted SFAS 137, which deferred for one year the effective date for Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities.," (SFAS No. 133) which is now required to be adopted in years beginning after June 15, 2000. SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 will have no impact on the Company's consolidated results of operations, financial position or cash flows. Reclassifications - Certain reclassifications have been made to prior years' consolidated financial statements to conform to the 2000 consolidated financial statement presentations. (4) Long-Term Debt Long-term debt is comprised of the following:
Post-reorganization Pre-reorganization ------------------------------------------- ----------------- December 31, 2000 September 30, 2000 December 31, 1999 ----------------- ------------------ ----------------- 10 7/8% first mortgage notes due 2004 (a) $ -- $ -- $ 181,980,000 14 5/8% affiliate loan, due 2005 (b) -- -- 10,000,000 11% first mortgage notes, due 2005 (c) 110,000,000 110,000,000 -- Lieber mortgage (d) 450,000 466,000 513,000 Other 388,000 392,000 405,000 ------------- ------------- ------------- Total indebtedness 110,838,000 110,858,000 192,898,000 Less - current maturities (467,000) (483,000) (79,000) Less - debt subject to compromise (Note 3) -- -- (191,980,000) ------------- ------------- ------------- Total long-term debt $ 110,371,000 $ 110,375,000 $ 839,000 ============= ============= =============
(a) On February 17, 1994, GBHC obtained the net proceeds from the sale by GB Property Funding of $185,000,000 of Old Notes. Interest on the Old 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 Old Notes at a discount during May 1997, which it used during June 36 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1997 to make its 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 Old Notes for periods subsequent to the filing was suspended. As a result of the Confirmation Order and the occurrence of the Effective Date, the Old Notes have been satisfied and discharged. 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 prior to the Effective Date, which were part of the security for the Old Notes, had to be remitted to the Indenture Trustee as reductions to the outstanding principal of the Old Notes. Proceeds from the sale of such assets amounting to $4,000, $263,000 and $257,000, for the nine months ended September 30, 2000 and years ending December 31, 1999 and 1998, respectively, were remitted to the Indenture Trustee. Although the payments were remitted to the Indenture Trustee as reduction in principal in accordance with the Order of the Bankruptcy Court, the Indenture Trustee advised Holdings (i) that such payments were retained by the Indenture Trustee pursuant to the terms of the indenture for the Old Notes in partial satisfaction of the fees and expenses incurred by the Indenture Trustee in the Chapter 11 proceeding and (ii) that the Indenture Trustee included the amount of such payments in its fee application before the Bankruptcy Court for the benefit of the holders of the Old Notes. (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 was subordinated to the Old Notes. The PRT Subordinated Note was due on February 17, 2005 and bore interest at the rate of 14 5/8% per annum, payable semiannually. Interest was paid only through February 17, 1996. The accrual of interest on the PRT Subordinated Note for periods subsequent to the filing under Chapter 11 was 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 was PPI. As a result of the Confirmation Order and the occurrence of the Effective Date, the PRT Subordinated Note was satisfied and discharged. (c) As result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, the Old Notes were cancelled and replaced with $110,000,000 of 11% first mortgage notes due 2005. Interest on the New Notes is payable on March 29 and September 29, beginning March 29, 2001. The outstanding principle is due on September 29, 2005. The New Notes are unconditionally guaranteed, on a joint and several basis, by both Holdings and GBHC, and are secured by substantially all of the assets, as of the Effective Date, other than cash and gaming receivables of Holdings and GBHC. The indenture for the New Notes contains various provisions, which, among other things, restrict the ability of Holdings, and GBHC to incur certain senior secured indebtedness beyond certain limitations, and contain certain other limitations on the ability to merge, consolidate, or sell substantially all of their assets, to make certain restricted payments, to incur certain additional senior liens, and to enter into certain sale-leaseback transactions. (d) On September 2, 1998, GBHC acquired the membership interests in Lieber which owned a certain parcel of land on Pacific Avenue in Atlantic City until transferring it to GBHC in September 2000. Principal 37 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) mortgage indebtedness at the time of acquisition was $591,000 and 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. Scheduled payments of long-term debt as of December 31, 2000 are set forth below: 2001 $ 467,000 2002 19,000 2003 21,000 2004 23,000 2005 110,026,000 Thereafter 282,000 ------------ Total $110,838,000 ============ Interest paid amounted to $18,000 for the three months ended December 31, 2000 and $57,000 for the nine months ended September 30, 2000. Interest paid amounted to $79,000 and $56,000, respectively, for the years ended December 31, 1999 and 1998. At December 31, 2000 and September 30, 2000, accrued interest on the New Notes was $3,025,000 and $67,000, respectively. At December 31, 1999, accrued interest on the Old Notes in the amount of $9,373,000 is included with liabilities subject to compromise on the accompanying consolidated balance sheets. (5) Liabilities Subject to Compromise As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, liabilities subject to compromise were discharged as of the Effective Date (see Note 2). Liabilities subject to compromise consisted of the following at December 31, 1999: Accounts payable and accrued liabilities $ 6,811,000 Old Notes (Note 4) 181,980,000 PRT Subordinated Note (Note 4) 10,000,000 Borrowings from affiliate (Note 7) 5,000,000 Accrued interest (Notes 4 and 7) 12,855,000 Due to affiliates 382,000 ------------ Total $217,028,000 ============ 38 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (6) Income Taxes The components of the provision (benefit) for income taxes are as follows:
Post-reorganization Pre-reorganization ------------------- ---------------------------------------------------- October 1, 2000 January 1, 2000 Year Ended Year Ended through through December 31, December 31, December 31, 2000 September 30, 2000 1999 1998 ----------------- ------------------ ----------- ------------ Federal income tax provision (benefit): $ $ $ $ Current -- -- (133,000) -- Deferred -- -- -- -- State income tax provision (benefit): Current -- -- -- -- Deferred -- -- -- -- --------- ---------- ----------- -------- $ -- $ -- $(133,000) $ -- ========= ========== =========== ========
Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). 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, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC. At December 31, 2000, Holdings and its subsidiaries have deferred tax assets including State net operating losses and Federal credit carryforwards. The State net operating losses ("State NOL's") begin to expire in the year 2003 for state tax purposes. A portion of the credit carryforwards, if not utilized, will begin to expire each year through 2004. The remaining credit carryforwards expire through the year 2019. In addition, as part of a certain settlement agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of Holdings and its subsidiaries through December 31, 1998 to offset federal taxable income of GBCC and other members of its consolidated tax group. Subsequent to the Deconsolidation, Holdings had approximately $2.8 million in Federal NOL's, which were all utilized in the 1999 consolidated federal tax return of Holdings. 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 39 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 December 31, 2000. The Internal Revenue Service has completed an examination of the consolidated federal income tax returns of HCC for the years 1993 and 1994 in which Holdings was included. The results of this examination resulted in a reduction of Federal NOL's of Holdings prior to the Deconsolidation. However, since the Federal NOL's were fully reserved for as required by SFAS 109, this reduction did not impact Holdings statement of operations for the period as reported. The Internal Revenue Service is continuing to examine the consolidated federal income tax returns of HCC for the years 1995 and 1996 and the consolidated federal income tax returns for GBCC for the years 1997 and 1998 in which Holdings' was included (the "Audit"). As a result of such Audit, GBCC management has disclosed in its annual SEC Form 10-K, filed for the year ended December 31, 2000, that it is presently unable to estimate the impact of the Audit on the consolidated financial position or results of operations of GBCC. Holdings is 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. Any such use of these NOL's, by either HCC and GBCC, are subject to the terms of a certain settlement agreement. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, Holdings outstanding debt was discharged (see Note 2). Pursuant to the Internal Revenue Code, debt that is cancelled or discharged under the Bankruptcy Code does not generate taxable income in the current period to the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced. This attribute reduction is effective for tax purposes beginning January 1, 2001. Management currently estimates that approximately $14.3 million of Holdings tax attributes relating to the tax bases of noncurrent assets will be reduced as of January 1, 2001. Holdings also had a change of ownership as defined under Internal Revenue Code Section 382 upon the effective date of the plan. Management currently estimates there will be no significant limitations on the ability of the company to use its tax credit carryforwards on a post confirmation basis as a result of this change of ownership. (7) Transactions with related parties Prior to July 8, 1998, an indirect subsidiary of GBCC was responsible for the operations of GBHC under a management agreement. Under the agreement, the indirect subsidiary was entitled to receive certain fees determined by gross operating profit. Effective May 1 and through September 28, 1998, as a result of certain legal proceedings in the Bankruptcy Court, the agreement was suspended and replaced with a certain fixed fee agreement under which GBHC agreed to pay a monthly fee of $165,000, consisting of a current fee of $122,000 and a deferred fee of $43,000. The management agreement was later terminated during the Chapter 11 40 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) proceedings without further liability. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan (see Note 2), the deferred fees in the amount of $211,000 were paid on the Effective Date. GBHC's rights to the trade name "Sands" (the "Trade Name") were derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands for these rights were equal to the amounts paid to the unaffiliated third party. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, GBHC was assigned by High River the rights under a certain agreement with the owner of the Trade Name to use the Trade Name as of the Effective Date. High River received no payments for its assignment of these rights. Payment is made directly to the owner of the Trade Name. The calculation of the license fee is the same as under the previous agreement. Such charges amounted to $66,000 for the three months ended December 31, 2000 and $215,000, during the nine months ended September 30, 2000. For the years ended December 31, 1999 and 1998, such charges amounted to $278,000 and $275,000, respectively. As a result of a certain settlement agreement and the occurrence of the Effective Date, an advance from GBHC to another GBCC subsidiary in the amount of $5,672,000 became uncollectible and was written off. As the advance, together with interest amounting to $6,474,000 at September 30, 2000 and $5,850,000 at December 31, 1999, were fully reserved, this write-off did not impact Holdings consolidated statement of operations for the period. 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 was subordinated to the Old Notes and payment was subject to certain conditions (the "PCC Subordinated Note"). Interest accrued on the PCC Subordinated Note amounted to $728,000 at December 31, 1999, and is included in liabilities subject to compromise on the accompanying consolidated balance sheets. The accrual of interest on the PCC Subordinated Note for periods subsequent to the filing under Chapter 11 was 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. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan (see Note 2), the PCC Subordinated Note was satisfied and discharged. There was no interest expense incurred with respect to affiliate advances and borrowings for the three months ended December 31, 2000, the nine months ended September 30, 2000 and the year ended December 31, 1999. For the year ended December 31, 1998, net interest expense incurred with respect to affiliate advances and borrowings was $36,000. Effective September 2, 1998 and as part of a certain settlement agreement, Lieber obtained the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, N.J. (the "Pacific Avenue Hotel"). The assignment of the rights required a payment of $500,000 to be paid to a designated affiliate of GBCC at the Effective Date. This obligation was transferred to GBLLC by GBCC and was paid on the Effective Date. 41 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GBHC previously 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 previously was charged for certain equipment and other expenses incurred by GBCC and HCC and their respective subsidiaries that related to GBHC's business. Such affiliate transactions are summarized below:
Post-reorganization Pre-reorganization ------------------ ---------------------------------------------------------------- October 1, 2000 January 1, 2000 Year Ended Year Ended through through December 31, December 31, December 31, 2000 September 30, 2000 1999 1998 ----------------- ------------------ ----------- ----------- Billings to affiliates $ -- $ -- $ 24,000 $ 213,000 Charges from affiliates -- 429,000 983,000 983,000
(8) New Jersey Regulations and Obligatory Investments The Sands conducts gaming operations in Atlantic City, New Jersey and operates a hotel and several restaurants, as well as related support facilities. The operation of an Atlantic City casino/hotel is subject to significant regulatory control. Under the New Jersey Casino Control Act (the "Casino Act"), GBHC was required to obtain and is required to periodically renew its operating license. A casino license is not transferable and, after the initial licensing and two one-year renewal periods, is issued for a term of up to four years. The plenary license issued to the Sands was renewed by the Commission in September, 1996 and extended through September 30, 2000, subject to review of the Sands' financial stability during 1997 and to the submission of financial projections in 1998 and 1999 for calendar years 1999 and 2000, respectively. The 1997 review took place and the 1999 and the 2000 financial projections were filed. The Sands license was renewed by the Commission in September 2000 and extended through September 2004. The Commission may reopen licensing hearings at any time. If it were determined that gaming laws were violated by a licensee, the gaming license could be conditioned, suspended or revoked. In addition, the licensee and other persons involved could be subject to substantial fines. The Casino Act requires casino licensees to pay an investment alternative tax of 2.5% of Gross Revenue (the "2.5% Tax") or, in lieu thereof, to make quarterly deposits of 1.25% of quarterly Gross Revenue with the CRDA (the "Deposits"). The Deposits are then used to purchase bonds at below-market interest rates from the CRDA or to make qualified investments approved by the CRDA. The CRDA administers the statutorily mandated investments made by casino licensees and is required to expend the monies received by it for eligible projects as defined in the Casino Act. The Sands has elected to make the Deposits with the CRDA rather than pay the 2.5% Tax. As of December 31, 2000, September 30, 2000 and December 31, 1999, the Sands had purchased bonds totaling $6,894,000, $6,733,000 and $7,001,000, respectively. In addition, the Sands had remaining funds on deposit and held in escrow by the CRDA at December 31, 2000, September 30, 2000 and December 31, 1999 of $9,442,000, $12,359,000 and $10,507,000, respectively. The bonds purchased and the amounts on deposit and 42 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) held in escrow are collectively referred to as "obligatory investments" on the accompanying consolidated financial statements. Obligatory investments at December 31, 2000, September 30, 2000 and December 31, 1999 are net of accumulated valuation allowances of $8,418,000, $9,806,000 and $9,122,000, respectively, based upon the estimated realizable values of the investments. Provisions for valuation allowances for the three months ended December 31, 2000 and the nine months ended September 30, 2000 amounted to $243,000 and $1,044,000, respectively. Provisions for valuation allowances during the years ended December 31, 1999 and 1998 amounted to $1,478,000 and $2,724,000, respectively. In 1999, the Sands expensed $3,490,000 associated with the recognition of a future contribution liability to the CRDA in connection with renovation related to the Atlantic City Boardwalk Convention Center. The liability represents the present value of the future cash contributions committed to the CRDA. The Sands has, from time to time, contributed certain amounts held in escrow by the CRDA to fund CRDA sponsored projects. During the three months ended December 31, 2000, the Sands contributed $3,310,000 of its escrowed funds to a CRDA sponsored project and will receive a cash refund of $828,000 in consideration for the contribution. Prior to this, the CRDA had granted the Sands waivers of certain of its future Deposit obligations in consideration of similar contributions. The Sands had made such contributions of Deposits during the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998 totaling $142,000, $176,000 and $146,000, respectively, resulting in waivers granted by the CRDA for those periods totaling $72,000, $90,000 and $74,000, respectively. Intangible assets aggregating $1,211,000, $1,262,000 and $1,413,000, respectively, have been recognized on the accompanying consolidated balance sheets at December 31, 2000, September 30, 2000 and December 31, 1999, and are being amortized over a period of ten years commencing with the completion of the projects. Amortization of intangible assets totaled $51,000, $151,000, $967,000 and $203,000 for the three months ended December 31, 2000, the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998, respectively. In 1999, GBHC wrote off an intangible asset in the amount of $765,000 because the project no longer provided any benefit to the company. (9) 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 and Note 2). In 1998, GBHC also filed an action in the Bankruptcy Court to recover the rights to purchase the Pacific Avenue Hotel against GBCC, certain affiliates of GBCC, and certain former directors of GBHC and to enjoin the use of the Federal NOL's of Holdings and its subsidiaries. That action was settled and, among other things, GBHC recovered the rights to purchase the Pacific Avenue Hotel, the parties entered into certain general releases, and Holdings and its subsidiaries agreed to be included in the consolidated tax return of GBCC for calendar years 1997 and 1998. 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 expects to file an appeal for 2001. 43 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 counsel, GBHC does not expect the settlement or resolution of these proceedings to 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. (10) Acquisition of Lieber Check Cashing and the Agreement for the Option Parcels As part of a certain settlement agreement described in Note 7, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights to purchase the Pacific Avenue Hotel for a payment of $1.3 million and a payment of $500,000 at the Effective Date of a plan of reorganization. The purchase price of the Pacific Avenue Hotel was $10 million. With Bankruptcy Court approval, Lieber closed on that purchase with funds advanced by GBHC in 1999. In September 1999, title to the land underlying the former Pacific Avenue Hotel was transferred to GBHC. Demolition of the existing structures was completed in 1999 and construction of the new front entrance to the Sands' facility on Pacific Avenue was completed in June 2000. The $500,000 due under the settlement agreement was paid on the Effective Date. (11) Acquisition of Claridge Administration Building In April, 2000, GBHC entered into an agreement with the entities controlling the Claridge Hotel and Casino (the "Claridge") to acquire the Claridge Administration Building. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing and $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 the Claridge. The present value of the $2.0 million consideration has been recorded in other current and other noncurrent liabilities sections of the balance sheet. (12) Supplemental Cash Flow Information As part of a certain settlement agreement, GBHC settled certain intercompany obligations on a noncash basis. Loans 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 on the accompanying consolidated balance sheet at December 31, 1998. The effects of this settlement have been excluded from the accompanying statement of cash flows as noncash transactions. 44 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Interest and Income Taxes paid during the periods presented are set forth below:
Post-reorganization Pre-reorganization ------------------ ---------------------------------------------------------------- October 1, 2000 January 1, 2000 Year Ended Year Ended through through December 31, December 31, December 31, 2000 September 30, 2000 1999 1998 ----------------- ------------------ ----------- ----------- Interest paid $ 18,000 $ 57,000 $ 79,000 $ 56,000 ============ ============ =========== =========== Income taxes paid $ -- $ 932,000 $ 355,000 $ -- ============ ============ =========== ===========
(13) Disclosures about Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is required under SFAS No 107, "Disclosure About Fair Value of Financial Instruments." The fair value estimates are made at discrete points in time based on relevant market information and information about the financial instruments. These estimates may be subjective in nature and involve uncertainties and significant judgment and therefore cannot be determined with precision. Cash and cash equivalents are valued at the carrying amount. Such amount approximates the fair value of cash equivalents because of the short maturity of these instruments. Obligatory investments are valued at a carrying amount which includes an allowance reflecting the below market interest rate associated with such investments. Other debt obligations with a short remaining maturity are valued at the carrying amount. 45 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The estimated carrying amounts and fair values of Holdings' financial instruments at December 31, 2000 and 1999 are as follows:
December 31, 2000 December 31, 1999 -------------------------------- ----------------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------------ ------------ ------------ --------------- Financial Assets: Cash and cash equivalents $ 77,903,000 $ 77,903,000 $ 20,897,000 $ 20,897,000 Obligatory investments 7,918,000 7,918,000 8,386,000 8,386,000 Financial Liabilities: Interest payable 3,092,000 3,092,000 9,373,000 n/a PCC Subordinated Note -- -- 5,000,000 n/a PRT Subordinated Note -- -- 10,000,000 n/a Interest on affiliate borrowings -- -- 3,482,000 n/a Old Notes -- -- 181,980,000 n/a Lieber Mortgage 450,000 450,000 513,000 513,000 Other notes payable 388,000 388,000 405,000 405,000 New Notes 110,000,000 110,000,000 -- --
(14) Selected Quarterly Financial Data (Unaudited)
Quarter ------------------------------------------------------------------------ First Second Third Fourth ------------ ------------ ------------ ------------ Year Ended December 31, 2000 Net revenues $ 58,789,000 $ 63,605,000 $ 68,813,000 $ 56,569,000 ============ ============ ============ ============ Net income (loss) $ 1,136,000 $ 2,699,000 $ 21,696,000(a) $ (6,497,000) ============ ============ ============ ============ Year Ended December 31, 1999 Net revenues $ 57,927,000 $ 64,887,000 $ 66,877,000 $ 57,204,000 ============ ============ ============ ============ Net income (loss) $ 490,000 $ 4,990,000 $ 324,000 $ (2,656,000) ============ ============ ============ ============
(a) Net income for the Third Quarter of 2000 was impacted by the extraordinary gain on pre-petition debt discharge of $14,795,000. 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None of the Registrants had disagreements with its independent accountants to report under this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS The Board of Directors of Holdings consists of: Carl C. Icahn, Michael L. Ashner, Martin Hirsch, Alfred J. Luciani and John P. Saldarelli. The Board of Directors of GB Property Funding consists of: Carl C. Icahn, Michael C. Ashner, Martin Hirsch, Alfred J. Luciani and John P. Saldarelli. The Board of Directors of GBHC consists of: Carl C. Icahn, Martin Hirsch, Alfred J. Luciani and John P. Saldarelli and, subject to qualification by the Commission, Michael L. Ashner. Messers. Harold First and Auguste E. Rimpel, Jr. were elected to the Boards of Directors and to the Audit committee, as independent members, of Holdings, GB Property Funding and GBHC, subject to qualification by the Commission. No family relationships exist between any directors or executive officers of GB Property Funding, Holdings or GBHC. Directors and Officers Certain information is set forth below concerning the directors and executive officers of each of GB Property Funding, Holdings and GBHC. Name Age Position - --------------------- --- ------------------------------ Carl C. Icahn (1) 65 Chairman of the Board Robert J. Mitchell (2) 54 Director Martin Hirsch (3) 46 Director John P. Saldarelli (4) 59 Director Michael L. Ashner (5) 48 Director Harold First (6) 64 Director Auguste E. Rimpel, Jr. (7) 61 Director Alfred J. Luciani (8) 54 President, Chief Executive Officer and Director 47 Frederick H. Kraus (9) 51 Executive Vice President, General Counsel Timothy A. Ebling (10) 42 Executive Vice President, Chief Financial Officer, Principal Accounting Officer - ---------- (1) Carl C. Icahn has served as Chairman of the Board and a Director of Starfire Holding Corporation (formerly Icahn Holding Corporation), a privately-held holding company, and Chairman of the Board and a Director of various subsidiaries of Starfire's, including ACF Industries, Incorporated, a privately-held railcar leasing and manufacturing company, since 1984. He has also been Chairman of the Board and President of Icahn & Co., Inc., a registered broker-dealer and a member of the National Association of Securities Dealers, since 1968. Since November 1990, Mr. Icahn has been Chairman of the Board of American Property Investors, Inc., the general partner of American Real Estate Partners, L.P., a public limited partnership that invests in real estate. Mr. Icahn has been a Director of Cadus Pharmaceutical Corporation, a firm which holds various biotechnology patents, since 1993. Since August 1998 he has also served as Chairman of the Board of Lowestfare.com, LLC, an internet travel reservations company. From October 1998, Mr. Icahn has been the President and a Director of Stratosphere Corporation which operates the Stratosphere Hotel and Casino. Mr. Icahn received his B.A. from Princeton University. Since September 29, 2000, Mr. Icahn has served as the Chairman of the Board of GB Holdings, Inc., GB Property Funding, Inc. and Greate Bay Hotel & Casino, Inc. which owns and operates the Sands Hotel in Atlantic City, NJ. (2) Robert J. Mitchell has been the Senior Vice President-Finance of ACF Industries, Incorporated, a privately-held railcar leasing and manufacturing company, since March 1995 and was Treasurer of ACF from December 1984 to March 1995. Mr. Mitchell has also served as President and Treasurer of ACF Industries Holding Corp., a privately-held holding company for ACF, since August 1993. Mr. Mitchell is a Director of National Energy Group, Inc., a public company involved in the exploration of oil and gas reserves, since August 1996. Mr. Mitchell also serves as a Director of Stratosphere Corporation, which operates the Stratosphere Hotel and Casino, since October 14, 1998. Mr. Mitchell received his BS Degree in Business Administration from St. Francis College. Mr. Mitchell has served as a Director of Holdings since September 29, 2000 until his resignation effective February 28, 2001. (3) Martin Hirsch has served as a Vice President of American Property Investors, Inc. since March 18, 1991, where he is involved in investing, managing and disposing of real estate properties and securities. Mr. Hirsch was elected as Executive Vice President and Director of Acquisitions of American Property Investors, Inc. in 2000. From January 1986 to January 1991, he was at Integrated Resources, Inc. as a Vice President where he was involved in the acquisition of commercial real estate properties and asset management. From 1985-1986, he was a Vice President of Hall Financial Group where he acquired and financed commercial and residential properties. Mr. Hirsch currently serves on the Board of Directors of Stratosphere Corp. He received his MBA from The Emory University Graduate School of Business. Mr. Hirsch has served as a Director of Holdings and GB Property Funding since September 29, 2000 and as a Director of GBHC since February 28, 2001. (4) John P. Saldarelli has served as Vice President, Secretary and Treasurer of American Property Investors, Inc. (general partner of American Real Estate Partners) since March 18, 1991. Mr. Saldarelli was also 48 President of Bayswater Realty Brokerage Corp. from June 1987 until November 19, 1993, and Vice President of Bayswater Realty & Capital Corp. from September 1979 until April 15, 1993. In October 1998, Mr. Saldarelli was appointed to the Board of Directors of Stratosphere and in June, 2000, Mr. Saldarelli was given the additional title of Chief Financial Officer. Mr. Saldarelli has served as a Director of Holdings, GB Property Funding and GBHC since February 28, 2001. (5) Michael L. Ashner has served as Chairman, President and CEO of Winthrop Associates, a real estate consulting firm, since 1995. Mr. Ashner has also served as General Partner of Cecil Associates, a limited liability company which owns twenty Comfort Inns, since 1996. Mr. Ashner has been CEO of Newkirk Associates, a limited liability company which owns and manages more than 40 million square feet of office and retail space, since 1997. Mr. Ashner has also been Managing Director of AP-USX, LLC, a limited liability company which owns a 28 million square foot office tower, since 1998. Since 1999, Mr. Ashner has served as President and CEO of Presidio Capital Corporation, an investment banking firm. Mr. Ashner has been President and CEO since 2000 of GFB-AP Fort, LLC, a limited liability company involved in independent and assisted living communities. Mr. Ashner has been President and Sole Shareholder since 1981 of Exeter Capital Corporation, which provides real estate consulting to real estate investors. Mr. Ashner currently serves as a director of the following publicly traded companies: Nexthealth, Inc., NBTY, Inc., Interstate Hotel Corporation and Burnham Pacific Properties. Mr. Ashner has served as a Director of Holdings and GB Property Funding since September 29, 2000. Mr. Ashner was elected as a member of the Board of Directors of GBHC on September 29, 2000, subject to qualification by the Commission. (6) Harold First has been a financial consultant since 1993. From December 1990 through January 1993, Mr. First served as Chief Financial Officer of Icahn Holding Corp., a privately held holding company. He has served as a director of Taj Mahal Holding Corporation, a public casino and gaming corporation, Trump Taj Mahal Realty Corporation, a privately held real estate company, Memorex Telex N.V., a public technology company, Trans World Airlines, Inc., a public airline company, ACF Industries, Inc., a privately held railcar leasing and manufacturing company, Cadus Pharmaceutical Corporation, a biotech research company, Talk.com, a public long distance telephone service company, Marvel Entertainment Group, Inc., a public entertainment company, Toy Biz, Inc., a public toy company and vice chairman of the board of directors of American Property Investors, Inc., the general partner of American Real Estate Partners, L.P., a public limited partnership that invests in real estate. Mr. First currently serves on the boards of directors of Panaco Inc., an oil and gas drilling company, and Philip Services Corporation, a leading integrated provider of industrial and metals services. He is a Certified Public Accountant and holds a B.S. from Brooklyn College. He has been elected to serve on the Audit Committee and Boards of Directors of Holdings, GB Property Funding and GBHC subject to qualification by the Commission. (7) Auguste E. Rimpel, Jr. has been a retired partner of PricewaterhouseCoopers LLP (PwC) since 2000. He was with PwC and its predecessor firm, Price Waterhouse, since 1983, most recently as Managing Partner of International Consulting Services for the Washington Consulting Practice of the firm. Prior to his tenure at PwC, he served as a Partner with Booz Allen & Hamilton, Inc. and as a Vice President of Arthur D. Little International, Inc. Dr. Rimpel currently serves as Chairman of the Board of Trustees of the University of the Virgin Islands. He has been elected to serve on the Audit Committee and Boards of Directors of Holdings, GB Property Funding and GBHC subject to qualification by the Commission. 49 (8) Alfred J. Luciani, was elected as a member of the Board and President and Chief Executive Officer of Holdings on October 3, 2000. Mr. Luciani was elected as a member of the Board of GBHC on February 28, 2001 and has served as President and Chief Executive Officer of GBHC since November 5, 1999. Mr. Luciani had operated his own consulting company, Luciani & Associates for the prior four years. Prior to that, he served as President and Chief Executive Officer and Director of Development of the Mashantucket Pequot Gaming Enterprise (Foxwoods). Mr. Luciani was a director for Gold River Hotel and Casino Corporation when it filed for reorganization under Chapter 11 of the United States Bankruptcy Code, as amended, in February 1996. (9) Frederick H. Kraus has served as Executive Vice President, General Counsel and Secretary of each of the companies since 1998. Mr. Kraus also served as a Director of each of the companies from January 1998 to October 3, 2000 for Holdings and February 28, 2001 for GBHC and GB Property Funding. Prior to 1998, Mr. Kraus served as Vice President, Corporate Counsel and Secretary since 1994. (10) Timothy A. Ebling has served as Executive Vice President, Chief Financial Officer of each of the companies since 1998. Mr. Ebling also served as a Director of each of the companies from January 1998 to October 3, 2000 for Holdings and February 28, 2001 for GBHC and GB Property Funding. Prior to 1998, Mr. Ebling served as Vice President of Finance since 1994. Section 16(A) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires Holdings' officers and directors, and persons who own more than ten percent of a registered class of Holdings' equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") and the American Stock Exchange. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish Holdings with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished by the Company, or written representations that no Forms 5 were required, Holdings believes that during the fiscal year ended December 31, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were satisfied. Other Matters On January 5, 2001, Reliance Group Holdings, Inc. ("Reliance") commenced an action in the United States District Court for the Southern District of New York against Carl C. Icahn, Icahn Associates Corp. and High River alleging that High River's tender offer for Reliance 9% senior notes violated Section 14(e) of the Exchange Act of 1934. Reliance sought a temporary restraining order and preliminary and permanent injunctive relief to prevent defendants from purchasing the notes. The Court initially imposed a temporary restraining order. Defendants then supplemented the tender offer disclosures. The Court conducted a hearing on the disclosures and other matters raised by Reliance. The Court then denied Reliance's motion for a preliminary injunction and ordered dissolution of the temporary restraining order following dissemination of the supplement. Reliance took an immediate appeal to the United States Court of Appeals for the Second Circuit and sought a stay to restrain defendants from purchasing notes during the pendency of the appeal. On January 30, 2001, the Court of Appeals denied plaintiffs' stay application. On January 30, Reliance also sought a further temporary restraining order from the District Court. The Court considered the matter and reimposed its original restraint until noon the next day, at which time the restraint against Mr. Icahn and his affiliates was dissolved. On March 22, 2001, the Court of Appeals ruled in favor of Mr. Icahn by affirming the judgment of the District Court. 50 ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation Neither Holdings nor GB Property Funding pays any compensation to any employee, executive officer or director, other than independent directors (see "Compensation of Directors" below). The following table provides certain summary information concerning compensation paid or accrued by GBHC, to or on behalf of (i) GBHC's Chief Executive Officer; (ii) each of the other executive officers of GBHC determined as of the end of the last fiscal year; and (iii) additional individuals who would have qualified as among the executive officers of GBHC but for the fact that the individual was not serving as an executive officer at the end of the last year (hereafter referred to as the named executive officers), for the years ended December 31, 2000, 1999 and 1998.
Annual Compensation Long-Term ----------------------------------- Compensation Other Annual Awards/ All Other Name and Principal Position Year Salary Bonus Compensation Options Compensation (1) --------------------------- ---- -------- ------------ ------------- --------- ---------------- Alfred J. Luciani 2000 $318,745 $ -- $ 18,000 $ -- $ 114 Chief Executive Officer, 1999 47,885 -- 3,000 -- -- President and Director 1998 -- -- -- -- -- Frederick H. Kraus 2000 235,815 176,861(4) 10,800 -- 4,000 Executive Vice President, 1999 230,265 -- 10,800 -- 2,878 General Counsel, Secretary 1998 225,000 -- 10,800 -- 4,000 Timothy A. Ebling 2000 207,610 149,349(4) 8,400 -- 4,000 Executive Vice President, 1999 194,446 -- 8,400 -- 3,514 Chief Financial Officer 1998 190,000 -- 8,400 -- 3,668 Principal Accounting Officer William Cooney (2) 2000 214,038 -- -- -- 4,000 Vice President of 1999 193,558 -- -- -- 4,000 Marketing 1998 101,052 10,193 4,500 -- 2,782 Signe C. Huff (3) 2000 186,522 45,398(4) 8,400 -- 4,000 Senior Vice President 1999 180,554 -- 8,400 -- 3,185 of Hotel Operations 1998 175,361 -- 8,400 -- 3,186
(1) Includes matching contributions by GBHC to The Sands Retirement Savings Plan on behalf of the named executive officer. (2) William Cooney has served as Executive Director of Slot Operations/Slot Hosts, Vice President of Marketing and Vice President of Casino Marketing during 2000. Prior to 2000, Mr. Cooney served as Vice President of Player Development since 1999. Prior to 1999, Mr. Cooney served as Executive Director of Player Development/Table Games since 1998. Prior to 1998, Mr. Cooney served as Director of Player Development for both slots and table games since 1994. (3) Signe C. Huff served as Senior Vice President of Hotel Operations since 1995. From 1989 to 1995 Ms. Huff served as Vice President of Hotel Operations. Prior to 1989, Ms. Huff held various senior hotel operating positions with GBHC. (4) Represents payment of a Bankruptcy Court approved bonus for certain management employees as an incentive for them to stay through the bankruptcy proceedings (Stay Bonus). 51 Option Grants in Last Fiscal Year None of the Companies has a stock option plan. Employment Contracts Frederick H. Kraus, Executive Vice President, General Counsel and Secretary of GBHC, is under an employment agreement, amended as of March 11, 1998, in such capacities continuing through December 31, 2001. The terms of the agreement provide for an annual base salary of $225,000, subject to annual increases on each anniversary date of the agreement equal to no less than the change in the Consumer Price Index, as defined, and no more than five percent. Timothy A. Ebling, Executive Vice President and Chief Financial Officer of GBHC, is under an employment agreement, amended as of March 11, 1998, in such capacities continuing through November 30, 2001. The terms of the agreement provide for an annual base salary of $190,000, subject to annual increases on each anniversary date of the agreement equal to no less than the change in the Consumer Price Index, as defined, and no more than five percent. Signe C. Huff, Senior Vice President of Hotel Operations, is under an employment agreement, amended as of March 11, 1998, in such capacity through November 30, 2001. The terms of the agreement provide for an annual base salary of $165,000, subject to annual increases on each anniversary date of the agreement equal to no less than the change in the Consumer Price Index, as defined, and no more than five percent. In addition, the Bankruptcy Court approved a Stay Bonus and Severance Plan for certain management employees, including Mr. Kraus and Mr. Ebling. Under the Stay Bonus Plan, Mr. Kraus and Mr. Ebling received a bonus equal to 75% of their base salary. Under the Severance Plan, if the Reorganized Entity, as defined in the Severance Plan, terminated the employment of Mr. Kraus or Mr. Ebling without cause, as defined in their employment agreements, Mr. Kraus and Mr. Ebling would be entitled to a lump sum payment equal to the greater of two years of their base salary or the remaining term of their employment agreements. The employment agreements of Messrs. Kraus and Ebling and Ms. Huff were approved by the Bankruptcy Court, which modified the amount of annual salary increases from five percent to the terms set forth above and which reduced the period to a maximum of two years over which periodic payments of salary would be made upon a termination without cause that was not covered by the Severance Plan. Employee Retirement Savings Plan GBHC participated in the Hollywood Casino Corporation and Subsidiaries Retirement Savings Plan (the "Savings Plan"), a qualified defined contribution plan for the benefit of all of GBHC's employees who satisfy certain eligibility requirements through December 31, 1998. The Savings Plan is qualified under the requirements of Section 401(k) of the Internal Revenue Code allowing participating employees to benefit from the tax deferral opportunities provided therein. All employees of GBHC who have completed one year of service, as defined, and who have attained the age of 21, are eligible to participate in the Savings Plan. 52 Effective January 1, 1999, GBHC administers and participates in the Sands Retirement Plan, a qualified defined contribution plan for the benefit of all of GBHC's employees with the same requirements and benefits of the predecessor plan. Except for the change in name, this plan remains substantially unchanged. The Savings Plan provides for a matching contribution by GBHC based upon certain criteria, including levels of participation by GBHC's employees. GBHC incurred matching contributions totaling approximately $753,000 for the year ended December 31, 2000. Compensation of Directors Prior to the Effective Date, independent Directors of Holdings, GB Property Funding and GBHC received an annual fee of $10,000 for service on the Boards of Directors and a fee of $500 for each meeting attended. As of the Effective Date, independent directors of the Board of Directors of Holdings are entitled to receive an annual fee of $22,500. The Board of Directors of Holdings held 9 meetings either in person or by unanimous consent during the year ended December 31, 2000. All directors attended at least 75% of all meetings of the Board of Directors and committees thereof for which they were eligible to serve. The Board of Directors of Holdings also has an Audit Committee. Prior to the Effective Date, the external members of the Audit Committee received an annual fee of $5,000 for service on the committee and a fee of $500 for each meeting attended. As of the Effective Date, compensation for members of the Audit Committee is included in the compensation described above. Compensation Committee Interlocks and Insider Participation On October 3, 2000, Holdings established a Compensation Committee consisting of Messers. Hirsch and Ashner. Mr. Icahn (including certain related entities) is actively involved in the gaming industry and currently owns 72.55% of Holdings' New Common Stock (see Item I). Casinos owned or managed by Mr. Icahn may directly or indirectly compete with Holdings. In addition, the potential for conflicts of interest exists among Holdings and Mr. Icahn for future business opportunities. Mr. Icahn may intend to pursue other business opportunities and there is no agreement requiring that such additional business opportunities be presented to Holdings. Audit Committee. The Audit Committee has the duty to (i) review the engagement and performance of the independent auditors, including the remuneration to be paid; (ii) recommend annually to the Board of Directors the independent public accountants to be engaged to audit the books, records and accounts of the companies for the ensuing year; (iii) review with the companies' independent auditors, as well as the companies' management, the companies' system of internal control including the programs and policies of the companies designed to ensure compliance with applicable laws and regulations as well as monitoring results of these compliance efforts; (iv) review with financial management and the independent auditors of the companies' annual financial statements and any financial reports or other financial information submitted to any governmental body or the public by either the companies or its independent auditors and the review of the Forms 10-Q and 10-K prepared by the financial management and the independent auditors of the companies prior to their filing and release; discuss any 53 significant changes to the companies' accounting principles; (v) review of any significant disagreement among management of the companies and the independent auditors in connection with the preparation of the financial reports of the companies and prior to releasing the year-end earnings, discuss with the independent auditors matters required to be communicated to audit committees in accordance with SAS 61 and (vi) make such reports and recommendations to the Board of Directors in connection with the foregoing as it shall deem appropriate or as the Board of Directors may request, and take such action thereon as the Board of Directors may direct it to take. During 2000, the Audit Committee was comprised of Mr. Frederick H. Kraus (until October 3, 2000) and Ms. Barbara Lang. As of the Effective Date, Mr. Michael L. Ashner became a member of the Audit Committee. Mr. Ashner does not receive any additional compensation for his participation on the Audit Committee. Effective February 28, 2001, Holdings adopted a charter for the Audit Committee conforming to the listing requirements of the American Stock Exchange. On February 28, 2001, Messers. Harold First and Auguste E. Rimpel, Jr. were elected to the Board of Directors and to the Audit committee, as independent members, of Holdings, subject to qualification by the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As a result of the stock purchase under the High River Stock Purchase Agreement (as defined in the Plan) and the Stock Distribution, entities controlled by Carl C. Icahn received approximately 64.76% of the New Common Stock and 34.4% of the New Notes. As reported to Holdings in a Security and Exchange Commission Form 13D filed by Carl C. Icahn and certain entities controlled by Carl C. Icahn (collectively "Icahn") in February 2001, as a result of a transaction with PPE, Icahn acquired an additional $15,959,000 principal amount of New Notes and an additional 779,861 shares of New Common Stock, resulting in an aggregate beneficial ownership by Icahn of approximately 72.55% of the New Common Stock and 49% of the New Notes. In a Security and Exchange Commission Form 4 filed by Icahn in March 2001, Icahn reported that a third party has the right to put to Icahn certain principal amount of New Notes and an aggregate of 493,222 shares of New Common Stock. The following table sets forth as of March 21, 2001, certain information regarding the beneficial ownership of shares of New Common Stock by each director of the Company, each of the executive officers listed in the Summary Compensation Table, each person known to the Company to be the beneficial owner of more than 5% of the outstanding shares and all directors and executive officers as a group. Except as otherwise indicated, each stockholder has sole voting and investment power with respect to the shares beneficially owned. Number Name of Shares Percent - ---- --------- ------- Carl C. Icahn 7,255,422 72.55% Robert J. Mitchell -- -- Martin Hirsch -- -- John P. Saldarelli -- -- Michael L. Ashner -- -- Harold First -- -- Auguste E. Rimpel, Jr. -- -- Alfred J. Luciani -- -- 54 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the Effective Date, GBHC's rights to the trade name "Sands" (the "Trade Name") were derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands prior to the Effective Date were $215,000, which equaled the amounts payable to the unaffiliated third party. As a result of the Confirmation Order and the occurrence of the Effective Date and under terms of the Plan, GBHC was assigned by High River the rights under a certain agreement with the owner of the Trade Name to use the Trade Name as of the Effective Date. Amounts payable after the Effective Date are calculated in the same manner as they were prior to the Effective Date. Amounts payable by the Sands subsequent to the Effective Date were $66,000, which equaled the amounts payable to the unaffiliated third party. High River received no payments for its assignment of these rights. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements The financial statements filed as part of this report are listed on the Index to Financial Statements on page 23. 2. Financial Statement Schedule -- Report of Independent Public Accountants -- Schedule II; Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions and are inapplicable and therefore have been omitted. 3. Exhibits +++2.1 -- Order Confirming Modified Fifth Amended Joint Plan of Reorganization under Chapter 11 of The Bankruptcy Code Proposed by The Official Committee of Unsecured Creditors and High River +3.1 -- Restated Certificate of Incorporation of GB Property Funding. 3.2 -- Restated Certificate of Incorporation, of GBHC. ++3.3 -- Restated Certificate of Incorporation of Holdings. +3.4 -- Amended and Restated Bylaws of GB Property Funding. 3.5 -- Amended and Restated Bylaws of GBHC. ++3.6 -- Amended and Restated Bylaws of Holdings. +++++3.12 -- Amended License Agreement by and between Hughes Properties, Inc. and Pratt Hotel Corporation (now known as GBCC) dated May 19, 1987. 55 ++++++3.13 -- First and Second Amendments to Employment Agreement dated as of January 1, 1998 and March 11, 1998, respectively, between GBHC and Frederick H. Kraus. ++++++3.14 -- First and Second Amendments to Employment Agreement dated as of January 1, 1998 and March 11, 1998, respectively, between GBHC and Timothy A. Ebling. ++++4.1 -- Indenture, dated as of September 29, 2000, among GB Property Funding, as Issuer, Holdings and GBHC, as Guarantors, and Wells Fargo Bank Minnesota, N.A., as Trustee. 4.2 -- Mortgage, Fixture Filing and Security Agreement dated September 29, 2000, by GBHC in favor of Wells Fargo Bank Minnesota, N.A., as Mortgagee. 4.3 -- Security Agreement dated September 29, 2000, made by GB Property Funding Corp., GBHC, and GB Holdings, Inc., to Wells Fargo Bank Minnesota, N.A., as Trustee. 4.4 -- Collateral Assignment of Leases dated as of September 29, 2000, by GBHC, in favor of Wells Fargo Bank Minnesota, N.A., as Assignee. - ------------------------- + Filed as an exhibit to GB Property Funding's Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on March 23, 2001, and incorporated herein by reference. ++ Filed as an exhibit to Holdings' Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 29, 2000, and incorporated herein by reference. +++ Filed as an exhibit to Holdings' Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 21, 2000, and incorporated herein by reference. ++++ Filed as an exhibit to GB Property Funding's Amended Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on October 2, 2000, and incorporated herein by reference. +++++ Filed as an exhibit to Hollywood Casino Corporation's Registration Statement on Form S-1 (Registration No. 33-58732), filed with the Securities and Exchange Commission on February 26, 1993, and incorporated herein by reference. ++++++ Filed as an exhibit to GB Property Funding's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (b) Reports on Form 8-K During the quarter ended December 31, 2000, the Registrants filed the following reports on Form 8-K: Items Listed Dates Filed ------------ ----------- 3, 7, 7(c) October 2, 2000 3, 7(c) October 5, 2000 5, 7(c) October 20, 2000 3, 7(c) November 29, 2000 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlantic City, State of New Jersey on March 30, 2001. GB HOLDINGS, INC. GB PROPERTY FUNDING CORP. GREATE BAY HOTEL AND CASINO, INC. By: /s/ Timothy A. Ebling -------------------------------- Timothy A. Ebling Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- /s/ Carl C. Icahn Chairman of the Board of, March 30, 2001 - ------------------------ GB Holdings, Inc. -------------- Carl C. Icahn GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc. /s/ Martin Hirsch Director of March 30, 2001 - ------------------------ GB Holdings, Inc. -------------- Martin Hirsch GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc. /s/ John P. Saldarelli Director of March 30, 2001 - ------------------------ GB Holdings, Inc. ------------- John P. Saldarelli GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc. /s/ Michael L. Ashner Director of March 30, 2001 - ------------------------ GB Holdings, Inc. and -------------- Michael L. Ashner GB Property Funding Corp. /s/ Alfred J. Luciani President, Chief Executive March 30, 2001 - ------------------------ Officer and Director of -------------- Alfred J. Luciani GB Holdings, Inc., GB Property Funding and Greate Bay Hotel and Casino, Inc. Messers. First and Rimpel, Jr. have been omitted from the above signatures as their respective elections to the Boards of Directors is subject to qualification by the Commission. 57 INDEX TO FINANCIAL STATEMENT SCHEDULE GB Holdings, Inc. And Subsidiaries - Report of Independent Public Accountants - Schedule II; Valuation and Qualifying Accounts REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To GB Holdings, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of GB Holdings, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated February 16, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statement schedule is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Roseland, New Jersey February 16, 2001 SCHEDULE II GB HOLDINGS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts
Additions --------------------------- Amounts Balance At Charged to Amounts Balance Beginning Costs and Charged to At End Of Period Expenses Other Accounts Deductions of Period ------------ ------------ ------------ ------------ ------------ Post-reorganization October 1, 2000 through December 31, 2000 Allowance for doubtful accounts receivable $ 10,366,000 $ 1,423,000 $ -- $ (381,000)(1) $ 11,408,000 Allowance on affiliate receivables -- -- -- -- -- Allowance for obligatory investments 9,806,000 243,000 -- (1,631,000)(3) 8,418,000 ------------ ------------ ------------ ------------ ------------ $ 20,172,000 $ 1,666,000 $ 0 $ (2,012,000) $ 19,826,000 ============ ============ ============ ============ ============ - ------------------------------------------------------------------------------------------------------------------------------------ Pre-reorganization Janaury 1, 2000 through September 30, 2000 Allowance for doubtful accounts receivable $ 11,413,000 $ 1,636,000 $ -- $ (2,683,000)(1) $ 10,366,000 Allowance on affiliate receivables 11,522,000 624,000 -- (12,146,000)(2) -- Allowance for obligatory investments 9,122,000 1,044,000 -- (360,000) 9,806,000 ------------ ------------ ------------ ------------ ------------ $ 32,057,000 $ 3,304,000 $ 0 $(15,189,000) $ 20,172,000 ============ ============ ============ ============ ============ Year Ended December 31, 1999: Allowance for doubtful accounts receivable $ 11,920,000 $ 2,418,000 $ -- $ (2,925,000)(1) $ 11,413,000 Allowance on affiliate receivables 10,586,000 936,000 -- -- 11,522,000 Allowance for obligatory investments 8,528,000 1,478,000 -- (884,000) 9,122,000 ------------ ------------ ------------ ------------ ------------ $ 31,034,000 $ 4,832,000 $ -- $ (3,809,000) $ 32,057,000 ============ ============ ============ ============ ============ Year Ended December 31, 1998: Allowance for doubtful accounts receivable $ 14,955,000 $ 1,667,000 $ -- $ (4,769,000)(1) $ 11,853,000 Allowance on affiliate receivables 9,650,000 936,000 -- -- 10,586,000 Allowance for obligatory investments 5,571,000 2,724,000 305,000 (72,000) 8,528,000 ------------ ------------ ------------ ------------ ------------ $ 30,176,000 $ 5,327,000 $ 305,000 $ (4,841,000) $ 30,967,000 ============ ============ ============ ============ ============
- ---------- (1) Represents net write-offs of uncollectible accounts. (2) Represents write-off of affiliated receivables. (3) Represents write-offs of obligatory investments in connection with the contribution of certain obligatory investments to CRDA approved projects. EX-3.2 2 0002.txt RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF GREATE BAY HOTEL AND CASINO, INC. Greate Bay Hotel and Casino, Inc., organized under the laws of the State of New Jersey, in accordance with the provisions of N.J.S.A. 14A:9-5 in order to restate and amend in a single certificate the provisions of its certificate of incorporation as heretofore amended, does hereby certify: FIRST: The name of the corporation is Greate Bay Hotel and Casino, Inc. SECOND: The purpose for which this corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq., including, without limitation, the conduct of casino gaming. THIRD: The Corporation is authorized to issue 2500 shares of common stock, with no par value. FOURTH: The Corporation shall not create, designate, authorize or cause to be issued any class or series of non-voting stock. FIFTH: Notwithstanding anything to the contrary contained in this Certificate, this Certificate shall be deemed to include all provisions required by the Casino Control Act, P.L. 1977, Chapter 100, as amended and as may hereafter be amended from time to time (the "Casino Control Act") and to the extent that anything contained herein or in the by-laws of the Corporation is inconsistent with the Casino Control Act, the provisions of such Act shall govern. All provisions of the Casino Control Act, to the extent required by law to be stated in this Certificate, are herewith incorporated by reference. SIXTH: This Certificate shall be generally subject to the provisions of the Act and the rules and regulations of the New Jersey Casino Control Commission (the "Commission") promulgated thereunder. Specifically, and in accordance with the provisions of Section 82(d)(7) of the Act, N.J.S.A. 5:12-82(d)(7), the Commission shall have the right of prior approval with regard to transfers of securities, shares and other interests in the Corporation and any securities of the Corporation are held subject to the condition that of a holder thereof is found to be disqualified by the Commission pursuant to the provisions of the Act, such holder will dispose of his interest in the Corporation; provided, however, that, notwithstanding any other provision of law to the contrary, nothing herein contained shall be deemed to require that any security of the Corporation bear any legend to this effect. Specifically, and in accordance with the provisions of Section 82(d)(8) of the Act, N.J.S.A. 5:12-82(d)(8), the Corporation shall have the absolute rights to repurchase, at the market price or the purchase price, whichever is less, any security, share or other interest in the Corporation in the event that the Commission disapproves a transfer of securities in accordance with the provisions of the Act. SEVENTH: The address of the Corporation's current registered office is 830 Bear Tavern Road, Suite 305, Trenton, New Jersey 08628-1020, and the name of the Corporation's registered agent at that address is Corporation Service Company. 2 EIGHTH: The number of directors constituting the Corporation's current board is six, and the names of the current directors of the Corporation are and the address for each of the directors is: Name Address ---- ------- Carl C. Icahn 767 Fifth Avenue, 47th Floor New York, New York 10153 Robert Mitchell 767 Fifth Avenue, 47th Floor New York, New York 10153 Martin L. Hirsch 767 Fifth Avenue, 47th Floor New York, New York 10153 Michael L. Ashner 100 Jericho Quadrangle, Suite 214 Jericho, New York 11753 Frederick H. Kraus c/o Sands Hotel & Casino Indiana Avenue & Brighton Park Atlantic City, New Jersey 08401 Timothy A. Ebling c/o Sands Hotel & Casino Indiana Avenue & Brighton Park Atlantic City, New Jersey 08401 NINTH: The Corporation shall indemnify every corporate agent of the corporation as defined in, and to the full extent permitted by, Section 14A:3-5 of the New Jersey Business Corporation Act and to the full extent otherwise permitted by law. TENTH: To the full extent from time to time permitted by law, no director or officer of the Corporation shall be personally liable to the Corporation or to any of its shareholders for damages for breach of any duty owed to the Corporation or to its shareholders. Neither the amendment or repeal of this Article 3 TENTH, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article TENTH, shall eliminate or reduce the protection afforded by this Article TENTH to a director or officer of the Corporation in respect to any matter which occurred, or any cause of action, suit or claim which but 4 for this Article TENTH would have accrued or arisen, prior to such amendment, repeal or adoption. IN WITNESS WHEREOF, GREATE BAY HOTEL AND CASINO, INC. has caused its duly authorized officer to execute this certificate this ____ day of September, 2000. GREATE BAY HOTEL AND CASINO, INC. BY:______________________________ 5 GREATE BAY HOTEL AND CASINO, INC. CERTIFICATE OF ADOPTION OF RESTATED CERTIFICATE OF INCORPORATION FIRST: The name of the Corporation is Greate Bay Hotel and Casino, Inc. SECOND: In lieu of a meeting and vote of the shareholders and in accordance with N.J.S.A. 14A:14-25, the foregoing Restated Certificate of Incorporation was adopted pursuant to the Order Confirming the Joint Plan of Reorganization for Greate Bay Hotel and Casino, Inc., GB Holdings, Inc. and GB Property Funding Corp. entered on August 14, 2000 by the United States Bankruptcy Court for the District of New Jersey. IN WITNESS WHEREOF, GREATE BAY HOTEL AND CASINO, INC. has caused its duly authorized officer to execute this certificate this ____ day of September, 2000. GREATE BAY HOTEL AND CASINO, INC. BY:________________________________ 6 EX-3.5 3 0003.txt AMENDED AND RESTATED BY-LAWS AMENDED AND RESTATED BY-LAWS OF GREATE BAY HOTEL AND CASINO, INC. DATED AS OF SEPTEMBER 29, 2000 ARTICLE I OFFICES Section 1-01. Registered Office. The registered office shall be at the place designated in the Certificate of Incorporation, subject to transfer upon notice to the Secretary of State of New Jersey. Section 1-02. Other Offices. The corporation may also have offices at such other place both within and without the State of New Jersey as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL Section 2-01. Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, New Jersey." The seal may be used for causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE III SHAREHOLDERS' MEETINGS Section 3-01. Place of Meetings. All meetings of shareholders shall be held at such place within or without the State of New Jersey as may be determined from time to time by the board of directors. Section 3-02. Annual Meetings. Annual meetings of shareholders shall be held at such time and on such date as shall be fixed from time to time by the board of directors and stated in the notice of meeting for the election of directors by a plurality vote and the transaction of such other business as may properly be brought before the meeting. Section 3-03. Special Meetings. Special meetings of the shareholders may be called for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, at any time by the president, the board of directors, or the holders of not less than 51 percent of all the shares entitled to vote at the meeting. Section 3-04. Notice of Meetings. Written notice of every meeting of shareholders stating the time, place and purpose or purposes of the meeting for which the meeting is called to the extent required by law, shall be delivered not less than ten nor more than sixty days before the date of the meeting, unless a greater period is required by law in a particular case, either personally or by mail, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Section 3-05. Quorum. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute. If, however, such quorum shall not be 'present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 3-06. Voting; No Cumulative Voting. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the shareholders unless the vote of a greater number of shares of stock is required by law. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his agent. In all elections for directors every shareholder, entitled to vote, shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors to be elected and for whose election he has a right to vote. Shareholders shall have no right to cumulate the vote of such shares in elections for directors or otherwise. Section 3-07. Action Without Meeting. Subject to statutory provisions, any action required to be taken at a meeting of shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Subject to the statutory provisions and upon compliance therewith any action required to be taken at a meeting of shareholders, other than the annual election of directors, may be taken without a meeting upon the written consent of shareholders who would have been entitled to cast the minimum number of votes which would be necessary to authorize such action at a meeting at which all shareholders entitled to vote thereon were present and voting. ARTICLE IV DIRECTORS Section 4-01. Number and Term. The business and affairs of the corporation shall be managed by a board of directors. The number of directors which shall constitute the whole board of directors shall be 6, or such other number as may be specified by resolution of the board of directors from time to time. Directors need not be residents of the State of New Jersey nor shareholders of the corporation. Other than the first board of directors, directors shall be elected at the annual meeting of the shareholders or at a special meeting of shareholders, and each director elected shall serve until the succeeding annual meeting and until his successor shall have been elected and qualified. Section 4-02. Vacancies. Except as may otherwise be provided by law, the Articles of Incorporation or these Bylaws, vacancies in the board resulting from death, disqualification, resignation, removal or other cause, and newly created directorships resulting from any increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum, or by the affirmative vote of a majority of the shareholders at any annual or special meeting. A director elected to fill a vacancy shall be elected for the unexpired portion of the term of his predecessor in office or until his successor shall have been elected and qualified or until his earlier death, disqualification or removal. Section 4-03. Compensation. The board of directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. Section 4-04. Place of Meetings. Meetings of the board, regular or special, may be held at such place within or without the State of New Jersey as the board may from time to time determine. Section 4-05. Regular Meetings. A regular meeting of the board of directors for the election of officers and such other business as may come before the meeting shall be held without notice immediately following the annual shareholders' meeting at the same place, provided a quorum shall be present, or at such other place and time as shall be determined by the board. Additional regular meetings of the board of directors may be held with or without notice, and at such time and at such place as shall from time to time be determined by the board. Section 4-06. Special Meetings. Special meetings of the board of directors may be called at any time by the president or one director on two (2) days notice, given personally by telephone, by mail or by telegram. Section 4-07. Quorum. A majority of the directors shall constitute a quorum for the transaction of business. Section 4-08. Action Without Meeting. Any action required to be taken at a meeting of the board shall be deemed the action of the board of directors if all directors consent thereto in writing and such consent is filed with the records of the corporation. ARTICLE V WAIVER OF NOTICES Section 5-01. Waivers of Notice. Any notice required by the New Jersey Business Corporation Act, the certificate of incorporation or these by-laws may be waived by a writing signed by the person or persons entitled to such notice, either before or after the time stated therein. The attendance by a shareholder or director at a meeting, in person or by proxy, as applicable, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. ARTICLE VI OFFICERS Section 6-01. Officers. The officers of the corporation shall be chosen by the board of directors and shall be a chairman, a president, an executive vice-president, a secretary and a treasurer, none of whom need be a member of the board. The board of directors may elect or appoint one or more vice presidents and such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. In addition to the powers and duties prescribed by these by-laws, the officers and assistant officers shall have such authority and shall perform such duties as from time to time shall be prescribed by the board. The board may add to the title of any officer or assistant officers a word or words descriptive of his powers or the general character of his duties. Any two or more offices may be held by the same person. The officers of the corporation shall hold office until their successors are chosen and have qualified, unless they are sooner removed from office. Any officer may be removed at any time by the board of directors, with or without cause. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. Section 6-02. Salaries. The salaries of all officers of the corporation shall be fixed by the board of directors. Section 6-03. Chairman; Powers and Duties. The chairman shall be the chief executive officer of the corporation, shall preside at all meetings of the shareholders and the board of directors, and shall have general charge and supervision over, and responsibility for the corporation. Section 6-04. President; Powers and Duties. The president shall have the general powers and duties of management usually vested in the office of president of a corporation, except as such duties are designated to be performed by the chairman. Section 6-05. Executive Vice-President; Powers and Duties. The executive vice-president shall, in the absence or disability of the chairman and president, perform the duties and exercise the powers of the chairman and president, shall have the general powers and duties of management usually vested in the office of the executive vice-president of a corporation and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 6-06. The Vice-Presidents. The vice-president, or if there shall be more than one, the vice-presidents shall perform such duties and have such powers as the board of directors may from time to time prescribe. Section 6-07. Treasurer; Powers and Duties. The treasurer shall have the custody of the corporate funds and securities and shall keep or cause to be kept regular books of account for the corporation. The treasurer shall perform such other duties and possess such other powers as are incident to his office, or as shall be assigned to him by the board. Section 6-08. Secretary and Assistant Secretaries; Powers and Duties. The secretary shall attend all meetings of the board of directors and all meetings of the shareholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Any assistant secretary shall, in the absence or disability of the secretary, or upon delegation by the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VII SHARES OF CAPITAL STOCK Section 7-01. Certificates for Shares. The shares of the corporation shall be represented by certificates signed by the, president or vice-president and by the treasurer or the secretary or an assistant secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue shares of more than one class there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, if the corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the board of directors to f ix and determine the relative rights and preferences of subsequent series. Section 7-02. Lost Certificates. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. Section 7-03. Registered Shareholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of New Jersey. Section 7-04. List of Shareholders. The officer or agent having charge of the transfer books for shares shall make and certify a complete list of the shareholders entitled to vote at a shareholders' meeting, or adjournment thereof, arranged in alphabetical order within each class, series, or group of shareholders maintained by the corporation for convenience of reference, with the address of, and the number of shares held by each shareholder, which list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. Such list shall be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting of the shareholders. ARTICLE VIII GENERAL PROVISIONS Section 8-01. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 8-02. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 8-03. Indemnification of Directors and Officers. The corporation shall, to the fullest extent permitted by law as amended from time to time, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, civil, criminal, administrative or investigative by reason of the fact that he or she is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, sole proprietorship, trust or other enterprise, against expenses, reasonable costs, disbursements and counsel fees and amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties in connection with any such action, suit or proceeding. ARTICLE IX AMENDMENTS Section 9-01. Procedure for Amendment. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the board of directors at any regular or special meeting of the board, but by-laws made by the board may be altered or repealed and new by-laws made by the shareholders. The shareholders may prescribe that any by-law made by them shall not be altered or repealed by the board. Section 9-02. Force and Effect. These by-laws are subject to the New Jersey Business Corporation Act, the corporation's Certificate of Incorporation, and the Casino Control Act as such may be amended from time to time. To the extent of any inconsistency between these by-laws and the New Jersey Business Corporation Act or the Casino Control Act, the provisions of such Acts shall govern. EX-4.2 4 0004.txt MORTGAGE, FIXTURE FILING AND SECURITY AGREEMENT _______________________________________ This Mortgage was prepared by and after recording should be returned to: __________________________________ MORTGAGE, FIXTURE FILING AND SECURITY AGREEMENT This MORTGAGE, FIXTURE FILING AND SECURITY AGREEMENT (this "Mortgage"), made this ____ day of __________, by GREATE BAY HOTEL AND CASINO, INC., a corporation duly organized and existing under the laws of the State of New Jersey and having its principal place of business at the Sands Hotel and7 Casino, Indiana Avenue and Brighton Park, Atlantic City, New Jersey 08401 (the "Mortgagor"), in favor of [_______________________________] , a national banking association having its corporate trust office at____________________________, as Trustee (the "Mortgagee") under the Indenture described below on its own behalf and on behalf of the holders from time to time of the Securities referred to below (the "Holders"). W I T N E S S E T H WHEREAS, the Mortgagor is the owner of a fee simple interest in certain land and air spaces situated in the City of Atlantic City, County of Atlantic, State of New Jersey ("Atlantic City"), being more particularly described on Schedule A-1 attached hereto and by this reference made a part hereof (the "Casino Land") and the improvements now or hereafter constructed on the Casino Land, a portion of which constitute the Sands Hotel and Casino and Parking Garage (the "Sands"); WHEREAS, the Mortgagor is the owner of a fee simple interest in certain land and air spaces situated in Atlantic City, being more particularly described on Schedule A-2 attached hereto and by this reference made a part hereof (the "Office Land") and the improvements now or hereafter constructed on the Office Land; WHEREAS, the Mortgagor is the owner of certain land situated in the City of Atlantic City, County of Atlantic, State of New Jersey, being more particularly described on Schedule A-3 attached hereto and by this reference made a part hereof (the "Expansion Land" and the improvements now or hereafter constructed on the Expansion Land (the Casino Land, the Office Land, and the Expansion Land being collectively referred to herein as the "Land"); WHEREAS, the Mortgagor is the owner of an easement interest in the parcels of real property situated in Atlantic City more particularly described on Schedule A-4 attached hereto and by this reference made a part hereof (the "Easement") and the improvements now or hereafter constructed on the Easement; WHEREAS, the Easement was granted to the Mortgagor and the Claridge Casino Hotel pursuant to that certain Ordinance No. 103 of Atlantic City dated October 7, 1987 and was recorded January 29, 1993 in the Atlantic County, New Jersey Clerk's Office in Deed Book 5463, Page 228 (the "Easement Ordinance"); WHEREAS, pursuant to an Indenture, dated as of the date hereof (as the same may hereafter be amended, supplemented or otherwise modified, the "Indenture", capitalized terms not otherwise defined herein are used herein as defined therein), among the Mortgagor, the Mortgagee, GB Holdings, Inc., a Delaware corporation ("Holdings") and GB Property Funding Corp., a Delaware corporation (the "Company"), the Company is issuing, on the date hereof, $110 million of 11% First Mortgage Notes Due 2005 (the "First Mortgage Notes" or the "Securities"); WHEREAS, this Mortgage is being executed and delivered pursuant to the terms and conditions set forth in the Indenture and is entitled to the benefits thereof (all capitalized terms used herein without definition which are defined in the Indenture being used herein as defined therein); WHEREAS, the Mortgagor has guaranteed the punctual payment (including applicable notice and/or grace periods) of the principal of and any interest on the Securities, whether at maturity, by acceleration or otherwise, and payment and performance by the Company, Holdings and the Mortgagor of their other respective obligations (including the payment of fees and expenses) under the Indenture and with respect to the Securities pursuant to the guarantee contained in Article 12 of the Indenture (as the same may hereafter be amended, supplemented or otherwise modified from time to time, the "Guarantee"); and WHEREAS, it is a condition precedent to the issuance of the Securities that the obligations of Mortgagor under the Guarantee be secured by, among other things, this Mortgage. NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, the Mortgagor agrees as follows: TO SECURE: The payment and performance by the Mortgagor of all of its obligations, covenants and duties, including, but not limited to, obligations to make payment of all principal, interest (including any interest that accrues after the filing of a petition of the type referred to in Sections 501(7) and 501(8) of the Indenture) fees, expenses and other amounts payable under the Guarantee, this Mortgage, the Indenture and any other Security Document, including all amounts that constitute part of such obligations and would be owed by the Company, Holdings or the Mortgagor to the Mortgagee but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company, Holdings or the Mortgagor, (all of such obligations, covenants and duties referred to in this paragraph being called, collectively, the "Liabilities"). The Mortgagor hereby grants to the Mortgagee on behalf of the Mortgagee and of the Holders, a security interest in, and the Mortgagor hereby mortgages to the Mortgagee on its own behalf and on behalf of the Holders, all of its estate, right, title and interest in, to and under, or derived from, the following property: 2 The Land, together with all right, title and interest of the Mortgagor now owned or hereafter acquired, if any, in and to the streets, the land lying in the bed of any streets, roads, avenues, alleys, passages and sidewalks; and all reversionary rights with respect to the vacation of said streets, roads, avenues, alleys, passages and sidewalks, open or proposed, in front of, adjoining or abutting the Land to the center line thereof and any air spaces thereover and all and singular the reversions or remainders in and to the Land and the tenements, hereditaments, easements (in gross and/or appurtenant), rights-of-way or use, rights (including alley, drainage, crop, timber, agricultural, horticultural, mineral, water, ditch, reservoir, oil and gas rights), privileges, royalties and appurtenances to the Land, now or hereafter belonging or in anywise appertaining thereto, including any such estate, right, title, interest in, to or under any agreement or right granting, conveying or creating, for the benefit of the Land, any easement, right or license in any way affecting the said property and other property and in, to or under any streets, ways, alleys, vaults, gores or strips of land adjoining the Land and or any parcel thereof, or in or to the air space over the Land, and all rights of ingress and egress by motor vehicles to parking facilities on or within the Land, and all claims or demands of the Mortgagor, either at law or in equity, in possession or expectancy, of, in or to the same; TOGETHER WITH all right, title and interest of the Mortgagor to the Easement, any interest in any fee, greater or lesser title to the Easement that Mortgagor may own or hereafter acquire and all credits, deposits, options, privileges and rights of Mortgagor under the Easement and the Easement Ordinance (including all rights of use, occupancy and enjoyment) and under any amendments, supplements, extensions, renewals, restatements, replacements and modifications thereof (including, without limitation, (i) the right to give consents, (ii) the right to receive moneys payable to Mortgagor, (iii) the right, if any, to purchase the real property subject to the Easement and (iv) the right to terminate or modify the Easement); TOGETHER WITH all right, title and interest of the Mortgagor to the interests granted to the Mortgagor by Atlantic City pursuant to that certain Ordinance of Atlantic City of Atlantic City, New Jersey, No. 70, dated August 1, 1986; TOGETHER WITH all buildings, structures, facilities and other improvements now or hereafter located on the Land or the Easement, including, without limitation, the Sands and all building material, building equipment, supplies and fixtures of every kind and nature now or hereafter located on the Land or the Easement or attached to, or contained in any such buildings, structures or facilities including, without limitation, all of the same which may be or become a part of the Sands, and all additions thereto and betterments, renewals, substitutions and replacements thereof, in each case only to the extent the same is both: (i) owned by the Mortgagor or in which the Mortgagor has or shall acquire an interest and (ii) now or hereafter located on the Land or the Easement (all of the foregoing hereinafter collectively called the "Improvements") (the Land and the Easement together with the Improvements are hereinafter collectively referred to as the "Premises"); TOGETHER WITH all machinery, apparatus, equipment, materials, fittings, fixtures and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof, owned by the Mortgagor or in which the Mortgagor has or shall acquire an interest, to the extent that the same are now or hereafter located on, attached to or contained in 3 the Premises or placed on any part thereof, though not attached thereto (including, without limitation, the elevated, enclosed and motorized pedestrian walkway currently constructed upon the Easement (the "People-Mover") and the equipment, fittings, materials and all appurtenances and additions thereto and betterments, renewals, substitutions, replacements, proceeds and products thereof, which are incorporated in, or a part of or are necessary for the operation of the People-Mover (all of the foregoing; including the People-Mover, hereinafter collectively called the "Fixtures"; the Premises and the Fixtures together being collectively referred to as the "Mortgaged Premises"), including, without limitation, any of the foregoing that constitute heating, lighting, plumbing, ventilating, air conditioning, refrigerating, gas, steam, electrical, incinerating and/or compacting plants, systems, fixtures and equipment, security systems, elevators, escalators, hoists, cleaning systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, loading and unloading apparatus, landscaping, motors, machinery, pipes, ducts, conduits, dynamos, engines, compressors, generators, boilers, furnaces, pumps, tanks, appliances, equipment, shops, girders, beams, fittings and fixtures; the Mortgagee shall have, in addition to all rights and remedies provided in the Indenture, the Security Agreement, dated as of the date hereof, made by the Mortgagor to the Mortgagee (the "Security Agreement"), the Collateral Assignment of Leases, dated as of the date hereof, made by the Mortgagor to the Mortgagee, this Mortgage and any other agreements, commitments and undertakings made by the Mortgagor to the Mortgagee, all of the rights and remedies of a "secured party" under said Uniform Commercial Code. If the Lien of this Mortgage is subject to a security interest covering any property described in this paragraph, then all of the right, title and interest of the Mortgagor in and to any and all such property is hereby assigned to the Mortgagee, together with the benefits of all deposits and payments now or hereafter made thereon by or on behalf of the Mortgagor; TOGETHER WITH all of the Mortgagor's interest in the leases, subleases, lettings and licenses of, and all other contracts and agreements affecting, the Land, the Easement, the Improvements and the Fixtures, or any part thereof, now or hereafter entered into, and all modifications, supplements, additions, extensions, renewals and replacements thereof, and all right, title and interest of the Mortgagor thereunder, including cash and securities deposited thereunder as security the right to receive and collect the rents, additional rents, increases in rents, security deposits, advance rents, income, proceeds, earnings, revenues, issues and profits payable thereunder and the rights to enforce, whether at law or in equity or by any other means, all provisions thereof, and any other benefits derived or to be derived therefrom, including, without limitation, any security deposits made by the Space Tenants (as hereinafter defined), and the right to apply the same to the payment of the Liabilities subject to the terms and provisions of this Mortgage; TOGETHER WITH all other property, of every kind and nature, which may from time to time be subjected to the Lien hereof by the Mortgagor through a supplement to this Mortgage or by anyone on its behalf or with its consent, or which may come into the possession of or be subject to the control of the Mortgagee pursuant to this Mortgage; TOGETHER WITH all unearned premiums, accrued, accruing or to accrue under insurance policies now or hereafter obtained by the Mortgagor with respect to the Mortgaged Premises, and the Mortgagor's interest in and to all proceeds of the conversion and the interest 4 payable thereon, voluntary or involuntary, of the Mortgaged Premises or any part thereof, to the extent the same are property of the Mortgagor, into cash or liquidated claims, including without limitation, but subject to the provisions of this Mortgage and the Indenture, proceeds of casualty insurance, title insurance or other insurance maintained on the Premises and the Fixtures (excluding the proceeds of all worker's compensation insurance and personal or general liability insurance), and the right to collect and receive the same and all awards or payments, including interest thereon, hereafter made to the Mortgagor for the taking by eminent domain of the whole or any part of the Land, Easement or Mortgaged Premises or the use thereof, or any easement therein, including any awards or payments for changes of grade of streets or any other injury to or decrease in the value of the Land, Easement or Mortgaged Premises, which said awards and payments, subject to the terms of this Mortgage and the Indenture, are hereby assigned to the Mortgagee on its own behalf and on behalf of the Holders, who is hereby authorized, subject to the terms of this Mortgage and of the Indenture, to collect and receive the proceeds thereof and to give proper receipts and acquittances therefor, and to apply the same toward the payment of the Liabilities, at any time secured hereby, notwithstanding the fact that the amount thereof may not then be due and payable and toward the reasonable counsel fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payments, and any and all refunds of real estate taxes which may become due to the Mortgagor and any and all deposits by the Mortgagor with providers of utilities and other services to the Premises; and the Mortgagor hereby agrees, upon request, to make, execute and deliver any and all assignments and other instruments sufficient for the purpose of assigning said awards or payments to the Mortgagee on its own behalf and on behalf of the Holders, free, clear and discharged of any encumbrances (other than encumbrances permitted hereunder or under the Indenture) of any kind or nature whatsoever; TOGETHER WITH all of the Mortgagor's right, title and interest in all proceeds, both cash and non cash, of the foregoing which may be sold or otherwise disposed of pursuant to the terms hereof; TOGETHER WITH any and all monies now or hereafter on deposit for the payment of real estate taxes or special assessments against the Mortgaged Premises or for the payment of premiums on fire or other property insurance covering the Mortgaged Property (hereinafter defined). All of the foregoing real and personal property and rights and interests in property and awards are herein collectively referred to as the "Mortgaged Property". Notwithstanding anything to the contrary herein contained, it is expressly agreed that the Mortgaged Property shall not include and Mortgagee shall not have a Lien, as that term is defined in the Indenture, on or any rights with regard to (i) the Excluded Property, as that term is defined in the Security Agreement; (ii) any real property interest, fee or leasehold, acquired by Mortgagor after the date hereof, whether or not contiguous to the Land (the "Excluded Land") and any buildings, structures, facilities, fixtures, other improvements and/or personal property then or thereafter located on or used in connection with the Excluded Land; and (iii) the property located at 32 North Texas Avenue, Atlantic City, New Jersey and the warehouse located in Mystic Island, New Jersey. 5 TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors and assigns, to its and their own proper use, benefit and behalf forever. PROVIDED ALWAYS, and these presents are upon the express condition that, if (i) the outstanding principal of the Securities, and any interest which may become due thereon and any other sums which may become due in connection therewith shall be paid in full in accordance with the terms of the Securities, the Indenture and hereof and if all of the Liabilities shall be performed and paid in full or (ii) the Indenture is otherwise discharged, then these presents and the estate hereby created shall cease, determine and be void and the Mortgagee agrees that at such time, upon the request of the Mortgagor, it shall execute and deliver such documents and take all action as may be reasonably requested by the Mortgagor to be necessary to terminate this Mortgage of record. AND the Mortgagor represents and warrants to and covenants with the Mortgagee on its own behalf and on behalf of the Holders that, to the best of its knowledge, it has and at all times hereafter will have good and marketable fee simple title to the Premises (except that in the case of the Easement, the Mortgagor shall maintain its interest) and the Mortgagor covenants that its estate, right, title and interest in and to the Premises is free and clear of all taxes, Liens, and encumbrances whatsoever, except as appears in Schedule B attached hereto and made a part hereof; provided however, that the Mortgager and Mortgagee acknowledge and agree that: (x) all security interest and other rights in the Mortgaged Property and any other Collateral shall be, and hereby are, subject and inferior to any Liens heretofore or hereafter created from time to time in connection with the incurrence of Working Capital Indebtedness; and (y) notwithstanding anything to the contrary hereunder or in the Indenture or in the other Security Documents, the Mortgagor and its subsidiaries may incur Liens and Indebtedness (including, without limitation, Liens on the Mortgaged Property and other Collateral) permitted by the Indenture. In connection with any of the foregoing, Mortgagee will, at the request of Mortgagor, enter into such intercreditor agreements, standstill agreements, subordination agreements and other documents as shall be appropriate under the circumstances for the benefit of the holder of such other Indebtedness or of the superior liens. The Mortgagor further covenants with the Mortgagee on its own behalf and on behalf of the Holders as follows: 1. Payment of Liabilities. As set forth in the Guarantee, the Mortgagor will pay, or cause to be paid, the Liabilities secured by this Mortgage and shall perform all conditions, covenants and obligations on the part of the Mortgagor in accordance with the terms of the Guarantee, the Indenture, the Security Documents and this Mortgage, including, without limitation, applicable notice and grace periods. 2. Insurance. 2.1 The Mortgagor shall at its own expense at all times maintain or cause to be maintained on all of the Mortgaged Property and all other personal property subject to the Security Agreement: (x) insurance satisfying the requirements of clauses (c) and (d) below; and (y) property and liability insurance against such risks, in such amounts and in such form, as is 6 usually carried by companies engaged in a business similar to the business conducted by Mortgagor in Atlantic City, New Jersey, provided however, that in no event shall Mortgagor be required to obtain insurance in excess of any of the following: (a) commercial liability insurance (including blanket contractual liability insurance, innkeeper's liability, products liability and elevator liability) covering all claims for bodily injury, including death, or property damage occurring on, in or about the Mortgaged Premises and the adjoining sidewalks and passageways in an amount of not less than $50,000,000 combined single limit as respects bodily injury and property damage in respect of any one occurrence provided that the primary policy, providing liability limits of $1,000,000 per occurrence and $1,000,000 in the aggregate for bodily injury liability and property damage liability, as such limits are defined in standard endorsement L6108 entitled: "Amendment - Limits of Liability (Single Limit) (Individual Coverage Aggregate Limit)", and such insurance may be excess to a $500,000 self-insured retention per occurrence and may be subject to $500,000 combined single limit sublimit for coverage provided for the care, custody and control of property, a $250,000 per loss/aggregate sublimit for Innkeeper's Property Damage Liability, a $250,000 per loss/aggregate sublimit for Hotel Safe Deposit Box Liability, a $250,000 per occurrence limit for real property fire liability, and a $250,000 in the aggregate, a $1,000,000 aggregate limit for personal injury liability, liquor liability, advertising liability and pollution liability; during any period of alterations or improvements in, on or to the Mortgaged Premises, the Mortgagor will cause to have the commercial liability insurance policy endorsed to provide owners and contractors protective liability coverage including completed operations liability coverage or maintain separate policies with respect to such coverage; (b) workers' compensation insurance (including employer's liability insurance) for all employees of the Mortgagor engaged on or with respect to the Mortgaged Property in such amounts as are required by law; (c) physical damage insurance covering the Improvements and Fixtures for loss or damages resulting from the perils of fire, lightning and such other risks and hazards as are provided under the current standard "Extended Coverage Endorsement" and vandalism and malicious mischief coverage for 100% of the full replacement value of the Improvements and Fixtures (excluding footings and foundations) on condition that the policy contains an "agreed amount endorsement" and that no co-insurance provisions would be applicable, provided that the property policy limit may be subject to a total limit of $200,000,000 for all loss arising out of one occurrence subject to a sublimit of $100,000,000 unless the loss is caused by fire, lightning, removal, wind and hail, leakage from fire protective equipment, explosion, smoke, aircraft and vehicles, sonic shock wave, riot, civil commotion and vandalism, molten material, and in which case the $100,000,000 sublimit will not apply, a sublimit of $35,000,000 in the aggregate for loss due to earthquake, a sublimit of $5,000,000 in the aggregate for loss caused by flood, a sublimit of $1,000,000 for property in transit, a sublimit of $1,000,000 on newly acquired property, a sublimit of $105,000,000 for business interruption loss defined to include net profit plus certain continuing expenses except ordinary payroll expenses, a $50,000,000 sublimit for general boiler and machinery coverage, and a maximum deductible of $500,000 for each loss and a 72-hour exclusion for any time element loss; (d) insurance on all Equipment and all Inventory (as such terms are defined in the Security Agreement and included in the "Collateral" therein) against loss or damage by reason of any hazard referred to in subsection (c) and subject to the conditions stated in subsection (c) of this subsection 2.1 in an amount of 100 percent of the full replacement value thereof; (e) insurance against loss of rents/business interruption by reason of any hazard covered under the insurance required under subsections (c) and (d) of this subsection 2.1 in an 7 amount sufficient to avoid any co-insurance penalty, and subject to the conditions stated in subsection (c); and (f) insurance against such other risks of damages, hazards, casualties and contingencies, but only if and only to the extent and in such amounts that insurance against such other risks, hazards, casualties or contingencies shall then be commonly carried by prudent owners and lessees of buildings or improvements in the locality similar in character, construction, use and occupancy to the Improvements, appurtenances, and Fixtures and equipment on or constituting a part of the Mortgaged Property; all such insurance, after providing for costs of collection. The Mortgagor will duly and punctually comply, or cause compliance with, all of the material terms and conditions of any insurance policy covering or applicable to the Mortgaged Property, whether or not expressly required hereunder, all material requirements of the issuer of any such policy, and all orders, rules and other requirements of the National Board of Fire Underwriters (or any body exercising similar functions) binding upon the Mortgagor or applicable to or affecting the Mortgaged Property or any use or condition thereof. The types, terms, conditions, coverages and policy limits of insurance maintained pursuant to this subsection 2.1 may be increased, decreased, amended, supplemented or otherwise modified from time to time to the extent available and at a reasonable cost to reflect what prudent owners and/or lessees of buildings or improvements similar in type and locality to the Mortgaged Property would carry, as certified to the Mortgagee in an Officer's Certificate (as defined herein) of the Mortgagor. 2.2 All insurance required pursuant to subsection 2.1 hereof shall be evidenced by valid and enforceable policies, in form and substance, and issued by and distributed among insurers of recognized responsibility having an A.M. Best Company rating of at least A or B and a financial size category of Class VII or above, and authorized to do business in the State of New Jersey. The originals of all such policies, or certified duplicate copies or certificates thereof (accompanied by photostats of the policies as soon as available), shall be delivered to the Mortgagee concurrently with the execution and delivery of this Mortgage and, thereafter (i) all quotations, synopses and letters of amendment thereto in respect of proposed coverage, as well as definitive insurance binders relating to the renewal or replacement policies, shall be delivered to the Mortgagee as soon as reasonably practicable prior to the expiration of the policy or policies to be renewed or replaced and (ii) all renewal or replacement policies, or certified duplicate copies or certificates thereof (accompanied by photostats of the policies), shall be delivered to the Mortgagee as soon as reasonably practicable after the expiration date of the policy or policies to be renewed or replaced, in each case accompanied by evidence that all premiums currently payable with respect to such policies have been paid in full. 2.3 Except in the case of workers' compensation, general and personal liability and loss of rents/business interruption insurance, all insurance policies at any time required by this Section 2 shall (a) provide as follows: (i) the insureds named therein shall include the Mortgagee on its own behalf and on behalf of the Holders and the Mortgagor, as their respective interests may appear, (ii) all losses payable thereunder in amounts less than or equal to $1,000,000 shall be payable directly to the Mortgagor, (iii) all losses payable thereunder in excess of $1,000,000 shall be payable to the Mortgagee on its own behalf and on behalf of the Holders pursuant to a standard mortgagee clause naming the Mortgagee on its 8 own behalf and on behalf of the Holders, as their interests may appear, with loss payable to the Mortgagee on its own behalf and on behalf of the Holders without contribution, and (iv) all losses thereunder in excess of $10,000,000 shall be adjusted by the Mortgagor with the prior consent of the Mortgagee (which consent shall not be unreasonably withheld); (b) such policies may not be canceled or amended without at least thirty (30) days' prior written notice to the Mortgagee; and (c) no act, omission or negligence of the Mortgagor, or its agents, servants or employees, or of any Space Tenant under any Space Lease (as defined in Section 24.4 hereof) or any of their agents, servants or employees which might otherwise result in a forfeiture of such insurance or any part thereof, shall in any way affect the validity or enforceability of, or the amounts which may be collected under, any of such insurance with respect to the Mortgagee. All losses payable to the Mortgagee pursuant to subsection 2.3(a)(iii) shall be assigned and paid directly to the Mortgagee for deposit into the Collateral Account to be held and applied in accordance with Sections 1018 and 1404 of the Indenture and Section 9.3 hereof. The policy or policies of insurance of the character described in subsections (a), (b), (c), (d), (e) and (f) of subsection 2.1 hereof may consist of blanket policies insuring the Mortgaged Premises and other property of the Mortgagor; provided that such policy or policies shall set forth the amount of insurance in force thereunder applicable to the Mortgaged Premises and any sublimits in such blanket policy applicable to the Mortgaged Premises, which amounts shall be not less than the amounts required pursuant to this Section 2 and shall otherwise comply with the provisions of this Section 2 and shall afford the same protections to the Mortgagee as would be provided by policies individually applicable to the Mortgaged Premises, provided that if a portion of such policy covers the insurance to be given in Section 2, the total coverage afforded under such portion shall be on an "occurrence" basis, and provided further that if the Mortgagor converts any insurance policy from an "occurrence" to a "claims" basis (or vice versa), the Mortgagor shall cause the risk to be covered by such policy to be continuously insured against notwithstanding such change. If, notwithstanding the provisions of subsection 2.3(a)(iii) hereof, any insurance proceeds in excess of $1,000,000 are made payable to the Mortgagor, rather than to the Mortgagee as required, the Mortgagor shall promptly deliver such proceeds, in the form received but with any necessary endorsements, to the Mortgagee and the Mortgagor hereby irrevocably appoints the Mortgagee as its attorney-in-fact, coupled with an interest, to endorse and/or transfer any such payment to the name of the Mortgagee on its own behalf and on behalf of the Holders. All proceeds of the insurance shall be held and disbursed in accordance with Sections 1018 and 1404 of the Indenture and Section 9.3 hereof. 2.4 If the Mortgagee on its own behalf and on behalf of the Holders shall by any manner acquire the title or estate of the Mortgagor in or to any portion of the Mortgaged Premises, it shall thereupon, to the extent such insurance policies are not blanket insurance policies of the Mortgagor, become the sole and absolute owner of all insurance policies held by or required hereunder to be delivered to the Mortgagee, affecting such portion, with the sole right to collect and retain all unearned premiums thereon, and the Mortgagor shall be entitled only to a credit, in reduction of the then outstanding Liabilities secured hereby, in the amount of any cancellation refund actually received by the Mortgagee. To the extent applicable the Mortgagor agrees, immediately upon demand, to execute and deliver such assignments or other authorizations or instruments as may be necessary or desirable to effectuate the foregoing. 2.5 In the event that the Mortgagor fails to (i) provide, maintain or keep in force the insurance policies required pursuant to subsection 2.1 hereof or (ii) deliver and furnish 9 to the Mortgagee the original policies of insurance (or certified duplicate copies or certificates thereof, accompanied by photostats of the policies) or definitive binders relating to renewal or replacement policies pursuant to subsection 2.2 hereof prior to the expiration, cancellation or amendment of existing policies, the Mortgagee on its own behalf and on behalf of the Holders may at its sole option upon prior written notice to Mortgagor (but in no event shall the Mortgagee be so obligated) obtain such insurance, and the Mortgagor will pay all premiums thereon promptly upon demand by the Mortgagee, with interest thereon, from the date on which such premiums are paid by the Mortgagee until the Mortgagor shall reimburse the Mortgagee for such amounts, at a rate of interest equal to the prime rate plus 2% per annum from time to time announced by the Mortgagee, and such sums, until paid, shall be secured by this Mortgage. 2.6 The Mortgagor shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be obtained and maintained under this Section 2. Subject to the foregoing, any insurance effected by the Mortgagor on any part of the Mortgaged Premises whether or not required under this Mortgage, shall be for the mutual benefit of the Mortgagee on its own behalf and on behalf of the Holders and the Mortgagor and shall be subject to all other provisions of this Mortgage. 3. Alterations. 3.1 Neither the Improvements nor the Fixtures (except as permitted in the Indenture or this Mortgage) shall be removed, demolished or materially altered, except that the Mortgagor may: (a) make non-structural alterations to the extent that such alterations constitute alterations in the normal course of business, including removal and reconstruction of interior walls and relocation of hotel and casino facilities; (b) replace the Fixtures or any part thereof on the terms and conditions set forth in the Indenture and (c) make any other alteration, structural or non-structural, (A) with an estimated cost of less than $500,000; (B) with a cost estimated by the architect, engineer or general contractor supervising such alteration to be in excess of $500,000 but not exceeding $2,000,000 after the Mortgagor shall have given written notice to the Mortgagee of such alteration; (C) with a cost estimated by the architect, engineer or general contractor supervising such alteration to be in excess of $2,000,000 but not exceeding $20,000,000 after the Mortgagor shall have given written notice to the Mortgagee of such alteration, together with an Officer's Certificate of the Mortgagor that such alteration complies with items (i) through (ix) below, inclusive, and either (I) the Mortgagee shall have approved such alteration in writing, such approval not to be unreasonably withheld or delayed or (II) the Holders of at least 25% in principal amount of Outstanding Securities shall have approved such alteration; and (D) with a cost estimated by the architect, engineer or general contractor supervising such alteration to be in excess of $20,000,000 after the Mortgagor shall have given written notice to the Mortgagee, together with a duly authorized certificate from an officer of the Mortgagor (an "Officer's Certificate") that such alteration will comply with items (i) through (viii), below, inclusive, and based on the information provided in such certificate and the documentation required to be provided under this subsection to the Mortgagee, the Holders of at least 25% in principal amount of Outstanding Securities shall have approved such alteration. 10 The items with which the Officer's Certificate shall state the Mortgagor will comply, as set forth above with regard to alterations or Improvements made to the Mortgaged Premises under this Section 3.1, are as follows: (i) any change or alteration, once commenced, shall be made promptly, in good and workmanlike manner and in compliance with all material requirements of applicable law ("Legal Requirements"); (ii) appropriate builder's risk (if the total cost of the proposed change or alteration exceeds Two Million Dollars ($2,000,000)), workers' compensation, and general liability insurance shall be maintained for any work in progress; (iii) the Mortgaged Premises shall be kept free of Liens for labor and materials supplied or claimed to have been supplied in connection with such change or alterations or in the event that such Liens have been filed against the Mortgaged Premises, the Mortgagor shall either satisfy such Liens, stay their effect, bond against or otherwise secure against each to the reasonable satisfaction of the Mortgagee; (iv) such alterations will not materially and adversely affect the value, character and usefulness of the Mortgaged Premises; (v) such alterations shall not cause (a) the Sands (inclusive of any such completed alterations) to fail to qualify (absent a waiver by the Casino Control Commission of such nonqualifying condition(s)) as a licensed hotel/casino under the Casino Control Act or (b) the Sands to fail to be independently qualifiable (exclusive of any such alterations) at all times as a licensed hotel/casino under the Casino Control Act; (vi) any alteration or replacement Fixture, upon completion or replacement, as the case may be, shall be subject to the Lien of this Mortgage, the Lien created by the security agreement made a part of this Mortgage or the Lien of the Security Agreement and shall be free from any title retention, security agreement or other encumbrance, except the Lien of this Mortgage and the other Security Documents and encumbrances permitted under Section 1014 of the Indenture; (vii) no Event of Default shall have occurred or be continuing or occur as a result of the proposed alteration or replacement; (viii) with respect to any proposed alteration with a cost estimated by the architect, engineer or general contractor supervising such alteration to be in excess of $2,000,000 but less than $20,000,000, the Mortgagor shall submit to the Mortgagee (a) copies of all materials relating thereto when filed with the Casino Control Commission, (b) if no materials relating thereto are to be filed with the Casino Control Commission and the estimated cost of such project is in excess of $5,000,000, a description of such proposed alteration (which shall include the type of financing, if any, the estimated cost, the parties involved and the estimated date of completion), and copies of all available plans and specifications in connection therewith, no later than 45 days prior to commencement of such proposed alteration and (c) final 11 plans, specifications and Casino Control Commission approvals of such alteration no later than 90 days after completion thereof; (ix) with respect to any proposed alteration with a cost estimated by the architect, engineer or general contractor supervising such alteration to be in excess of $20,000,000, the Mortgagor shall submit to the Mortgagee all materials described in item (viii) above as well as any additional information reasonably required by the Holders to review such proposed alteration; and (x) the Mortgagor will pay all reasonable expenses of the Mortgagee in connection with any consent of the Mortgagee required pursuant to this Section 3, including, without limitation, in connection with the review of any plans and specifications in connection therewith. 3.2 Mortgagor will at all times maintain sufficient parking spaces for the use of the Sands which shall in no event be less than approximately 1,675 spaces. 4. Estoppel Certificates. The Mortgagor, within 10 days after a request by the Mortgagee, will furnish a written statement, duly acknowledged, and in form for recording, of the amount due on this Mortgage and the Mortgagor will deliver such a statement further setting forth whether any offsets or defenses exist against the Liabilities. The Mortgagee, within 10 days after request from the Mortgagor, will furnish a written statement, duly acknowledged and in form for recording of the amount due on the Mortgage and stating whether it has received written notice of or has actual knowledge of any defaults existing hereunder and containing such other information as the Mortgagor may reasonably request. 5. Impositions. 5.1 The Mortgagor will pay or cause to be paid as and when due and payable, and before they become delinquent, all Impositions (as such term is defined in subsection 5.4.4 hereof) levied upon the Mortgaged Property, or any part thereof for which the Mortgagor and/or the Mortgaged Property, or any part thereof, shall be assessed or chargeable and will cause tenants under Major Leases (as such term is defined in the Collateral Assignment of Leases, dated of even date herewith, made by Mortgagor to Mortgagee) to comply with all lease provisions or contracts relating to payment of such Impositions. Notwithstanding the foregoing, if by law any Imposition may at the option of the taxpayer be paid in installments (whether or not interest shall accrue on the unpaid balance thereof), the Mortgagor may cause to be paid or to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments as they fall due and before any fine, penalty, further interest or cost may be added thereto; provided that no Event of Default (as defined in Section 12 hereof) shall then exist under this Mortgage and that payment in installments would not create or cause to be created any Lien on the Mortgaged Premises or any portion thereof which could be levied upon prior to the failure to pay a then due installment. 5.2 The Mortgagor will pay any taxes (including, without limitation, stamp taxes, but excluding (a) income taxes assessed by the United States government or the State of 12 New Jersey or any other State or any political subdivision of any of them, (b) franchise, estate or similar taxes based upon or measured by income) imposed on the Mortgagee on its own behalf and on behalf of the Holders, their successors or assigns, by reason of the holding of this Mortgage or any of the Securities, as the case may be, or the receipt of the interest payable thereunder. 5.3 Unless manifestly erroneous, the certificate, advice or bill of the appropriate official designated by law to make or issue the same or to receive payment or any Imposition, which such certificate, advice or bill indicates the nonpayment of such Imposition, shall be prima facie evidence that such Imposition is due and unpaid at the time of the making or issuance of such certificate, advice or bill. 5.4 The Mortgagor shall have the right, at Mortgagor's sole cost, after giving notice to the Mortgagee to contest the amount or validity, in whole or in part, of any Imposition, or to seek a reduction in the valuation of the Mortgaged Property or any portion thereof as assessed for real estate or personal property tax purposes by appropriate proceedings diligently conducted in good faith and where the amount so contested or for which a reduction is sought is in excess of $2,000,000, the Mortgagor shall also prior to commencement of such contest or proceeding have complied with the provisions of subsections 5.4.1 through 5.4.5, inclusive, hereof or made payment of such Imposition unless such payment would operate as a bar to such contest or interfere materially with the prosecution thereof, in which event the Mortgagor may postpone or defer payment of such Imposition after compliance with the provisions of subsections 5.4.1 through 5.4.5, inclusive, hereof if: 5.4.1 Neither the Mortgaged Property nor any part thereof would by reason of such postponement or deferment be in danger of being forfeited or lost prior to final determination of such contest or proceeding and the Mortgagee shall not, by virtue of the contest or proceeding, be in any danger of criminal liability and neither the Mortgaged Property nor any part thereof by any interest therein would be subject to the imposition of any lien for which the Mortgagor has not furnished adequate security as provided below; and 5.4.2 Subject to the provisions of the first paragraph of Section 5.4, the Mortgagor shall either have (a) deposited with the Mortgagee in trust the amount (at the option of the Mortgagor in cash or in the form of a letter of credit) so contested and unpaid, together with all interest and penalties in connection therewith and all charges that may or might be assessed against or become a charge on the Mortgaged Property or any part thereof as estimated by the Mortgagee, in such proceedings or (b) posted with the Mortgagee a bond issued by a surety company reasonably satisfactory to the Mortgagee, whereby such surety undertakes to pay such Imposition, interest, penalties and charges (x) in the event that the Mortgagor shall fail to pay the same upon the final disposition of the contest (including appeals), or (y) in the event that the Mortgaged Property or any part thereof is in danger of being sold, forfeited or lost during the pendency of such contest or (z) if the Mortgagor fails to increase the amount of such bond as hereinafter provided. Any deposit made by the Mortgagor with the Mortgagee under the provisions of this subsection 5.4.2, together with any additions thereto made pursuant to this subsection 5.4.2, shall be held in trust and, at the request of the Mortgagor, invested in Collateral Investments (as defined in the Security Agreement), and the interest on such deposits shall be 13 disposed of as hereinafter provided. Upon the termination of any such proceeding (including appeals), or if the Mortgagor should so elect, at any time prior thereto, the Mortgagor shall pay the amount of such Imposition or part thereof as finally determined in such proceeding (or appeal), the payment of which may have been deferred during the prosecution of such proceeding (or appeal), together with any costs, fees, interest, penalties or other liabilities in connection therewith, and upon such payment, the Mortgagee shall return any amount deposited with it together with interest, if any, received thereon with respect to such Imposition. Such payment, at the request of the Mortgagor, shall be made by the Mortgagee out of the amount deposited with it pursuant to clause (a) of this subsection 5.4.2 with respect to such Imposition, to the extent that such amount is sufficient therefor, and any balance due shall be paid by the Mortgagor and any balance remaining shall be paid to the Mortgagor together with interest, if any, received thereon. If, at any time during the continuance of such proceeding, the Mortgagee shall reasonably deem the amount deposited with it or provided by bond insufficient, the Mortgagor shall, within ten (10) days after demand, make an additional deposit of, or increase the amount of its letter of credit or bond by, such additional amount as the Mortgagee may request to cover payment of the items set forth in this subsection 5.4.2, and upon failure of the Mortgagor so to do, the Mortgagee may, after 10 days following written notice from the Mortgagee to the Mortgagor, apply the amount theretofore deposited with it (or the Mortgagee may submit for payment the letter of credit and apply the amount thereof, or may require application of the bonded amount by the surety company, if a bond has been furnished) to or on account of the payment, removal or discharge of such Imposition and the interest and penalties in connection therewith and any costs, fees or other liability accruing in any such proceeding, or any part of any of the same and the balance, if any, shall be returned to the Mortgagor. The Mortgagor shall, during the continuance of any contest (including appeals) referred to herein and at its sole cost and expense, provide the Mortgagee with such information relating to the same as the Mortgagee may reasonably request. If, at any time during the continuance of such proceeding, the Mortgaged Property or any part thereof is, in the judgment of the Mortgagee, in any reasonable danger of being sold, forfeited or lost, the Mortgagee may require, after ten (10) days' notice to the Mortgagor, that the amount theretofore deposited with it be applied to the payment of such Imposition (or the Mortgagee may submit for payment the letter of credit and apply the amount thereof, or may require application of the bonded amount by the surety company, if a bond has been furnished) in the manner provided in the preceding sentence. Notwithstanding anything contained herein to the contrary, no such deposit held by the Mortgagee, or any part thereof, shall be returned to the Mortgagor so long as any Event of Default shall exist hereunder. The Mortgagee shall act as the holder, in trust, of the monies, if any, deposited by the Mortgagor pursuant to this subsection 5.4.2. 5.4.3 The Mortgagor will exhibit to the Mortgagee the original receipts (or copies thereof) or other proof reasonably satisfactory to the Mortgagee of the payment of all real estate taxes within 30 days after the same are required to be paid by the Mortgagor in compliance with subsection 5.1 hereof. Concurrently with the delivery of the financial statements and other information required by Section 1009 of the Indenture, Mortgagor shall for all other Impositions deliver to the Mortgagee quarterly an Officer's Certificate that, to the best knowledge of such officer, all such Impositions have been paid and that, to the best of such officer's knowledge, the aggregate of all unpaid amounts on such Impositions do not exceed $25,000, except for Impositions which are being contested in accordance with the provisions of the first paragraph of 14 subsection 5.4. The Mortgagor shall immediately notify the Mortgagee of the receipt by the Mortgagor of any notice that any Imposition has not been paid when due and shall, at the same time, furnish to the Mortgagee a copy of such notice of non-payment. 5.4.4 "Impositions" shall mean all duties, taxes (including sales and use taxes), water, sewer and other rents, rates and charges, assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof), charges for public or private utilities, highway services, communication services, sprinkler systems, protective services and levies, license and permit fees, inspection fees and other authorization fees and other charges, ordinary or extraordinary, whether foreseen or unforeseen, of any kind and nature whatsoever, including interest or penalties thereon, which prior to or during the term of this Mortgage will have been or may be laid, levied, assessed or imposed upon or become due and payable out of or in respect of, or become a Lien on the Mortgaged Property or any part thereof, or the occupancy, use or possession of or activity conducted on the Mortgaged Property or any part thereof or which are levied or assessed against the income received by the Mortgagor from all or any part of the Mortgaged Property by virtue of any present or future law, order or ordinance of the United states of America or of any state, county or local government or of any department, office or bureau thereof or of any other governmental authority (such governments or other authorities being collectively referred to herein as a "Governmental Authority") having or claiming jurisdiction over the Mortgagor and/or the Mortgaged Premises or any part thereof. The term "Impositions" shall not include (a) income taxes assessed by the United States government or the State of New Jersey or any other State or any political subdivision of any of them, or (b) franchise, estate or similar taxes based upon or measured by income. 6. Changes in Method of Taxation. 6.1 In the event of the passage after the date hereof of any law applicable to the Mortgaged Premises or any part thereof, (i) deducting from the value of the Mortgaged Premises, for the purposes of taxation, any Lien thereon, or changing in any way the laws for the taxation of mortgages or debts secured by mortgages or the manner of collection of any such taxes, or (ii) imposing a tax, either directly or indirectly, on this Mortgage or any other documents evidencing or securing the Liabilities, in each case, the result of which affects adversely the Mortgagee, the Mortgagee shall have the right to declare, by written notice delivered to Mortgagor, that an Event of Default will occur hereunder one hundred twenty (120) days from the giving of such written notice unless the Mortgagor is exempt from such tax or, if not exempt from such tax, is permitted by law to pay the whole of such tax (or to provide funds to the Mortgagee to pay such taxes) and assumes as an obligation and Liability secured hereby the obligation to make all payments (or provide funds to the Mortgagee to pay such taxes) of any tax so imposed until full payment of the Liabilities. The Mortgagor shall promptly notify the Mortgagee of the occurrence of any of the events set forth in clauses (i) or (ii) of this Section 6.1. 6.2 The Mortgagor shall not have, nor will claim nor demand nor be entitled to receive, any credit or credits by virtue of the payment of taxes as provided herein against the Liabilities or the other sums payable as provided herein and in the Securities secured hereby, and such taxes shall be paid without abatement of or deduction from, and without counterclaim or 15 setoff against such principal, interest and other sums, for any reason, including, without limitation, for so much of the taxes assessed against the Mortgaged Premises as is equal to the tax rate applied to the amount due on this Mortgage or any part thereof, and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Premises, or any part thereof, by reason of the indebtedness secured by this Mortgage. 7. Expenses of Litigation. If an action to foreclose this Mortgage or to collect any of the Liabilities is commenced or any other action or proceeding is commenced to which the Mortgagee is or becomes a party or in which the Mortgagee is defending or upholding the Lien of this Mortgage, or in which the Mortgagee is served in with any legal process, discovery notice or subpoena relating to this Mortgage, all reasonable sums paid by the Mortgagee for the expense of any such litigation or appearance or action in response to any such legal process, discovery notice or subpoena (including attorneys' fees and disbursements associated with legal costs) shall be paid by the Mortgagor within thirty (30) days after notice has been given by the Mortgagee to the Mortgagor, together with interest thereon on such amounts as have actually been paid by the Mortgagee to third parties at a rate of interest equal to the greater of the prime rate of the Mortgagee plus 2% per annum, and such amounts shall be a Lien on the Mortgaged Property prior to any other right or title to, interest in or claim upon the Mortgaged Property subordinate to the Lien of this Mortgage, and shall be secured by this Mortgage, and, in any action or proceeding to foreclose this Mortgage, or to recover or collect any of the Liabilities, the provisions of law respecting the recovery of costs, disbursements and allowances shall prevail unaffected by this covenant. However, if such action or proceeding is not one relating to the enforcement of the rights of any Holders or the Lien of this Mortgage, the Mortgagee shall promptly notify the Mortgagor of such action or proceeding and the Mortgagor may participate in the conduct of such action or proceeding at the Mortgagor's sole cost and expense. 8. Maintenance. Subject to the Mortgagor's rights of alteration pursuant to Section 3 hereof, the Mortgagor will maintain and operate the Sands at a quality level at least as high as that existing on the date hereof and keep the Mortgaged Property in good condition and repair (subject to ordinary wear and tear), will not commit or suffer any waste of the Mortgaged Property and will comply with, or cause to be complied with, all statutes, ordinances and requirements of any Governmental Authority to which the Mortgaged Property are subject and which failure to comply therewith would have a materially adverse effect on the Mortgaged Property. Notwithstanding the foregoing, the Mortgagor shall have the right to contest the application of any such statute, ordinance or requirement of a Governmental Authority; provided that, if such statute or ordinance or requirement of a Governmental Authority imposes an immediate fine or monetary Imposition in an amount in excess of $2,000,000 upon the Mortgaged Premises for the failure to comply with such ordinance or requirement, the Mortgagor shall either pay such fine or monetary imposition and file an action for recovery thereof or deposit with Mortgagee, in the manner described in Section 5.4.2 hereof, an amount reasonably determined by the Mortgagee to be sufficient to protect the Mortgagee's interest (on its own behalf and on behalf of the Holders). Subject to the provisions of Section 9.3 hereof, the Mortgagor will promptly repair, restore, replace or rebuild any part of the Mortgaged Premises now or hereafter subject to the Lien of this Mortgage which may be damaged or destroyed by any 16 casualty whatsoever, free from Liens and encumbrances, except the Lien of this Mortgage and the other Security Documents and the encumbrances permitted by Section 1029 of the Indenture, without regard to the adequacy of any insurance proceeds, provided that the insurance proceeds are made available to the Mortgagor pursuant to Section 9 of this Mortgage. The Mortgagor will do all other things reasonably required for the maintenance and continuance of all such services in respect of Impositions to the extent required to fulfill the obligations set forth in this Section 8. 9. Destruction: Restoration; Condemnation. 9.1 Definitions. (a) "Substantial Destruction" shall, for purposes of this Mortgage, mean a casualty or loss or condemnation to the Mortgaged Premises which will close down more than 200 hotel rooms or more than 50% of the square footage of the Sands, in either event for a period of more than 120 days. (b) "Restoration" shall, for purposes of this Mortgage, mean the replacement, rebuilding or repairing of damaged, destroyed or, in the case of a condemnation, remaining areas of the Mortgaged Premises or the repair or replacement of the Mortgaged Premises not so condemned, in either case as nearly as possible to the condition, character and size of the Mortgaged Premises immediately prior to such damage, destruction or condemnation to comply with the Casino Control Act and all other material Legal Requirements and all material requirements of any insurance policy covering or applicable to the Mortgaged Premises including, without limitation, all material requirements of any issuer of such policy and any applicable board of underwriters. 9.2 Destruction. If the Mortgaged Premises, or any part thereof, shall be destroyed or damaged by fire or any other casualty, the Mortgagor shall give prompt notice thereof to the Mortgagee. If the Mortgagor does not promptly make proof of loss after a casualty, the Mortgagee may make proof of loss, and each insurance company concerned is hereby authorized and directed to make payment for such loss directly to the Mortgagor and/or the Mortgagee on its own behalf and on behalf of the Holders as their interests appear in accordance with the provisions of subsection 2.3 hereof. In all instances where the insurance proceeds are less than $1,000,000, the Mortgagor shall use such proceeds only for Restoration. In all instances of destruction or casualty as aforesaid where the insurance proceeds exceed $1,000,000, the insurance proceeds shall be deposited into and held in the Collateral Account and applied in accordance with Section 1018 of the Indenture and subsection 9.3 hereof. In the event that the Mortgagee releases such proceeds to the Mortgagor, the Mortgagor shall be obligated to restore or repair the Mortgaged Premises. In the event of foreclosure of the Mortgaged Premises or other transfer of title to the Mortgaged Premises in extinguishment of the indebtedness under the Securities and this Mortgage, all right, title and interest of the Mortgagor in and to any insurance policies then in force shall pass to the purchaser or grantee and the Mortgagor hereby appoints the Mortgagee its attorney-in-fact, in the Mortgagor's name, to assign and transfer all such policies and proceeds to such purchaser or grantee, and the Mortgagor shall be entitled only to a credit in reduction of the then outstanding Liabilities secured hereby in the amount of the cancellation refund actually received by the Mortgagee. The Mortgagor agrees, within fifteen (15) days following such foreclosure and written request by the Mortgagee, to execute and 17 deliver such assignments or other authorizations or instruments as may be necessary or desirable to effectuate the foregoing. 9.3 Restoration. If any insurance proceeds or condemnation award (including interest thereon, the "Restoration Funds"), held by the Mortgagee in the Collateral Account or otherwise are to be applied to the Restoration of the Mortgaged Premises or any portion thereof as determined in this Section 9.3 or Section 1018 of the Indenture, the Mortgagor shall promptly restore, replace or rebuild the damaged or destroyed Mortgaged Premises and such Restoration shall be performed only in accordance with the following conditions: 1. In the event the cost estimated by the architect supervising the Restoration (the "Estimated Restoration Cost") is less than $2,000,000, the Mortgagor shall diligently use the Restoration Funds to restore and repair the Mortgaged Premises provided that any proceeds remaining after the Restoration may be retained by the Mortgagor; provided further, however, that if any Event of Default shall occur and then exist, the Restoration Funds shall be paid over to the Mortgagee to be applied in accordance with the terms of the Indenture. 2. Intentionally Omitted. 3. Prior to commencement of the Restoration or at any time during the Restoration, if the Estimated Restoration Costs exceeds the amount of the Restoration Funds by a sum greater than or equal to $2,000,000, the amount of such excess shall be paid by the Mortgagor to the Mortgagee in the form of cash or a letter of credit (reasonably acceptable in form and substance to the Mortgagee) to be added to the Restoration Funds in the Collateral Account and in the event such shortfall is less than the sum of $2,000,000, the Mortgagor shall pay such shortfall on an ongoing basis during the course of the Restoration. 4. If no Default or Event of Default shall have occurred and be continuing, all proceeds of loss of rents/business interruption insurance payable as a result of any damage or destruction affecting the Mortgaged Premises shall be paid first, to the Mortgagee in an amount sufficient to pay, when due, all Liabilities, including the interest on and the principal of the Securities, for so long as the interruption shall continue or until coverage is exhausted, and second, to the Mortgagor. If a Default or Event of Default shall have occurred and be continuing, all such proceeds of loss of rents/business interruption insurance shall be paid to the Mortgagee. The Mortgagee shall hold such proceeds in trust and, at the direction of the Mortgagor, shall invest such proceeds in the type of investments set forth in clauses (a) through (d) in the definition of "Cash Equivalents" in the Indenture (such investments being referred to hereafter as "Cash Equivalents". The Mortgagee shall apply or cause to be applied the proceeds and such income received thereon to the payment of taxes, insurance premiums, rents, interest on and principal of the Securities, and the normal operating expenses of the Mortgaged 18 Property from and after the date of the occurrence of such damage or destruction until the completion of the necessary Restoration, if any, or until the exhaustion of such proceeds, whichever first occurs. Upon completion of such Restoration, any remainder of such loss of rents/business interruption insurance proceeds in the hands of the Mortgagee shall, provided that no Event of Default shall be continuing hereunder, be paid to the Mortgagor with interest received thereon, if any. 5. Except as provided in Section 1018 of the Indenture, nothing in this Section 9 shall relieve the Mortgagor of its duty to repair, restore, rebuild or replace the Mortgaged Property following damage or destruction by fire or other casualty or partial condemnation in the event that no or inadequate proceeds of insurance are available to defray the cost of such repairing, restoring, rebuilding or replacement. In addition, nothing contained herein shall relieve the Mortgagor of its duty to pay all Liabilities subsequent to the occurrence of any fire or other casualty or condemnation; provided, however, that, if the Mortgagee is applying the proceeds of business interruption insurance or temporary taking proceeds to the payment of the principal and accrued interest under the Securities, the Mortgagor shall not be required to make double payments. 9.4 Condemnation/Eminent Domain. (a) Immediately upon obtaining knowledge or the institution of any proceedings for the condemnation or taking, either permanent or temporary, by eminent domain of the Mortgaged Premises or any portion thereof, the Mortgagor will notify the Mortgagee of the pendency of such proceedings. The Mortgagee may, but shall not be obligated to, participate in any such proceedings, and the Mortgagor shall from time to time deliver to the Mortgagee all instruments requested by it to permit such participation. Except as otherwise provided herein, the Mortgagor shall, at its expense, diligently prosecute any such proceeding and shall consult with the Mortgagee, its attorneys and experts and cooperate with them in any defense of any such proceedings. The Mortgagor will not enter into any agreement for the taking or conveyance of the Mortgaged Premises or any material part thereof, with anyone authorized to acquire the same by eminent domain or in condemnation unless the Mortgagor shall have delivered to the Mortgagee an Officer's Certificate from the Mortgagor that such agreement is fair and reasonable in light of all of the circumstances. (b) All awards and proceeds of condemnation in respect of any of the Mortgaged Premises shall be applied in the same manner provided in Section 9.3 hereof in respect of damage or destruction. 10. Inspection. The Mortgagee and any persons authorized by the Mortgagee shall have the right to enter and inspect the Mortgaged Premises upon reasonable notice at all reasonable times, but shall undertake such inspections in such a manner as to minimize disruption and interference of the operation thereof. 11. Assignment of Rents, Issues and Profits. (a) Subject to the limitations contained herein, the Mortgagor hereby assigns to the Mortgagee on its own behalf and on behalf of the Holders the rents, issues and profits 19 derived from (i) all leases of the Mortgaged Premises now or hereafter entered into by the Mortgagor and (ii) all occupancy, license and concession agreements in respect of any part of the Mortgaged Premises now or hereafter entered into, all as further collateral security for the payment of the Liabilities, and the Mortgagor grants to the Mortgagee the right to enter the Mortgaged Premises for the purpose of collecting the same and to lease the Mortgaged Property, or any part thereof, and to apply said rents, issues and profits on account of the Liabilities. This assignment, grant and right to apply rents, issues and profits shall continue in effect until the Liabilities are paid in full, but the Mortgagee hereby waives the right to enter the Mortgaged Premises and/or to collect said rents, issues and profits, and the Mortgagor shall be entitled to collect, receive, use and retain said rents, issues and profits, until the occurrence of and during the continuation of an Event of Default; such right of the Mortgagor to exercise all such rights, including the right to collect, receive, use and retain said rents, issues and profits may be revoked by the Mortgagee upon the occurrence of and during the continuation of an Event of Default by the Mortgagee giving written notice of such revocation to the Mortgagor. The Mortgagor shall not accept prepayments of installments of rent under the leases which payments would, in the aggregate for all such leases, exceed the sum of $1,000,000 (except for tenant finish work performed with respect to any such lease). If, following the occurrence of an Event of Default, the Mortgagee shall thereafter elect to discontinue the exercise of any right or remedy assigned or granted to the Mortgagee on its own behalf and on behalf of the Holders pursuant to this Section 11 or such Event of Default has otherwise been cured, the Mortgagor's rights under this subsection 11(a) shall be automatically reinstated, subject to the same or any other right or remedy hereunder being reasserted at any time and from time to time following any subsequent Event of Default. Anything herein to the contrary notwithstanding, the rights of the Mortgagor to collect or retain any sums shall not apply to amounts to be used by Mortgagor to cure an Event of Default or otherwise make any payment in respect of Securities or make any payment or perform any obligation under the Indenture or other Security Document (all of which, whether paid to Mortgagor or Mortgagee, shall be made available to Mortgagor for such purpose). (b) The granting of the assignment created in Section 11(a) hereof shall not, prior to entry upon and taking of possession of the Mortgaged Property by the Mortgagee, be deemed or construed to constitute the Mortgagee in possession nor thereafter or at any time or in any event obligate the Mortgagee to perform or discharge any obligation of the Mortgagor or to appear in or defend any action or proceeding relating to the Mortgaged Property or the leases relating thereto nor shall the Mortgagee be liable in any way for any injury or damage to person or property sustained by any individual or individuals in or about the Mortgaged Property and the Mortgagor agrees to indemnify and hold harmless the Mortgagee against any and all such liability, loss or damage, except for losses occurring as the result of gross negligence or willful misconduct on the part of the Mortgagee. 12. Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default" (occurring for any reason whatsoever, whether voluntary or involuntary, or by operation o(pound) law or pursuant to or in compliance with any judgment, decree or order of any court or of any Legal Requirement or otherwise): (a) any Event of Default, as defined in the Indenture; or 20 (b) upon the assignment of any of the rents, issues, profits or leases of any portion of the Mortgaged Property, or any part thereof, to anyone other than the Mortgagee on its own behalf and on behalf of the Holders without the prior written consent of the Mortgagee, except as permitted in the Indenture, and such assignments of rents, issues, profits or leases are not rescinded or otherwise voided following the giving by the Mortgagee to the Mortgagor of 30 days' written notice thereof; or (c) in the event of a lease, assignment or other transfer of any portion of the Mortgaged Property other than as permitted in the Indenture, this Mortgage or as Permitted Encumbrances, and such lease or other transfer is not rescinded or otherwise voided following the giving by the Mortgagee to the Mortgagor of 30 days' written notice thereof; or (d) the event that the Mortgagee declares that an Event of Default has occurred in accordance with Section 6.1. 13.1 Remedies. Upon the occurrence of an Event of Default hereunder, in addition to its remedies contained in the Indenture, the Mortgagee on its own behalf and on behalf of the Holders may take any or all of the following actions, at the same or at different times: (a) Possession. Enter upon and take possession of the Mortgaged Property, and lease and let the Mortgaged Property, or any part thereof, and receive all the rents, issues and profits thereof which are overdue, due or to become due, and apply the same, after payment of all reasonably necessary charges and expenses, on account of the amounts hereby secured, and the Mortgagee is hereby given and granted full power and authority to do any act or thing, which the Mortgagor might or could legally do in connection with the management and operation of the Mortgaged Property. The granting of the authority so created shall not, prior to entry upon and taking of possession of the Mortgaged Property by the Mortgagee, be deemed or construed to constitute the Mortgagee in possession nor thereafter or at any time or in any event obligate the Mortgagee to perform or discharge any obligation of the Mortgagor or to appear in or defend any action or proceeding relating to the Mortgaged Property or the leases relating thereto nor shall the Mortgagee be liable in any way for any injury or damage to person or property sustained by any individual or individuals in or about the Mortgaged Property and the Mortgagor agrees to indemnify and hold harmless the Mortgagee against any and all such liability, loss or damage, except for losses occurring as the result of gross negligence or willful misconduct on the part of the Mortgagee. (b) Foreclosure. Institute an action of mortgage foreclosure, or take other action as the law may allow, at law or in equity, for the enforcement of this Mortgage, and proceed thereon to final judgment and execution of the entire unpaid balance of the Liabilities including costs of suit, interest and reasonable attorneys' fees. In case of any sale of the Mortgaged Property by virtue of judicial proceedings, the Mortgaged Property may be sold in one parcel and as an entirety or in such parcels, manner or order as the Mortgagee in its sole discretion may elect. The failure to make any tenants parties defendant to a foreclosure proceeding and to foreclose their rights will not be asserted by the Mortgagor as a defense in any proceeding instituted by the Mortgagee to collect any of the Liabilities. 21 (c) Appointment of Receiver. Without notice to the Mortgagor, appoint a receiver of the rents, issues and profits of the Mortgaged Property without the necessity of proving either the depreciation or the inadequacy of the value of the security or the insolvency of the Mortgagor or any person who may be legally or equitably liable to pay moneys secured hereby and the Mortgagor and each such person waives such proof and hereby consents to the appointment of a receiver. (d) Excess Monies. Apply on account of the unpaid Liabilities and the interest thereon or on account of any arrearages of interest thereon, or on account of any balance due to the Mortgagee after a foreclosure sale of the Mortgaged Property, or any part thereof, any unexpended moneys still retained by the Mortgagee that were paid by the Mortgagor to the Mortgagee for the payment of, or as security for the payment of, taxes, assessments, municipal or governmental rates, charges, Impositions, Liens, water or sewer rents, or insurance premiums, if any, or in order to secure the performance of some other act by or obligation of the Mortgagor. (e) Other Remedies. Exercise any and all other rights and remedies granted under this Mortgage or now or hereafter existing in equity, at law, by virtue of statute or otherwise, including, without limitation, the right and power to sell the whole or any portion of the Mortgaged Property according to law. 13.2 Remedies, Cumulative and Concurrent. The rights and remedies of the Mortgagee on its own behalf and on behalf of the Holders as provided in this Mortgage and the other documents securing the indebtedness evidenced by the Securities will be cumulative and concurrent and may be pursued separately, successively or together against the Mortgagor or against other obligors or against the Mortgaged Property, or any one or more of them, in the sole and absolute discretion of the Mortgagee, and may be exercised as often as occasion for such pursuit arises. The failure to exercise any such right or remedy will not be construed as a waiver or release of that right or remedy. The Mortgagee's consent to any act or omission by subsequent act or omission or a waiver of the need for such consent in any future or other instance. 13.3 Waiver of Exemptions; Marshalling. Subject to any contrary provisions contained in this Mortgage, the Mortgagor hereby waives and releases, to the extent permitted by law: (a) All benefit that might accrue to the Mortgagor by virtue of any present or future law exempting the Mortgaged Property, or any part of the proceeds arising from any sale of the Mortgaged Property. from attachment, levy or sale on execution; and (b) Exemption from civil process; and (c) Redemption or extension of time for payment; and (d) Any right to have the Mortgaged Property marshalled. 13.4 Discontinuance of Proceedings. If the Mortgagee has proceeded to enforce any right under the Guarantee, the Indenture, the Securities or this Mortgage or any other document securing the Liabilities and such proceedings have been discontinued or abandoned for 22 any reason, then in every such case, the Mortgagor and the Mortgagee will be restored to their former positions and the rights, remedies and powers of the Mortgagee will continue as if no such proceedings had been taken. 13.5 Application of Proceeds. In the event of any sale of the Mortgaged Property by foreclosure, through suit in equity, by publication or otherwise, the proceeds of any such sale shall be applied in the manner set forth in Section 506 of the Indenture. 14. No Waivers, Etc. Any failure by the Mortgagee to insist upon the strict performance by the Mortgagor of any of the terms and provisions of this Mortgage shall not be deemed to be a waiver of any of the terms and provisions hereof, and the Mortgagee, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by the Mortgagor of any and all of the terms and provisions of this Mortgage to be performed by the Mortgagor; neither the Mortgagor nor any other person now or hereafter obligated for the payment of the whole or any part of the sums now or hereafter secured by this Mortgage, including, but not limited to, any guarantor, shall be relieved of such obligation by reason of the failure of the Mortgagee to comply with any request of the Mortgagor, or of any other person so obligated, to take action to foreclose this Mortgage or otherwise enforce any of the provisions of this Mortgage or any provisions relating to the Liabilities including the indebtedness evidenced by the Securities, or by reason of the release, regardless of consideration, of the whole or any part of the security held for the indebtedness evidenced by the Securities or the Liabilities, or by reason of any agreement or stipulation between any subsequent owner or owners of the Mortgaged Property and the Mortgagee extending the time of payment or modifying the terms of the Securities or this Mortgage, without first having obtained the consent of the Mortgagor or such other person and, in the last-mentioned event, the Mortgagor and all such other persons shall continue to be liable to make such payments according to the terms of any such agreement of extension or modification unless expressly released and discharged in writing by the Mortgagee; the Mortgagee may release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate Lien on the Mortgaged Property as may be permitted pursuant to the terms of the Indenture, any part of the security held for the indebtedness evidenced by the Securities or the Liabilities without, as to the remainder of the security, impairing or affecting the Lien of this Mortgage or the priority of such Lien over any subordinate Lien; the holder of any subordinate Lien on the Mortgaged Property shall have no right to terminate any lease affecting the same, or any part thereof, whether or not such lease be subordinate to this Mortgage; and the Mortgagee may resort for the payment of the indebtedness evidenced by the Securities or the Liabilities secured to any other security therefor held by the Mortgagee in such order and manner as the Mortgagee may elect. 15. Revenue Stamps. If at any time the United States of America or the State of New Jersey shall require internal revenue or other stamps to be affixed to the Securities or this Mortgage, the Mortgagor will pay for the same, together with any interest or penalties imposed in connection therewith. 16. Notices. (a) Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by this Mortgage to be made upon, given or furnished to, or filed with: 23 (1) the Mortgagee shall be sufficient for every purpose hereunder if in writing and mailed postage prepaid, by registered or certified mail, return receipt requested, or delivered personally, to the Mortgagee at: [_________________________________________] with a copy, in the case of any notice from the Mortgagor to the Mortgagee, given in one of the foregoing manners to: [____________________________________________] (provided that any failure by the Mortgagor to furnish such a copy shall not affect the sufficiency of any such request, demand, authorization, direction, notice, consent, waiver or other document with respect to the Mortgagee); and (2) the Mortgagor shall be sufficient for every purpose hereunder if in writing and mailed postage prepaid, registered or certified mail, return receipt requested, or delivered personally, to the Mortgagor, addressed to it at: The Sands Hotel and Casino Indiana Avenue and Brighton Park Atlantic City, New Jersey 08401 Attention: Frederick H. Karus, Esq. or at any other address previously furnished in writing to the Mortgagee by the Mortgagor, with a copy given in one of the foregoing manners to: _____________________________ and also to the Guarantor at the address provided in the Indenture (provided that any failure to furnish such copies shall not affect the sufficiency of any such demand, request, authorization, direction, notice, consent, waiver or other document provided or permitted to be made, given or furnished in connection with this mortgage). (b) In the event that a notice is given by personal delivery as provided in this Section 16, the party giving such notice shall, within three days after such personal delivery, also give such notice by mail as provided in subsection 16(a) above, provided that such notice shall be effective as of the date of personal delivery. 17. Modification; Amendment. This Mortgage may not be modified, amended, discharged, waived in whole or in part except by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. 18. Partial Invalidity. In the event any one or more of the provisions contained in this Mortgage shall for any reason be held to be invalid, illegal or unenforceable, in 24 any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, but each shall be construed as if such invalid, illegal or unenforceable provision had never been included. 19. No Subordinate Financing. The Mortgagor shall not execute or deliver, or suffer to exist, any pledge, security agreement, or mortgage (other than this Mortgage and the Permitted Encumbrances) covering all or any portion of the Mortgaged Property except as expressly permitted under Section 1014 of the Indenture. 20. Intentionally Omitted. 21. Security Agreement. It is the intention of the parties hereto that this Mortgage shall constitute a security agreement within the meaning of the Uniform Commercial Code with respect to the Fixtures, and that a security interest shall attach thereto for the benefit of the Mortgagee to secure the Liabilities and all other sums and charges which may become due hereunder or secured hereby. The Mortgagor hereby authorizes the Mortgagee to file financing and continuation statements with respect to the Fixtures in which the Mortgagor has a mortgageable interest, without the signature of the Mortgagor whenever lawful and, upon written request, the Mortgagor shall promptly prepare and execute financing and continuation statements reasonable and necessary to establish and maintain a valid security interest hereunder in form reasonably satisfactory to the Mortgagee to further evidence and secure the Mortgagee's interest in the Fixtures, and shall pay all filing fees in connection therewith. Upon the occurrence of an Event of Default under this Mortgage, the Mortgagee, pursuant to Section 9-501(4) of the Uniform Commercial Code, as said Section is currently constituted or may be hereafter amended, shall have the option of proceeding as to both real and personal property in accordance with its rights and remedies in respect of the real property, in which event the default provisions of the Uniform Commercial Code shall not apply. The parties agree that in the event that the Mortgagee elects to proceed with respect to the Fixtures separately from the real property, ten (10) days' notice of the sale of the Fixtures shall be reasonable notice. 22. Successors and Assigns. All covenants of the Mortgagor contained in this Mortgage are imposed solely and exclusively for the benefit of' the Mortgagee on its own behalf and on behalf of the Holders and its successors and assigns, and no other person shall have standing to require compliance with such covenants or shall, under any circumstances, be deemed to be a beneficiary of such covenant, any or all of which may be freely waived in whole or in part by the Mortgagee at any time if in its sole discretion it deems it advisable to do so. But all such covenants of the Mortgagor shall run with the Land and bind the Mortgagor, the successors and assigns of the Mortgagor (and each of them) and all subsequent owners, encumbrancers and tenants of the Mortgaged Premises, and shall enure to the benefit of the Mortgagee, its successors and assigns. The word "Mortgagor" shall be construed as if it read "Mortgagors" whenever the sense of this Mortgage so requires and shall include all successors and assigns of the Mortgagor. The word "Mortgagee" shall be construed to mean the Mortgagee named herein and the successors and assigns thereof. The Mortgagor understands and agrees that whenever herein the Mortgagee's consent is required, the Mortgagee may be obligated, prior to giving such consent, to obtain the agreement of the Holders as required in the Indenture and, in such event, the Mortgagee's obligation to deliver any such consent to the Mortgagor shall be 25 subject to the Mortgagee first obtaining the required Holders' consent. All covenants, agreements and obligations of the Mortgagee hereunder shall inure to the benefit of the Mortgagor and its successors and assigns and shall be binding upon the Mortgagee, Holders, participants and their respective successors and assigns. 23. Governing Law. This Mortgage and all matters relating or pertaining to this Mortgage shall be governed, construed and enforced by and under the laws of the State of New Jersey. 24. Space Leases. 24.1 All Space Leases of all or any portion of the Mortgaged Property hereafter entered into after the date hereof by the Mortgagor (i) will be subordinated to the Lien created by this Mortgage unless Mortgagee directs otherwise and (ii) shall provide that following the sale of the Mortgaged Property or any part thereof through foreclosure or otherwise, or following conveyance of the Mortgaged Property or any part thereof by deed or assignment in lieu of foreclosure, the Space Tenant under each such Space Lease will, upon ten (10) days' written notice from the purchaser of the Mortgaged Property or any part thereof (or its assignee) given within sixty (60) days after the sale thereof, attorn to such purchaser or assignee as the direct tenant of such purchaser or assignee. 24.2 The Mortgagor shall duly and punctually perform and serve all of the material terms, covenants and conditions of the Space Leases required to be performed and observed by it as landlord thereunder substantially in accordance with the terms thereof. The Mortgagor will further do all things reasonably necessary to preserve and keep unimpaired its rights under all Space Leases. The Mortgagor shall require all Space Tenants to observe, keep and perform all material covenants and agreements imposed upon them under the Space Leases. The Mortgagor shall appear in and defend any action or proceeding arising under or in any manner connected with any of the Space Leases. 24.3 The Mortgagor shall furnish to the Mortgagee a copy of each Space Lease promptly after its execution. At any time, and from time to time, upon request and on reasonable notice from the Mortgagee. the Mortgagor shall deliver to the Mortgagee a schedule of all Space Leases then in effect, which schedule shall include the following: (i) the name of the Space Tenant under the Space Lease; (ii) a description of the space leased thereunder in form satisfactory to the Mortgagee, including but not limited to the approximate number of square feet leased thereunder, type of activity performed under such lease and type of space leased; (iii) the rental rate, including any escalations, if any; (iv) the term of the Space Lease and a description of any renewal options; and (v) such other information as the Mortgagee may reasonably request. 24.4 "Space Leases" shall mean any and all leases, licenses, concessions or other agreements (written now or hereafter in effect), which grant a possessory interest in and to, or the right to use part of the Mortgaged Property. "Space Tenant" shall mean the tenant or other user or occupant of such part of the Improvements. 26 25. Indenture. This Mortgage has been executed and delivered pursuant to the terms of the Indenture and is entitled to the benefits of the Indenture. 26. Further Assurances. The Mortgagor will, at any time and from time to time after the execution and delivery of this Mortgage, promptly upon request, execute and deliver such further deeds of trust, mortgages, instruments of further assurances and other documents and do such further acts and things as the Mortgagee may reasonably request in order to evidence further the Lien and security interest of this Mortgage, pursuant to its terms and to protect further the security of the Mortgagee on its own behalf and on behalf of the Holders, and otherwise to effect fully the purposes of this Mortgage. 27. Escrowed Sums. In order to more fully protect the security of this Mortgage and to insure the payment of Impositions and insurance premiums, from and after the occurrence of an Event of Default hereunder and until such Event of Default is cured, the Mortgagor shall pay to the Mortgagee and as "Escrowed Sums", in monthly installments in advance, an amount equal to the pro rata sum of (a) Impositions (estimated wherever necessary) to become due for the tax year during which such payment is so directed and (b) the insurance premiums for the same year for those insurance policies as are required hereunder. If the Mortgagee determines that any amounts theretofore paid by the Mortgagor are insufficient for the payment in full of such Impositions and insurance premiums, the Mortgagee shall notify the Mortgagor of the increased amounts required to provide a sufficient fund, whereupon the Mortgagor shall pay to the Mortgagee, within thirty (30) days thereafter the additional amount as stated in such notice by the Mortgagee. The Escrowed Sums shall be held by the Mortgagee and upon written request of the Mortgagor invested in Cash Equivalents and shall not be commingled with the Mortgagee's other funds and shall be paid directly by the Mortgagee to the applicable Governmental Authority or the insurance companies entitled thereto. Upon assignment of its rights under this Mortgage, the Mortgagee shall have the right to pay over the balance of the Escrowed Sums then in its possession to the assignee and upon assumption of such liability by the assignee, the Mortgagee on its own behalf and on behalf of the Holders shall become completely released from all liability with respect thereto. Upon full payment of the Liabilities or at such earlier time as the Mortgagee may elect, the balance of the Escrowed Sums in the Mortgagee's possession shall be paid over to the Mortgagor and no other party shall have any right or claim thereto. If no Event of Default shall be continuing hereunder, the Escrowed Sums shall, at the option of the Mortgagee, be repaid to the Mortgagor in sufficient time to allow the Mortgagor to satisfy the Mortgagor's obligations under this Mortgage to pay Impositions and the required insurance premiums; or be paid directly by the Mortgagee to the applicable Governmental Authority and the insurance company entitled thereto. If an Event of Default shall be continuing hereunder, however, the Mortgagee shall have the additional option of crediting the full amount of the Escrowed Sums against the Liabilities. Notwithstanding anything to the contrary contained in this Section 27 or elsewhere in this Mortgage, the Mortgagee hereby reserves the right to waive the payment by the Mortgagor to the Mortgagee of the Escrowed Sums, and, in the event that the Mortgagee does so waive such payment, it shall be without prejudice to the Mortgagee's rights to insist, at any subsequent time or times, that such payments be made in accordance herewith. 27 28. Release by Mortgagee. Any release of, regardless of consideration, any part of the Mortgaged Property or any other collateral security for any of the Liabilities or the indebtedness evidenced by the Securities will not in any way impair, affect, subordinate or release the Lien or security interests created in or evidenced by this Mortgage or its stature as a Lien and security interest in and to the Mortgaged Property. For payment of the Liabilities or the indebtedness evidenced by the Securities, the Mortgagee may resort to the security of the Mortgage and/or any other security held by the Mortgagee on its own behalf and on behalf of the Holders in such order and manner as the Mortgagee may elect. The Mortgagee may, to the full extent that it may lawfully do so, pursue any one or more remedies permitted or referred to hereunder or under applicable law to enforce the provisions of this Mortgage, to collect the Liabilities or the indebtedness evidenced by the Securities or to realize upon the security given therefor at the same time or at different times without in any way impairing or waiving its right to pursue any other remedy or remedies so provided. 29. Waiver of Damages. Except as to claims arising out of the negligence or willful misconduct of the Mortgagee, the Mortgagor further waives any claim against the Mortgagee for consequential, special or punitive damages arising in connection with the Indenture, this Mortgage or any of the other documents securing the Securities, and further waives the right to interpose any defense based on any statute of limitations or any claim of laches arising in connection with the Indenture or this Mortgage and any setoff or counterclaim of any nature or description. 30. Unenforceability. If any term, covenant, condition or provision of this Mortgage or the application thereof to any circumstance or to any person, firm or corporation shall be invalid or unenforceable to any extent the remaining terms, covenants, conditions and provisions of this Mortgage. or the application thereof to any circumstances or to any Person, other than those as to which any term, covenant, condition or provision is held invalid or unenforceable, shall not be affected or impaired thereby and each remaining term, covenant, condition and provision of this Mortgage shall be valid and shall be enforceable to the fullest extent permitted by law. 31. Spill Compensation and Control Act and Environmental Cleanup Responsibility Act. Industrial Site Remediation Act. A. Representations and Warranties. For the purposes of this Section 31, the Mortgagor makes the following representations only as to properties owned by it and solely on its own behalf: (1) To the best of the Mortgagor's knowledge, none of the real property owned and/or occupied by the Mortgagor, and located in the State of New Jersey, including, but not limited to the Mortgaged Premises, has ever been used by previous owners and/or operators to refine, produce, store, handle, transfer, process, transport, generate, manufacture, treat or dispose of "Hazardous Substances", as such term is defined in N.J.S.A. 58:10-23.11b(k), and the 28 Mortgagor has not in the past used, nor does intend in the future to use, its said real property, including, but not limited to the Mortgaged Premises, for the purpose of refining, producing, storing, handling, transferring, processing, transporting, generating, manufacturing, treating or disposing of said "Hazardous Substances". (2) None of the real property owned and/or occupied by it and located in the State of New Jersey, including, but not limited to the Mortgaged Premises, has been or is now being used or, to the best of Mortgagor's knowledge, has been used as a "Major Facility", as such term is defined in N.J.S.A. 58:10-23.11b(1), and said real property, including, but not limited to the Mortgaged Premises, will not be used as a "Major Facility" after completion of any construction, renovation, restoration and other developmental work which the Mortgagor may undertake thereon. (3) To the best of the Mortgagor's knowledge, no Lien has been attached to any revenues or any real or personal property owned by the Mortgagor, and located in the State of New Jersey, including, but not limited to, the Mortgaged Premises, as a result of the chief executive of the New Jersey Spill Compensation Fund expending monies from said fund to pay for "Damages", as such term is defined in N.J.S.A. 58:10-23.11(g) and/or "Cleanup and Removal Costs", as such term is defined in N.J.S.A. 58:10-23 11b(d), arising from an intentional or unintentional action or omission of the Mortgagor or any previous owner and/or operator of said real property, including, but not limited to the Mortgaged Premises, resulting in the releasing, spilling, pumping, pouring, emitting, emptying or dumping of "Hazardous Substances", as such term is defined in N.J.S.A. 58.10-23. llb(k), into the waters of the State of New Jersey or onto lands from which it might flow or drain into said waters or into waters outside the jurisdiction of the State of New Jersey where damage may have resulted to the lands, waters, fish, shellfish, wildlife, biota, air and other resources owned, managed, held in trust or otherwise controlled by the State of New Jersey. (4) To the best of Mortgagor's knowledge, the Mortgagor has not received a summons, citation, directive, letter or other written communication from the New Jersey Department of Environmental Protection concerning any intentional or unintentional action or omission on the Mortgagor's part resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of "Hazardous Substances", as such term is defined in N.J.S.A. 58:10-23.11b(k), into the waters or onto the lands of the State of New Jersey, or into the waters outside the jurisdiction of the State of New Jersey resulting in damage to the lands, waters, fish, shellfish, wildlife, biota, air and other resources owned, managed, held in trust or otherwise controlled by and within the jurisdiction of the State of New Jersey. (5) To the best of the Mortgagor's knowledge, none of the real property owned and/or occupied by the Mortgagor and located in the State of New Jersey, including, but not limited to the Mortgaged Property, has ever been used by previous owners and/or operators to generate, manufacture, refine, transport, treat, store, handle or dispose of "Hazardous Substances", or "Hazardous Wastes", as such terms are defined in N.J.A.C. 7:1-3.3, and the Mortgagor does not intend to use any of its real property, including, but not limited to the Mortgaged Property for such purposes. 29 (6) In connection with the purchase of the Mortgaged Premises and any other real property acquired by the Mortgagor on or after January 1, 1984, the Mortgagor required that the Seller of said real property, including the Mortgaged Property, comply with the provisions of the New Jersey Industrial Site Responsibility Act (N.J.S.A. 13:1k-6 et seq.) and the Seller did comply therewith. (7) If and to the extent required by applicable law, the Mortgagor has conducted a complete and thorough on-site inspection of the Mortgaged Property, including, but not limited to, a geohydrological survey of soil and sub-surface conditions as well as other tests, to determine the presence of "Hazardous Substances" or "Hazardous Wastes", as such terms are defined in N.J.A.C. 7:1-3.3, and the Mortgagor found no evidence of the presence of said "Hazardous Substances" or Hazardous Wastes" on or in the Mortgaged Property. B. Covenants. (1) If the Mortgagor is presently an owner or operator of a "Major Facility" in the State of New Jersey, as such term is defined in N.J.S.A. 58:10-23.11b(1), or if the Mortgagor ever becomes such an owner or operator, then the Mortgagor shall furnish the New Jersey Department of Environmental Protection with all the information required by N.J.S.A. 58:10-23.11d to the extent applicable. (2) The Mortgagor shall not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part, a releasing, spilling, leaking, pumping, emitting, pouring, emptying or dumping of a "Hazardous Substance", as such term is defined in N.J.S.A. 58:10-23.11b(k) into waters of the State of New Jersey or onto the lands from which it might flow or drain into said waters. or into waters outside the jurisdiction of the State of New Jersey where damage may result to the lands, waters, fish, shellfish, wildlife, biota, air and other resources owned, managed, held in trust or otherwise controlled by the State of New Jersey unless said spill, leak, etc. is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal or state governmental authorities. (3) So long as the Mortgagor shall own or operate any real property located in the State of New Jersey, which is used as a "Major Facility", as such term is defined in N.J.S.A. 58:10-23.11b(1), the Mortgagor shall duly file or cause to be duly filed with the Director of the Division of Taxation in the New Jersey Department of the Treasury, a tax report or return and shall pay or make provision for the payment of all taxes due therewith, all in accordance with and pursuant to N.J.S.A. 58:10-23.11h to the extent applicable. (4) In the event that there shall be filed a Lien against the Mortgaged Premises by the New Jersey Department of Environmental Protection, pursuant to and in accordance with the provisions of N.J.S.A. 58:10-23.11f(f), as a result of the chief executive of the New Jersey Spill Compensation Fund having expended monies from said fund to pay for "Damages", as such term is defined in N.J.S.A. 58:10-23.11g. and/or "Cleanup and Removal Costs", as such term is defined in N.J.S.A. 58:10-23.11b(d), arising from an intentional or unintentional action or omission of the Mortgagor, resulting in the releasing, spilling, pumping, pouring, emitting, emptying or dumping of "Hazardous Substances", as such term is defined in N.J.S.A. 30 58:10-23.11b(k) into the waters of the State of New Jersey or onto lands from which it might flow or drain into said waters, then the Mortgagor shall, within thirty (30) days from the date that the Mortgagor is given notice that the Lien has been placed against the Mortgaged Premises or within such shorter period of time in the event that the State of New Jersey has commenced steps to cause the Mortgaged Premises to be sold pursuant to the Lien, either (i) pay the claim and remove the Lien from the Mortgaged Premises, or (ii) furnish (a) a bond reasonably satisfactory to the Mortgagee in the amount of the claim out of which the Lien arises, (b) a cash deposit in the amount of the claim out of which the Lien arises, or (c) other security reasonably satisfactory to the Mortgagee in an amount sufficient to discharge the claim out of which the Lien arises (a commitment of a reputable title insurance company to affirmatively insure over or omit such claim shall constitute such reasonably satisfactory security). (5) Should the Mortgagor cause or permit any intentional or unintentional action or omission resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of "Hazardous Substances", as such term is defined in N.J.S.A. 58:10-23.11b(k), into the waters or onto the lands of the State of New Jersey, or into the waters outside the jurisdiction of the State of New Jersey resulting in damage to the lands, waters, fish, shellfish, wildlife, biota, air or other resources owned, managed or held in trust or otherwise controlled by the State of New Jersey, without having obtained a permit issued by the appropriate governmental authorities, the Mortgagor shall promptly clean up such spill, leak, pumping, pouring, emission, emptying or dumping, if so required by the Department of Environmental Protection in accordance with the provisions of the New Jersey Spill Compensation and Control Act and all other applicable law. C. Exceptions Notwithstanding Subsection A and B above. (1) With respect to Lot 12 in Block 47 of the Tax Map of the City of Atlantic City, two underground oil storage tanks were abandoned in place in accordance with applicable regulations of its New Jersey Department of Environmental Protection ("NJDEP") and the Mortgagor maintains an above ground oil storage tank on ???? property. (2) The prior owner of Lots 1-6, 9, and 10 in Block 47 abandoned in place 3 underground storage tanks, (the "Midtown Bala Properties"), completed product recovery operations and well closure activities with respect to spilled oil product which respect to one such tank, and received "no further action" letters from the NJDEP with respect to such company to remove asbestos from its Midtown Bala Properties improvements prior to the demolition thereof. (3) The Sands may store small quantities of substances that may be "hazardous" substances to use in the ordinary course of operating its casino hotel. 32. Each of the provisions of this Mortgage is subject to and shall be enforced in compliance with the provisions of the Casino Control Act. 31 33. In this Mortgage, whenever the context so requires, the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural and conversely in each case. THE MORTGAGOR ACKNOWLEDGES THAT THE MORTGAGOR HAS RECEIVED FROM THE MORTGAGEE WITHOUT CHARGE A TRUE COPY OF THIS INSTRUMENT STAMPED "COPY" AND ON WHICH SUCH COPY IS A CERTIFICATION BY THE MORTGAGEE THAT SUCH INSTRUMENT IS A TRUE COPY OF THIS MORTGAGE. 34. Notwithstanding anything to the contrary herein contained or contained in the Indenture, the Security Agreement or any document executed in connection therewith: (i) Mortgagor shall have the right to sell, transfer and convey (the "Sale") the Mortgaged Property in whole or in part (including, without limitation, in a transaction involving a parcel of Land together with all Improvements and Fixtures thereon and all Space Leases pertaining thereto) (the parcel(s) which is the subject of such Sale is hereinafter referred to as the "Conveyed Property") and in connection therewith obtain from Mortgagee a release of the Conveyed Property from the Lien of this Mortgage and the Security Agreement provided that such Sale is made in accordance with the provisions of Section 1017 of the Indenture as if such Sale was an Asset Sale, as that term is defined in the Indenture, regardless of whether such Sale was in fact an Asset Sale. In connection therewith, Mortgagee shall execute, acknowledge and deliver to Mortgagor such documents as Mortgagor may reasonable require to effectuate such release; and (ii) Mortgagor shall have the right to lease (the "Lease") the Mortgaged Property in whole or in part (a parcel of Land together with all Improvements and Fixtures thereon and all Space Leases pertaining thereto) (the parcel(s) which is the subject of such Lease is hereinafter referred to as the "Leased Property") pursuant to a long term ground lease or operating lease and in connection therewith obtain from Mortgagee a nondisturbance agreement reasonably satisfactory to Mortgagor to such Lease provided that the rentals provided for in such Lease, in the aggregate, represents the fair market value of a lease of the Leased Property at that time. * * * * 32 IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be signed in its name. GREATE BAY HOTEL AND CASINO, INC. By:___________________________________ Name: Title: Attest: By:____________________________________ 33 COUNTY OF _______________) ) ss: STATE OF ________________) On _______________________ before me, the subscriber, personally appeared ______________________ who being by me duly sworn according to law on his oath saith that he is the Secretary of Greate Bay Hotel and Casino, Inc., a New Jersey corporation, the above-named Mortgagor; that the seal affixed to aforesaid Mortgage is the corporate seal of the said corporation; that __________________ is the President of the said corporation; that he saw the said __________________ sign the Mortgage as the act and deed of said corporation, he being thereunto duly authorized; and that he signed his name to the Mortgage as an attesting witness. ____________________________ Secretary Subscribed before me this _______ day of ________________. _____________________ Notary Public 34 STATE OF _______________) ): ss COUNTY OF ______________) BE IT REMEMBERED, that on this ______ day of _______________, before me, the subscriber, a Notary Public of the State of New York, personally appeared, ________________, the President of GREATE BAY HOTEL AND CASINO, INC., a New Jersey corporation and the assignor named in the within instrument, who I am satisfied is the person who executed the within instrument, as President of said corporation, and he acknowledged that he signed, sealed with the proper corporate seal and delivered the same as such officer, that the within instrument is the voluntary act and deed of such corporation made by virtue of authority of its board of directors, on behalf of and as the voluntary act and deed of the corporation, for the uses and purposes therein expressed, and that he received a true copy of the within instrument on behalf of the assignor named therein. ______________________________________ Notary Public of the State of New York 35 EX-4.3 5 0005.txt SECURITY AGREEMENT SECURITY AGREEMENT September 29, 2000 From GB PROPERTY FUNDING CORP., GREATE BAY HOTEL AND CASINO, INC., AND GB HOLDINGS, INC. to WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION as Trustee TABLE OF CONTENTS PAGE(s) ------- SECTION 1 Grant of Security......................................................2 SECTION 2 Security for Obligations...............................................4 SECTION 3 Grantors Remain Liable.................................................4 SECTION 4 Delivery of Security Collateral and Account Collateral.................4 SECTION 5 Maintaining the Pledged Accounts.......................................4 SECTION 6 Investing of Amounts in the Pledged Accounts...........................5 SECTION 7 Release of Amounts.....................................................5 SECTION 8 Representations and Warranties.........................................5 SECTION 9 Certain Covenants......................................................6 SECTION 10 As to Equipment and Inventory..........................................7 SECTION 11 Insurance..............................................................8 SECTION 12 Place of Perfection; Records; Collection of Receivables................8 SECTION 13 Voting Rights; Dividends; Etc..........................................9 SECTION 14 As to the Assigned Agreements.........................................10 SECTION 15 Payments Under the Assigned Agreements................................10 SECTION 16 Trustee Appointed Attorney-in-Fact....................................10 SECTION 17 Trustee May Perform...................................................11 SECTION 18 The Trustee's Duties..................................................11 SECTION 19 Remedies..............................................................11 SECTION 20 Registration Rights...................................................12 SECTION 21 Expenses..............................................................13 SECTION 22 Security Interest Absolute............................................13 SECTION 23 Amendments; Waivers; Etc..............................................13 SECTION 24 Addresses for Notices.................................................13 SECTION 25 Continuing Security Interest; Assignments Under the Indenture.........13 SECTION 26 Release and Termination...............................................14 SECTION 27 Casino Control Act....................................................15 SECTION 28 Regulatory Matters....................................................15 SECTION 29 The Mortgages.........................................................16 SECTION 30 Governing Law; Terms..................................................16 Schedule I - Pledged Shares and Pledged Debt Schedule II - Assigned Agreements Schedule III - Locations of Equipment and Inventory Schedule IV - Trade Names SECURITY AGREEMENT SECURITY AGREEMENT dated September __, 2000 made by each of GB PROPERTY FUNDING CORP., a Delaware corporation having its principal office at c/o Sands Hotel and Casino (the "Company"), GREATE BAY HOTEL AND CASINO, INC., a New Jersey corporation ("GBHC") and GB HOLDINGS, INC., a Delaware corporation ("Holdings"), each with an office at Indiana Avenue & Brighton Park, Atlantic City, New Jersey 08401 to WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as trustee (the "Trustee") (in such capacity, together with any successor appointed pursuant to the Indenture, the "Trustee") for the Holders under an Indenture dated as of September 29, 2000 among the Company, as Issuer, the Trustee and each of GBHC and Holdings, as Guarantors (such Indenture, as it may be amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Indenture"). Each of the Company, GBHC, and Holding and each Additional Collateral Grantor is hereinafter referred to, individually, as a "Grantor" and, collectively, the "Grantors". Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the Indenture. PRELIMINARY STATEMENTS. (1) Each of the Company, the Trustee, GBHC and Holdings has entered into the Indenture pursuant to which the Company will issue, and GBHC and Holdings will each guarantee, on the date hereof up to $110,000,000 aggregate principal amount of 11% First Mortgage Notes Due 2005 (the "First Mortgage Notes"or the "Securities"). (2) The First Mortgage Notes are being issued in replacement of those certain 10 7/8% First Mortgage Notes of the Company in the original principal amount of $185,000,000 due 2004 (the "Original First Mortgage Notes") that are being discharged and replaced by The First Mortgage Notes as a result of the Confirmation of the Fifth Amended Joint Plan (the "Reorganization") of Reorganization under Chapter 11 prepared by the Official Committee of Unsecured Creditors and High River, by the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") on August 11, 2000. (3) GBHC has also opened a special account (the "Collateral Account") with PNC Bank (the "Bank") at its offices at Edison, New Jersey, Account No. 8102693449, in the name of GBHC but under the sole dominion and control of the Trustee and subject to the terms of this Agreement. GBHC will deposit upon receipt thereof, Collateral Proceeds, if any, received by it from Asset Sales and Events of Loss in the Collateral Account, as provided in the Indenture. The Collateral Account is hereinafter referred to as the "Pledged Account". (4) Each Grantor is the owner of the shares of stock (the "Shares") described opposite such Grantor's name in Part I of Schedule I hereto and issued by the entity set forth therein. (5) It is a condition precedent to the execution of the Indenture by the Trustee that each of the Grantors shall have granted to the Trustee the assignment and security interest and made the pledge and assignment contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises, each Grantor hereby agrees with the Trustee for its benefit and the ratable benefit of the Holders as follows: SECTION 1. Grant of Security. Each Grantor, hereby assigns and pledges to the Trustee, as secured party, for its benefit and the ratable benefit of the Holders, and hereby grants to the Trustee, as secured party, for its benefit and the ratable benefit of the Holders, a security interest in (and only in and to), the following, to the extent owned by such Grantor as of the date hereof (collectively, the "Collateral"): (a) all of such Grantor's right, title and interest owned as of the date hereof, in and to all equipment in all of its forms, wherever located, including, but not limited to, all plant furnishings, fixtures, gaming equipment, computers, electric data processing equipment, telecommunications equipment, office equipment, transportation equipment (including, without limitation, the "People Mover", as such term is defined in the Mortgage), other fixed assets, handling and delivery equipment, furniture, appliances, vehicles and books and records, parts (including spare parts) and accessories, whether installed thereon or affixed thereto (any and all of the foregoing being the "Equipment"); (b) all of such Grantor's right, title and interest owned as of the date hereof, in and to inventory of such Grantor, including, but not limited to, all goods, merchandise, raw materials, work in process, finished goods, goods held for manufacture, processing, the providing of services or sale, use or consumption in the operation of such Grantor's business (including, without limitation, provisions in storerooms, refrigerators, kitchens, pantries, beverages in wine cellars or bars, fuel, supplies and similar items), goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Grantor has an interest or right as consignee) and goods that are returned to or repossessed by such Grantor, and all accessions thereto and products thereof and documents therefor (any and all of the foregoing being the "Inventory"); (c) all of such Grantor's right, title and interest owned as of the date hereof, in all accounts receivables, contract rights, chattel paper, general intangibles, intellectual property, goodwill, tradenames, copyrights, trademarks, permits, licenses, authorizations, plans and specifications, and all rights now existing in and to all security agreements, leases and other contracts securing or otherwise relating to the foregoing, (any and all of the foregoing, to the extent not referred to in clause (d), (e) or (f) below, being the "Receivables," and any and all such leases, security agreements, and other contracts being the "Related Contracts"); (d) all of such Grantor's right, title and interest owned as of the date hereof, in all of the following (the "Security Collateral"): (i) the Shares (such Shares, being, collectively, the "Pledged Shares"), the certificates representing the Pledged Shares, and all dividends paid in additional shares of stock of GBHC or the Company, from time to time received, 2 receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and (ii) and any other indebtedness for borrowed money owed to Holdings, GBHC, the Company or any other Grantor by any obligor and the instruments evidencing the same other than: (x) Indebtedness between or among any of Holdings, GBHC and the Company and (y) Gaming Related Items (collectively, the "Pledged Debt"); (e) all of such Grantor's right, title and interest owned as of the date hereof, in and to the agreements listed on Schedule II, to which such Grantor is now a party, in each case as such agreements may be amended or otherwise modified from time to time (collectively, the "Assigned Agreements"), including, without limitation, (i) all rights of such Grantor under such Assigned Agreements to assert claims arising out of or for breach of or default under the Assigned Agreements and (ii) the right of such Grantor to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder (all such Collateral being the "Agreement Collateral"); (f) all of the following (collectively, the "Account Collateral"): (i) the Collateral Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Collateral Account or any instrument thereof; (ii) all notes, certificates of deposit, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Trustee or the Pledged Account for or on behalf of the relevant Grantor in substitution for or as an addition to any or all of the then existing Account Collateral; and (iii) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of any or all of the then existing Account Collateral; and (g) to the limited extent required under Section 1404 of the Indenture to be deposited in the Pledged Account as the result of an Asset Sale or Event of Loss: all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) - (f) of this Section 1) including proceeds in the form of payments under insurance (whether or not the Trustee is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. Anything in this Agreement, in the Indenture or any of the other Security Documents to the contrary, notwithstanding, the foregoing provisions of this Section 1 shall not apply to and the terms "Collateral", "Equipment", "Inventory", "Receivables" "Related Contracts", "Security Collateral" "Pledged Debt" "Assigned Agreements", 3 "Agreement Collateral" and "Account Collateral" shall not include or deemed to include to any extent (any and all of the following, the "Excluded Property") (i) any CRDA Investments, (ii) any accounts receivable consisting solely of gaming debt; (iii) any other revenues, receivables or rights of payment arising out of the conduct of casino operations or other gaming activities (collectively, the "Gaming Related Items"); (iv) cash or cash equivalents other than those held in the Collateral Account; (v) any real property or interests therein (except, with respect to this clause (v), as specifically set forth in the Mortgage); or (vi) any assets or property or interest therein acquired after the date hereof. SECTION 2. Security for Obligations. This Agreement secures, in the case of the Company, all of the Company's payment obligations now or hereafter existing under or with respect to the Securities, the Indenture or any of the Security Documents and, in the case of GBHC and Holdings, all of its obligations with respect to their Guarantees, in each case whether for principal, interest (including, without limitation, interest after the filing of a petition initiating any proceeding referred to in Section 501(7) or (8) of the Indenture), premium, fees, expenses or otherwise (all such obligations being the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Company, GBHC or Holdings to the Trustee or the Holders under or with respect to the Securities, the Indenture, the Guarantees or any of the Security Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Grantor. SECTION 3. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements of such Grantor included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Trustee of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) neither the Trustee nor any Holder shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Trustee or any Holder be obligated to perform any of the obligations or duties of any person thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 4. Delivery of Security Collateral and Account Collateral. All certificates or instruments representing or evidencing Security Collateral or Account Collateral shall be delivered to and held by or on behalf of the Trustee pursuant hereto and shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Trustee. SECTION 5. Maintaining the Pledged Account. Until such time as the Indenture shall have been satisfied or discharged in accordance with Sections 401 or 1302 thereof, BHC will maintain the Pledged Account with the Bank, or such other bank that is acceptable to the Trustee (the Bank, or any other such bank being the "Pledged Account Bank"). The Pledged Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. 4 SECTION 6. Investing of Amounts in the Pledged Account. The Trustee will upon receipt of the written instructions of GBHC from time to time, subject to the provisions of Sections 7 and 20 hereof, instruct the Pledged Account Bank to (a) invest amounts on deposit in the Pledged Account in such Cash Equivalents (as such term is defined in the Indenture, except that, as used herein, such definition shall not be limited to the extent owned by Holdings or any of its Subsidiaries) in the name of the Trustee as GBHC may select and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold in each case in such Cash Equivalents in the name of the Trustee as to which all actions required by Section 9(e) shall have been taken as GBHC may select (the Cash Equivalents referred to in clauses (a) and (b) above being, collectively, the "Collateral Investments"). SECTION 7. Interest. Interest and proceeds that are not invested or reinvested in Collateral Investments as provided in the immediately preceding Section shall be deposited and held in the Pledged Account. SECTION 8. Representations and Warranties. Each Grantor represents and warrants as follows: (a) All of the Equipment and Inventory are located at the places specified in Schedule III hereto. The chief place of business and chief executive office of such Grantor and the office where such Grantor keeps its records concerning the Receivables, and all originals of all chattel paper that evidence Receivables, are located at the address first specified above with respect to such Grantor. None of the Receivables is evidenced by a promissory note or other instrument. (b) Such Grantor is the legal and beneficial owner of the Collateral with respect to which it is granting a security interest pursuant to this Agreement free and clear of any Lien, except for the security interest created by this Agreement, Liens in favor of the Trustee and Liens permitted by the Indenture. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Trustee relating to this Agreement or any other Security Document. All of the Trade Names of such Grantor are listed on Schedule IV hereto. (c) The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. (d) The Shares constitute all of the issued and outstanding shares of the Company and GBHC. On the date hereof Holdings has no Subsidiaries with substantial operations or more than de minimis assets, other than GBHC, the Company, and Lieber Check Cashing, LLC, whose sole member is GBHC. (e) This Agreement, the pledge of the Security Collateral pursuant hereto and the pledge and assignment of the Agreement Collateral and the Account Collateral 5 pursuant hereto create a valid and perfected first priority security interest in the Collateral, except as otherwise permitted or contemplated herein, or under the Indenture or the Security Documents. All filings and other actions necessary or desirable to perfect the security interest granted hereunder have been duly taken. (f) No consent of any other Person and no authorization, approval or other action by (except for such consents, authorizations, approvals or other actions as shall have been obtained and shall be in full force and effect on or before the date hereof), and no notice to or filing with, any governmental authority or regulatory body or other third party is required either (i) for the grant by such Grantor of the assignment and security interest granted hereby, or for the execution, delivery or performance of this Agreement by such Grantor, (ii) for the perfection or maintenance of the pledge, assignment and security interest created hereby, except for the filing of financing and continuation statements under the Uniform Commercial Code, which financing statements have been duly filed, or (iii) for the exercise by the Trustee of its voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required by applicable law or in the Indenture, or in connection with the disposition of any portion of the Security Collateral by laws affecting (A) the offering and sale of securities generally and (B) the Gaming Laws. (g) The Inventory in which GBHC is granting a security interest pursuant to this Agreement has been produced by GBHC in compliance with all requirements of the Fair Labor Standards Act. SECTION 9. Certain Covenants. Until such time as the Indenture shall have been satisfied or discharged in accordance with Sections 401 or 1302 thereof, each Grantor will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with the Employment Retirement Income Security Act of 1974, as amended, and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent (i) all taxes, assessments and governmental charges or levies imposed upon it or upon the Collateral and (ii) all lawful claims that, if unpaid, might by law become a Lien upon the Collateral in accordance with, and to the extent required under, Section 1005 of the Indenture. (c) Production of Inventory. Produce, and cause each of its Subsidiaries to produce, all Inventory, if any, in which such Grantor is granting a security interest in compliance with all requirements of the Fair Labor Standards Act. (d) Visitation Rights: Maintenance of Books and Records. Permit the Trustee or any agents or representatives thereof at any reasonable time and from time to time to examine and make copies of and abstracts from the records and books of account of, and 6 visit the properties of, such Grantor and any of its subsidiaries, and to discuss the affairs, finances and accounts of such Grantor and any of its subsidiaries with any of their officers or directors and with their independent public accountants and, at its own cost and expense, keep reasonably satisfactory and reasonably complete records of the Collateral including, without limitation, all payment received or receivable with respect thereto and all other dealings with the Collateral. (e) Further Assurances. From time to time at the sole expense of such Grantor: (i) promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee may request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Collateral; and (ii) furnish to the Trustee statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Trustee may reasonably request, all in reasonable detail. Each Grantor hereby authorizes the Trustee to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of such Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 10. As to Equipment and Inventory. (a) Each Grantor shall keep the Equipment and Inventory with respect to which such Grantor is granting a security interest pursuant to this Agreement at the places therefor specified in Section 8(a) or, upon 30 days' prior written notice to the Trustee, at such other places in a jurisdiction where all action required by Section 9(e) shall have been taken with respect to such Equipment and Inventory. (b) Each Grantor shall cause the Equipment with respect to which such Grantor is granting a security interest pursuant to this Agreement to be maintained and preserved in the good condition, repair and working order. Each Grantor shall promptly furnish to Trustee a statement with respect to any material loss or material damage to any of such Equipment. (c) Each Grantor shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory with respect to which such Grantor is granting a security interest pursuant to this Agreement; provided, however, that Holdings shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. In producing the Inventory with respect to which such Grantor is granting a security interest pursuant to this Agreement, such Grantor shall comply with all requirements of the Fair Labor Standards Act. 7 SECTION 11. Insurance. (a) Each Grantor shall, at its own expense, maintain insurance with respect to the Equipment and Inventory with respect to which it is granting a security interest pursuant to this Agreement in such amounts, against such risks and in such form, as is usually carried by companies engaged in a business similar to the business conducted by such Grantor and in the case of GBHC, by companies engaged in business in Atlantic City, New Jersey similar to the business conducted by GBHC. Each policy for liability insurance shall, to the extent available on a commercially reasonable basis, provide for all losses to be paid on behalf of the Trustee, the Holders and such Grantor as their interests may appear, and each policy for property damage insurance shall provide that all losses (A) in excess of $1,000,000 or (B) which are paid or incurred while a Default under the Indenture is in existence and continuing, shall be paid directly to the Trustee. Each such policy shall in addition, to the extent available on a commercially reasonable basis, (i) name such Grantor and the Trustee as insured parties thereunder (without any representation or warranty by or obligation upon the Trustee) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Trustee notwithstanding any action, inaction or breach of representation or warranty by such Grantor (other than the failure to make required payments), (iii) provide that there shall be no recourse against the Trustee for payment of premiums or other amounts with respect thereto and (iv) provide that at least 10 days' prior written notice of cancellation or of lapse shall be given to the Trustee by the insurer. Each Grantor shall, if so requested by the Trustee, deliver to the Trustee original or duplicate policies of such insurance and, as often as the Trustee may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, each Grantor shall, at the request of the Trustee, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 9(e) and cause the insurers to acknowledge notice of such assignment. (b) Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 11 may be paid directly to the Person who shall have incurred liability covered by such insurance. In case of any Event of Loss involving Collateral Trustee shall make the proceeds of any insurance available to Grantor to permit compliance with the terms of the Indenture and the Security Documents and such Grantor shall make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory to the extent required by Section 1006 of the Indenture. SECTION 12. Place of Perfection; Records; Collection of Receivables. (a) Each Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Collateral, and the original copies of documents included in the Collateral and all originals of all chattel paper that evidence Receivables, at the location therefor specified in Section 8(a) or, upon 30 days' prior written notice to the Trustee, at such other locations in a jurisdiction where all actions required by Section 9(e) shall have been taken with respect to the Collateral. Each Grantor will hold and preserve such records, documents and chattel paper and will permit representatives of the Trustee at any time during normal business hours to inspect and make abstracts from such records and chattel paper. (b) Except as otherwise provided in this subsection (b), each Grantor shall continue to collect, at its own expense, all amounts due or to become due such Grantor under the Receivables. In connection with such collections, such Grantor may take (and, at the Trustee's 8 direction, shall take) such action as such Grantor or the Trustee may deem necessary or advisable to enforce collection of the Receivables; provided, however, that the Trustee shall have the right at any time, upon the occurrence and during the continuance of an Event of Default and upon written notice to such Grantor of its intention to do so, to notify the obligors under any Receivables of the assignment of such Receivables to the Trustee and to direct such obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Trustee and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by such Grantor of the notice from the Trustee referred to in the proviso to the immediately preceding sentence, (i) all amounts and proceeds (including instruments) received by such Grantor in respect of the Receivables shall be received in trust for the benefit of the Trustee hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Trustee in the same form as so received (with any necessary indorsement) to be deposited at the option of the Trustee in the Collateral Account or another special pledged account maintained by the Trustee and, thereafter, applied in accordance with Section 19(b) hereof, other than amounts to be used to cure any such Event of Default or otherwise make any payment in respect of the Securities or make any payment or perform any obligation under the Indenture or other Security Documents (all of which, whether paid to the Grantor or the Trustee, shall be made available to the Grantor for such purposes) and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any Receivable, release wholly or partly any obligor thereof, or allow any credit or discount thereon. SECTION 13. Voting Rights; Dividends; Etc.: (a) (i) Each Grantor shall continue to be and shall be entitled to be, the record owner of all of the Security Collateral and shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Security Collateral or any part thereof. (ii) Each Grantor shall be entitled to receive and retain any and all cash dividends and interest paid in respect of the Security Collateral. All certificates distributed in respect of any stock dividends shall be, and shall be forthwith delivered to the Trustee to hold as, Security Collateral and shall, if received by such Grantor, be received in trust for the benefit of the Trustee, be segregated from the other property of any Grantor and be forthwith delivered to the Trustee as Security Collateral in the same form as so received. Each Grantor shall, upon the request of the Trustee, promptly execute such documents and perform such acts as may be necessary or advisable to give effect to this paragraph (ii). (iii) The Trustee shall execute and deliver (or cause to be executed and delivered) to any Grantor all such proxies and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above. 9 (b) Upon the occurrence and during the continuance of an Event of Default: (i) All rights of each Grantor to receive the dividends and interest payments that it would otherwise be authorized to receive and retain pursuant to Section 13(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in the Trustee, which shall thereupon have the sole right to receive and hold as Security Collateral such dividends and interest payments, in each case other than amounts to be used by a Grantor to cure any such Event of Default or otherwise make any payment in respect of the Securities or make any payment or perform any obligation under the Indenture or other Security Documents (all of which, whether paid to the Grantor or the Trustee, shall be made available to the Grantor for such purposes). (ii) All dividends and interest payments that are received by any Grantor contrary to the provisions of paragraph (i) of this Section 13(b) shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of any Grantor and shall be forthwith paid over to the Trustee as Security Collateral in the same form as so received (with any necessary indorsement). SECTION 14. As to the Assigned Agreements. Each Grantor shall, at its own expense furnish to the Trustee promptly upon receipt thereof copies of all notices, and, upon the written request of the Trustee, copies of all requests and other documents received by such Grantor under or pursuant to the Assigned Agreements, and from time to time (A) furnish to the Trustee such information and reports regarding the Collateral as the Trustee may reasonably request and (B) upon request of the Trustee, make to each other party to any Assigned Agreement such demands and requests for information and reports or for action as such Grantor is entitled to make thereunder. SECTION 15. Payments Under the Assigned Agreements. Upon the occurrence and during the continuation of an Event of Default, all payments due or to become due under or in connection with such Assigned Agreement shall be received in trust for the benefit of the Trustee hereunder, shall be segregated from other property and funds of any Grantor and shall be forthwith paid over to the Trustee in the same form as so received (with any necessary indorsement) to be deposited in the Collateral Account and, thereafter, applied by the Trustee in accordance with Section 19(b) hereof, in each case other than amounts to be used by the Grantors to cure any such Event of Default or otherwise make any payment in respect of the Securities or make any payment or perform any obligation under the Indenture or the other Security Documents (all of which, whether paid to the Grantor or the Trustee shall be made available to the Grantor for such purposes). SECTION 16. Trustee Appointed Attorney-in-Fact. Effective upon and during the continuance of an Event of Default, each Grantor hereby irrevocably appoints the Trustee as its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, to take any action and to execute any instrument that is necessary to accomplish the purposes of this Agreement. 10 SECTION 17. Trustee May Perform. If any Grantor fails to perform any agreement contained herein, the Trustee may itself, but shall have no obligation to, perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by such Grantor under Section 21. SECTION 18. The Trustee's Duties. The powers conferred on the Trustee hereunder are solely to protect its interest and the interests of Holders in the Collateral. Except for (i) duties specifically imposed under this Agreement, (ii) the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder and (ii) duties imposed under the Trust Indenture Act of 1939, as amended, and the Indenture, the Trustee shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Security Collateral, whether or not the Trustee or any Holder has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. SECTION 19. Remedies. If any Event of Default under the Indenture shall have occurred and be continuing: (a) The Trustee may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the Indenture or any other Security Document or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in the State of New Jersey at such time (the "N.J. Uniform Commercial Code") (whether or not the N.J. Uniform Commercial Code applies to the affected Collateral) and also may (i) require any Grantor to, and such Grantor hereby agrees that it will at its expense and upon request of the Trustee forthwith, assemble all or part of the Collateral as directed by the Trustee and make it available to the Trustee at a place to be designated by the Trustee that is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Collateral in accordance with this Agreement may, except as otherwise contemplated in this Agreement, in the discretion of the Trustee, be held by the Trustee as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Trustee pursuant to Section 21) in whole or in part by the Trustee for the ratable benefit of the Holders 11 against, all or any part of the Secured Obligations in the order specified by Section 506 of the Indenture. Any surplus of such cash or cash proceeds held by the Trustee and remaining after payment in full of all the Secured Obligations shall be paid over to Grantor of the security interest created hereby with respect to such Collateral or to whomsoever may be lawfully entitled to receive such surplus. (c) The Trustee may exercise any and all rights and remedies of any Grantor under or in connection with the Collateral. (d) All payments received by any Grantor in respect of the Collateral shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of any Grantor and, subject to the terms of this Agreement, shall be forthwith paid over to the Trustee in the same form as so received (with any necessary indorsement). (e) The Trustee may, without notice to any Grantor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Secured Obligations against the Collateral Account. SECTION 20. Registration Rights. If the Trustee shall determine to exercise its right to sell all or any of the Security Collateral pursuant to Section 19, each Grantor agrees that, upon request of the Trustee, it will, at its own expense: (a) execute and deliver, and cause each issuer of the Security Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Trustee, advisable to register such Security Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto as necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Security Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Security Collateral, as requested by the Trustee; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; (d) provide the Trustee with such other information as may be necessary or advisable to enable the Trustee to effect the sale of such Security Collateral; and (e) do or cause to be done all such other acts and things as may be necessary to make such sale of the Security Collateral or any part thereof valid and binding and in compliance with applicable law. 12 The Trustee is authorized, in connection with any sale of the Security Collateral pursuant to Section 19, to deliver or otherwise disclose to any prospective purchaser of the Security Collateral any registration statement or prospectus, and all supplements and amendments thereto, prepared pursuant to clause (a) above provided to it. Each Grantor acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Trustee or the Holders by reason of the failure by such Grantor to perform any of the covenants contained in this Section and, consequently, agrees that, if such Grantor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Security Collateral on the date the Trustee shall demand compliance with this Section; provided that such payments shall not exceed the amount of the Secured Obligations and shall be applied to reduce the Secured Obligations. SECTION 21. Expenses. Each Grantor will upon demand pay to the Trustee the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that the Trustee may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Trustee or the Holders hereunder or (iv) the failure by any Grantor to perform or observe any of the provisions hereof, and all amounts so incurred by the Trustee shall be entitled to the benefits of the Indenture. SECTION 22. Actions. The obligations of each Grantor (other than the Company) under this Agreement are independent of the Company's obligations under the Securities, and a separate action or actions may be brought and prosecuted against any Grantor (other than the Company) to enforce this Agreement, irrespective of whether any action is brought against the Company or whether the Company is joined in any such action or actions.. SECTION 23. Amendments; Waivers; Etc. Amendment or waivers of any provision of this Agreement shall be governed solely by the terms of the Indenture. SECTION 24. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and, mailed, telegraphed, telecopied, telexed, cabled or delivered to any Grantor or to the Trustee, as the case may be, in each case addressed to it at its address set forth in the Indenture or, as to any party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telecopied, telegraphed, telexed or cabled, respectively, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered to the cable company, respectively, addressed as aforesaid. SECTION 25. Continuing Security Interest; Assignments Under the Indenture. This Agreement shall create a continuing security interest in the Collateral and, except as contemplated in the Indenture shall (a) remain in full force and effect until the date on which the 13 Secured Obligations shall have been paid in full or the Indenture shall have been satisfied and discharged in accordance with the terms thereof, (b) be binding upon each Grantor, its successors and assigns, (c) inure, together with the rights and remedies of the Trustee hereunder, to the benefit of the Trustee, the Holders and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Holder may assign or otherwise transfer all or any portion of its rights and obligations under the Securities held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Holder herein or otherwise, in each case as provided in Section 305 of the Indenture. Each Grantor shall have the right to sell, transfer and convey (the "Sale") the Collateral in whole or in part the Collateral which is the subject of such Sale is hereinafter referred to as the "Conveyed Property") and in connection therewith to obtain from the Trustee a release of the Conveyed Property from the Lien of this Security Agreement provided that such Sale is made in accordance with the provisions of Section 1017 of the Indenture as if such Sale was an Asset Sale, as that term is defined in the Indenture regardless of whether such Sale was in fact an Asset Sale. In connection therewith, the Trustee shall execute, acknowledge and deliver to Grantor such documents as Grantor may reasonable require to effectuate such release. The parties hereto agree that: (i) all security interest and other rights in Collateral granted hereunder or under the Indenture or the other Security Documents shall be, and hereby are, subject and inferior to any Liens heretofore or hereafter created from time to time in connection with the incurrence of Working Capital Indebtedness; and (ii) notwithstanding anything to the contrary hereunder, in the Indenture or in the Security Documents, the Grantors and their Subsidiaries may incur Liens and Indebtedness (including, without limitation, Liens on Collateral) permitted by the Indenture. In connection with any of the foregoing, the Trustee will, at the request of a Grantor, enter into such intercreditor agreements, standstill agreements, subordination agreements and other documents as shall be appropriate under the circumstances for the benefit of the holder of such other Indebtedness or Liens. SECTION 26. Release and Termination. (a) On the date on which the Secured Obligations shall have been paid in full or the Indenture shall have been satisfied and discharged in accordance with the terms thereof, or as otherwise contemplated in the Indenture, the pledge, assignment and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantors. Upon any such termination, the Trustee, at the appropriate Grantor's request and expense, will return to such Grantor such of the Collateral in its possession as shall not have been sold, transferred or otherwise applied pursuant to the terms of the Securities, the Indenture or any Security Document, and will execute and deliver to such Grantor such documents prepared by such Grantor and delivered to the Trustee as such Grantor shall reasonably request to evidence such termination. (b) Upon satisfaction of the applicable conditions set forth in the Indenture, the Trustee will take the applicable action specified therein regarding the release of any Collateral. 14 SECTION 27. Casino Control Act. Each of the provisions of this Agreement is subject to, and shall be enforced in compliance with, the provisions of the Casino Control Act, to the extent applicable, and the regulations promulgated thereunder, unless such provisions are in conflict with the TIA, in which case the TIA shall control. SECTION 28. Regulatory Matters. (a) Upon the occurrence and during the continuation of an Event of Default, each Grantor shall take, and shall cause each issuer of any of the Pledged Shares to take, all action that the Trustee may request in the exercise of its rights and remedies hereunder, which includes the right to require such Grantor or any issuer of any of the Pledged Shares to transfer or assign the Pledged Shares to any party or parties. In furtherance of this right, each Grantor shall, and shall cause each issuer of the Pledged Shares, (i) to cooperate fully with the Trustee in obtaining all approvals and consents from each governmental authority that the Trustee may deem necessary or advisable to accomplish any such transfer or assignment of any part of the Pledged Shares and (ii) to prepare, execute and file with any Governmental Authority any application, request for consent, certificate or instrument that the Trustee may deem necessary or advisable to accomplish any such transfer or assignment of any part of the Pledged Shares. If any Grantor fails to execute, or fails to cause each issuer or owner of the Pledged Shares to execute, such applications, requests for consent, certificates or instruments, the clerk of any court that has jurisdiction over the Security Documents may execute and file the same on behalf of such Grantor. (b) To enforce the provisions of this Section 28, upon the occurrence and during the continuation of an Event of Default, the Trustee is authorized to request the consent or approval of any Governmental Authority to a voluntary or an involuntary transfer of control of any issuer of any of the Pledged Shares. In connection with the exercise of its remedies under this Agreement, the Trustee may obtain the appointment of a trustee or receiver to assume, upon receipt of all necessary judicial or other Governmental Authority consents or approvals, control of any issuer of any of the Pledged Shares. Such trustee or receiver shall have all rights and powers provided to it by law or by court order or provided to the Trustee under this Agreement. (c) Notwithstanding anything to the contrary contained in this Agreement: (i) the Trustee will not take any action hereunder that would constitute or result in any transfer of control of any issuer of any of the Pledged Shares without obtaining all necessary approvals; provided that the Trustee and the Holders shall be entitled to rely on the advice of regulatory counsel selected by the Trustee to determine whether approvals of any Governmental Authority are required; and (ii) the Trustee shall not foreclose on, sell, transfer or otherwise dispose of, or exercise any right to vote or consent with respect to, any of the Pledged Shares as provided herein or take any other action that would affect the operational, voting or other control of the issuer of any Pledged Shares, unless such action is taken in accordance with the applicable provisions of the Gaming Laws. (d) Each Grantor acknowledges that the approval of each appropriate Governmental Authority to the transfer of control of an issuer of Pledged Shares may be 15 required, that the ownership thereof is integral to the Trustee's realization of the value of such Pledged Shares, that there is no adequate remedy at law for failure by such Grantor to comply with the provisions of this Section 28 and that such failure could not be adequately compensatable in damages and, therefore, each Grantor agrees that the provisions of this Section 28 may be specifically enforced. SECTION 29. The Mortgages. In the event that any of the Collateral hereunder is also subject to a valid and enforceable Lien under the terms of any Mortgage and the terms of such Mortgage are inconsistent with the terms of this Agreement, then with respect to such Collateral, the terms of such Mortgage shall be controlling in the case of real property and fixtures, and contracts and agreements relating to the lease of real property, and the terms of this Agreement shall be controlling in the case of all other Collateral. SECTION 30. Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of New Jersey. Unless otherwise defined herein or in the Indenture, terms used in Article 9 of the N.J. Uniform Commercial Code are used herein as therein defined. 16 IN WITNESS WHEREOF, the Trustee and each Grantor have caused this Agreement to be duly executed and delivered by its officer "hereunto duly authorized as of the date first above written. GB PROPERTY FUNDING CORP., a Delaware corporation By:_________________________________________ Name: Timothy A. Ebling Title: Executive Vice-President GREATE BAY HOTEL AND CASINO, INC., a New Jersey corporation By:_________________________________________ Name: Timothy A. Ebling Title: Executive Vice-President GB HOLDINGS, INC., a Delaware corporation By:_________________________________________ Name: Timothy A. Ebling Title: Executive Vice-President WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as Trustee By:_________________________________________ Name:____________________________________ Title:___________________________________ 17 SCHEDULE I PLEDGED SHARES AND PLEDGED DEBT
Percentage Stock of Class of Certificate Number Outstanding Owner Stock Issuer Stock Par Value No(s). of Shares Shares* - ----- ------------ ------- ---------- ---------- --------- ----------- GB Holdings, GB Property Common $1.00/share 2 100 100% Inc. Funding Corp. GB Holdings, Greate Bay Common no par 4 100 100% Inc. Hotel and value Casino, Inc. ("GBHC")
* As of September 29, 2000 SCHEDULE II ASSIGNED AGREEMENTS 1. That certain Software License Agreement dated as of June 27, 1998 between, among others, Greate Bay Hotel & Casino, Inc. and Advanced Casino Systems Corporation. SCHEDULE III LOCATIONS OF EQUIPMENT AND INVENTORY 1. Radio and Bay View Roads Mistic Islands, Ocean County, New Jersey 08087 2. Sands Hotel and Casino Indiana Avenue and Brighton Park Atlantic City, Atlantic County New Jersey 08401 (Note: includes the casino-hotel complex, and the parking garages) 3. 136 South Kentucky Avenue Atlantic City, Atlantic County New Jersey 08401 4. 30-42 North Texas Avenue Atlantic City, Atlantic County New Jersey 08401 SCHEDULE IV TRADE NAMES The Sands Hotel and Casino Sands Casino Hotel EX-4.4 6 0006.txt COLLATERAL ASSIGNMENT OF LEASES This Collateral Assignment of Leases was prepared by and after recording should be returned to: Piper Marbury Rudnick & Wolfe 1251 Avenue of Americas New York, New York 10020-1104 Attention: Koren Blair, Esq. COLLATERAL ASSIGNMENT OF LEASES THIS ASSIGNMENT (the "Assignment") made as of the 29th day of September, 2000 by GREATE BAY HOTEL AND CASINO, INC., a New Jersey corporation having an address at the Sands Hotel and Casino, Indiana Avenue and Brighton Park, Atlantic City, New Jersey 08401 (the "Assignor"), in favor of WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, having its corporate trust office at Sixth and Marquette, Minneapolis, Minnesota 55479 as Trustee (the "Assignee") under the Indenture described below for its own benefit and the benefit of the holders (the "Holders") of the Securities (as defined below). W I T N E S S E T H WHEREAS, the Assignor is the owner of a fee simple interest in certain land and air spaces situated in the City of Atlantic City, County of Atlantic, State of New Jersey ("Atlantic City"), being more particularly described on Schedule A-1 attached hereto and by this reference made a part hereof (the "Casino Land") and the improvements now or hereafter constructed on the Casino Land, a portion of which constitute the Sands Hotel and Casino (the "Sands"); WHEREAS, the Assignor is the owner of a fee simple interest in certain land and air spaces situated in Atlantic City, being more particularly described on Schedule A-2 attached hereto and by this reference made a part hereof (the "Office Land") and the improvements now or hereafter constructed on the Office Land (the Casino Land and the Office Land being collectively referred to herein as the "Land"); WHEREAS, the Assignor is the owner of certain land situated in the City of Atlantic City, County of Atlantic, State of New Jersey, being more particularly described on Schedule A-3 attached hereto and by this reference made a part hereof (the "Expansion Land" and the improvements now or hereafter constructed on the Expansion Land (the Casino Land, the Office Land, and the Expansion Land being collectively referred to herein as the "Land"); WHEREAS, the Assignor is the owner of an easement interest in the parcels of real property situated in Atlantic City more particularly described on Schedule A-4 attached hereto and by this reference made a part hereof (the "Easement") and the improvements now or hereafter constructed on the Easement; WHEREAS, the Easement was granted to Assignor pursuant to that certain Ordinance No. 103 of Atlantic City dated October 7, 1987 and was recorded January 29,1993 in the Atlantic County, New Jersey Clerk's Office in Deed Book 5463, Page 228 (the "Easement Ordinance"); WHEREAS, pursuant to an Indenture, dated as of the date hereof (as the same may hereafter be amended, supplemented or otherwise modified, the "Indenture", capitalized terms not otherwise defined herein are used herein as defined therein), among the Assignor, Assignee, GB Holdings, Inc., a Delaware corporation ("Holdings") and GB Property Funding Corp., a Delaware corporation (the "Company"), the Company is issuing, on the date hereof, $110,000,000 of 11% First Mortgage Notes Due 2005 (the "First Mortgage Notes" or the "Securities"); WHEREAS, the Assignor has guaranteed repayment of the Securities and payment and performance by the Company of its other obligations under the Indenture and with respect to the Securities pursuant to the guarantee contained in Article 12 of the Indenture (as the same may hereafter be amended, supplemented or otherwise modified, the "Guarantee"); WHEREAS, it is a condition precedent to the issuance of the Securities that the obligations of the Assignor under the Guarantee be secured by, inter alia, this collateral assignment of the Assignor's interest in all leases affecting: (x) the Land; (y) the Easement and (z) all improvements situated thereon (the "Premises"); WHEREAS, this Assignment is being executed and delivered pursuant to the terms and conditions set forth in the Indenture and is entitled to the benefits thereof (all capitalized terms used herein without definition which are defined in the Indenture being used herein as defined therein). NOW, THEREFORE, for good and valuable consideration, the legal sufficiency of which is hereby acknowledged, the Assignor does hereby sell, assign, transfer, set over and deliver unto the Assignee, subject to the terms and conditions of this Assignment: ALL right, title and interest of the Assignor, as lessor, in and to (i) any and all space leases now or hereafter affecting the Premises and including, without limitation, any and all rentals or lettings of individual rooms or suites in the Premises (the "Room Lettings") and (ii) any extensions, renewals, modifications thereof and any guaranties of the obligations owed the Assignor thereunder ((i) and (ii) above are hereinafter described individually as a "Lease" and collectively as the "Leases"; a Lease providing for the payment by a tenant thereunder of an annual basic rental equal to or in excess of $500,000 shall hereafter be referred to individually as a "Major Lease" and collectively as "Major Leases"); -2- TOGETHER with all right, title and interest of the Assignor in or to the immediate and continuing right to collect and receive all of the rents, income, receipts, revenues, issues and profits now due or which may become due or to which the Assignor may now or shall hereafter become entitled or may demand or claim, arising or issuing from or out of the Leases or from or out of the Premises or any part thereof, together with any and all rights and claims of any kind which the Assignor may have against the tenants under any Lease (all such moneys, rights and claims being collectively referred to as the "rents"); TOGETHER with all of the Assignor's right, title, privileges and prerogatives under the Leases, including, without limitation, the Assignor's right, title, privileges and prerogatives to terminate, cancel, modify, change, supplement, alter, amend or grant any consent or approval under the Leases; TO HAVE AND TO HOLD the same unto the Assignee, its successors and assigns forever or for such shorter period as hereinafter may be provided; FOR THE PURPOSE OF SECURING: the payment and performance by Assignor of its obligations, covenants and duties pursuant to the Guarantee, SUBJECT, however, to a license hereby granted by the Assignee to the Assignor to collect and receive rents under the Leases and otherwise to hold and exercise all rights, privileges and benefits contemplated herein; and TO PROTECT THE SECURITY OF THIS ASSIGNMENT, IT IS COVENANTED AND AGREED AS FOLLOWS: 1. The Assignor represents and warrants that the Assignor has good title to the Leases and rents hereby assigned and authority to assign the same, and that no other Person has any right, title or interest therein. The Assignor further represents and warrants that (i) Schedule 1 attached to this Assignment is a correct and complete list of all Leases affecting the Premises on the date hereof (other than the Room Lettings), (ii) to the best of Assignor's knowledge, each Lease listed on Schedule 1 is in full force and effect and unamended, except as shown on Schedule 1, (iii) a correct and complete copy of each such Lease has been delivered by the Assignor to the Assignee on or prior to the date hereof, (iv) to the best knowledge of the Assignor, there exists no material default or event of default in the performance of any covenant, agreement, obligation or conditions contained in any Lease listed on Schedule 1 and no notice of default under any such Lease has been given and (v) the Assignor has not previously assigned, transferred, mortgaged or pledged the Leases or the rents pursuant to an instrument still in effect on the date hereof. 2. The Assignor covenants and agrees at its sole cost and expense, to keep, observe, perform and discharge, duly and punctually, all material obligations, terms, covenants, conditions and warranties of the Leases on the part of the Assignor to be kept, observed, performed and discharged in accordance therewith. The Assignor agrees (i) not to modify the terms of any of the Major Leases in a manner (in the aggregate for all such amendments) -3- materially adverse to the interests of the holders of the Securities hereunder, (ii) not to terminate or cancel the term of any Major Lease nor accept a surrender thereof unless a duly authorized officer of the Assignor certifies to the Assignee that such termination, cancellation or surrender will not materially adversely affect the interest of the holders of the Securities hereunder, or unless such surrender is required by the terms of such Major Lease, (iii) not to consent to any assignment by a tenant of its interest in any Major Lease, unless a duly authorized officer of the Assignor certifies to the Assignee that such assignment will not materially adversely affect the interest of the holders of the Securities hereunder, provided, however that if the tenant under any Major Lease shall have the right to assign its interest in such Major Lease without the consent of the Assignor, then clause (iii) shall not apply to such Major Lease, (iv) not to waive or release the other parties to a Major Lease from any material obligations or conditions to be performed by them, and (v) except in connection with the incurrence or grant of Liens permitted under the Indenture, not to make any assignment of Assignor's interest in any Major Lease to any Person unless a duly authorized officer of the Assignor certifies to the Assignee that such assignment will not materially adversely affect the interest of the holders of the Securities hereunder. The Assignor agrees not to accept payments of rent in advance under the Leases (other than Room Lettings) which payments would in the aggregate for all Leases (other than Room Lettings) exceed $1,000,000 (except prepayments in the nature of security for the performance by the lessees thereunder or for tenant finish work performed with respect to any such Leases (other than Room Lettings)). 3. Except during such time as an Event of Default shall have occurred and be continuing, the Assignor shall have the right, under a license (the "license") granted hereby (but limited as provided in the following paragraph), to collect upon all of the rents arising under the Leases and otherwise exercise all rights, benefits and privileges thereunder. 4. For so long as an Event of Default has occurred and is continuing, the following provisions shall apply: (a) The Assignee shall have the complete right, power and authority hereunder then or thereafter to exercise and enforce any or all of the following remedies: (i) to terminate upon notice to the Assignor the license granted to the Assignor to collect as aforesaid the rents, and then and thereafter, without taking possession, in the Assignee's or the Assignor's own name, or as attorney-in-fact for the Assignor, to demand, collect, receive, sue for, attach and levy the rents, to give proper receipts, releases and acquittances therefor and after deducting all reasonable costs and expenses of operation and collection, as determined by the Assignee, including attorneys' fees and disbursements, to apply the net proceeds thereof, together with any funds of the Assignor deposited with the Assignee, to any indebtedness secured hereby and in such order as the Assignee may determine in accordance with Section 506 of the Indenture, and (ii) without regard to the adequacy of the security, with or without any action or proceeding through any Person or by agent, or by a receiver to be appointed by any court and irrespective of the Assignor's possession, then or thereafter to enter upon the Premises and succeed to the Assignor's rights and obligations as lessor under such Leases, and (iii) otherwise do any act or incur any costs or expenses as the Assignee shall deem reasonably proper to protect the security hereof, as fully and to the same extent as the Assignor could do if in possession and in such event -4- to apply the rents so collected to the costs of fulfilling the Assignor's rights and obligations as lessor under the Leases, but in such order as the Assignee shall deem proper, and including the payment of any indebtedness secured hereby in accordance with Section 506 of the Indenture); (b) Without limiting the generality of the foregoing paragraph, the Assignee may: (i) succeed to the Assignor's rights and obligations as lessor under the Leases; (ii) lease any part or parts of the Premises for such periods of time, and upon such terms and conditions, as the Assignee may, in its reasonable discretion, deem proper; (iii) enforce, cancel or modify the Leases; (iv) demand, collect, sue for, attach, levy, recover, receive, compromise and adjust, and make, execute and deliver receipts and releases for all rents and rights under the Leases and written agreements relating thereto that may then be or may thereafter become due; (v) institute, prosecute to completion or compromise and settle all summary proceedings, actions for rent or for removing any and all lessees, tenants, subtenants or occupants of the Premises; and/or (vi) make such repairs and alterations to the Premises as the Assignee may, in its reasonable discretion, deem proper; (c) Upon termination of the Assignor's license by the Assignee by reason of the continuance of an Event of Default, the Assignor shall be deemed to have directed and does direct each and all of the tenants (other than persons in occupancy under Room Lettings) (i) to pay to the Assignee all rents as may then or thereafter be owing to the Assignee and (ii) to perform any obligations on its or their part to be then or thereafter performed for the benefit of the Assignor and relating to the Premises, and such obligors shall pay the sum(s) then due and thereafter to become due and perform the obligations then or thereafter owing without further inquiry. No such tenant or obligor shall be bound to account to the Assignor for any amounts paid to the Assignee by reason of any payment made to the Assignee following the termination of the Assignor's license; (d) The acceptance by the Assignee of this Assignment, with all of the rights, powers, privileges and authority so created, shall not, prior to entry upon and taking of possession of the Premises by the Assignee, be deemed or construed to constitute the Assignee in possession nor thereafter or at any time or in any event obligate the Assignee to appear in or defend any action or proceeding relating to the Leases or to the Premises, or to take any action hereunder or under the Leases, or to expend any money or incur any expenses or perform or -5- discharge any obligation, duty or liability under the Leases; nor shall the Assignee be liable in any way for any injury or damage to person or property sustained by any Person or Persons in or about the Premises, except for gross negligence or willful misconduct on the part of the Assignee; (e) The collection of the rents as aforesaid and/or the entry upon and taking possession of the Premises shall not cure or waive any Event of Default or waive, modify or affect any notice of Default under the Indenture, the Securities, the Mortgage, the Security Agreement or any Security Instrument or invalidate any act done pursuant to such notice, and the enforcement of such right or remedy by the Assignee, once exercised, shall continue for so long as the Assignee shall elect, provided that if the collection and application aforesaid of the rents has cured the original Event of Default or such Event of Default has otherwise been cured, the Assignee agrees to reinstate the license described herein. If the license has been so reinstated or the Assignee shall thereafter elect to discontinue the exercise of any such right or remedy notwithstanding the continuation of an Event of Default, the same or any other right or remedy hereunder may be reasserted at any time and from time to time following any subsequent Event of Default. (f) Anything herein to the contrary notwithstanding, the rights of the Assignee to collect or retain any sums shall not apply to amounts to be used by Assignor to cure an Event of Default or otherwise make any payment in respect of Securities or make any payment or perform any obligation under the Indenture or other Security Document (all of which, whether paid to Assignor or Assignee, shall be made available to Assignor for such purpose) 5. The failure of the Assignee to avail itself of any of the terms, covenants and conditions of this Assignment for any period of time or at any time or times shall not be construed or deemed to be a waiver of any such term, covenant or condition, and nothing herein contained, nor anything done or omitted to be done by the Assignee pursuant hereto shall be deemed a waiver by the Assignee of any of its rights and remedies hereunder or under the Guarantee, the Indenture, the Securities, the Mortgage, the Security Agreement or any Security Documents or under the laws of the State of New Jersey or the State of New York. The right of the Assignee to collect the said indebtedness and to enforce any other security therefor may be exercised by the Assignee, either prior to, simultaneously with or subsequent to any action taken hereunder. 6. The Assignee and the purchaser at any foreclosure sale shall have the right following foreclosure of the lien of the Mortgage to preserve any Lease and the rights of Assignor thereunder. Any Lease hereafter entered into shall contain a covenant by the other parties thereto to attorn to or perform for the benefit of any such purchaser. 7. The Assignee shall not be obligated to perform or discharge any obligation of the Assignor as a result of the assignment hereby effected, and the Assignor agrees to indemnify and hold harmless the Assignee against any and all liability, loss or damage which the Assignee may incur by reason of any act of the Assignee under this Assignment, other than such losses as shall arise out of the gross negligence or willful misconduct of the Assignee. Should -6- the Assignee incur any such liability, loss or damage by reason of this Assignment, or in defense against any such claims or demands made with respect to any act of the Assignee under this Assignment, other than those incurred by reason of the Assignee's gross negligence or willful misconduct, the amount thereof, including reasonable costs, expenses and reasonable attorneys' fees, together with interest thereon at the same rate as borne under the Securities (but in no event to exceed the maximum lawful rate) shall be included in the indebtedness secured by the Mortgage, the Security Agreement and any Security Documents and the Assignor shall reimburse the Assignee therefor within five (5) days following written demand, provided that no interest shall accrue with respect to any amount so incurred unless, and to the extent, actually paid by the Assignee. 8. The Assignor agrees from time to time to execute and deliver all such instruments and to take all such action for the purpose of further effectuating this Assignment and the carrying out of the terms hereof as may be reasonably requested in writing by the Assignee. The Assignee agrees that at such time as the indebtedness evidenced by the Securities has been fully paid and the Assignor's obligations under the Guarantee have been paid and performed in full, the Assignee shall execute and deliver and take all such action as may be reasonably necessary to terminate this Assignment. 9. Neither the Assignee nor its successors and assigns shall be deemed a mortgagee in possession, nor shall the Assignee or its successors and assigns be liable for laches, failure to collect the rents or failure to enforce the Leases. 10. Neither the execution of this Assignment nor any action or inaction on the part of the Assignee under this Assignment shall release the Assignor from any of the obligations under the Leases or constitute an assumption of any such obligations on the part of the Assignee. No action or failure to act on the part of the Assignor shall adversely affect or limit, in any way, the rights of the Assignee under this Assignment, the Guarantee, the Indenture, the Securities, the Mortgage or any Security Document or, through this Assignment, under the Leases. 11. If the Assignee shall resign or become disqualified from acting as Trustee (whether through disqualification by the Casino Control Commission or otherwise), or if, for any reason, there shall be appointed a substitute Trustee, to act instead of the aforenamed Trustee, such substitute shall succeed to all the estates, rights, powers and duties of the aforenamed Trustee under this Assignment. Should any instrument of any nature be required from the Assignor by any successor Trustee to more fully and certainly vest in and confirm to such successor Trustee such estates, rights, powers and duties, then upon request by such successor Trustee, any and all such instruments shall be made, executed, acknowledged and delivered and shall be caused to be recorded and/or filed by the Assignor. Any successor Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance become vested with all the estates, properties, rights, powers and trusts of its or his predecessor as an Assignee with like effect as if originally named as Trustee and the Assignee hereby. -7- 12. This Assignment and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with and governed by the law of the State of New Jersey. 13. To the extent permitted by law, the Assignor further waives any claims against the Assignee for consequential, punitive or special damages arising in connection with the Indenture, the Guarantee, the Mortgage, the Security Agreement or any Security Document and further waives the right to interpose any defense based on any statute of limitations or any claim of laches arising in connection with the Indenture, the Guarantee, the Mortgage, the Security Agreement or any Security Document and any set off or counterclaim of any nature or description, it being understood that the Assignor is not liable except to the extent of the Collateral pledged pursuant to the Indenture. 14. If any term, covenant, condition or provision of this Assignment or the application thereof to any circumstance or to any Person shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Assignment, or the application thereof to any circumstances or to any Person other than those as to which any term, covenant, condition or provision is held invalid or unenforceable, shall not be affected thereby and each remaining term, covenant, condition and provision of this Assignment shall be valid and shall be enforceable to the fullest extent permitted by law. 15. The Assignee and Assignor acknowledge and agree that: (i) all security interest and other rights in Leases, rents, Premises and any other Collateral shall be, and hereby are, subject and inferior to any Liens heretofore or hereafter created from time to time in connection with the incurrence of Working Capital Indebtedness; and (ii) notwithstanding anything to the contrary hereunder or in the Indenture or in the other Security Documents, the Assignor may incur Liens and Indebtedness (including, without limitation, Liens on Leases, rents, Premises or other Collateral) permitted by the Indenture. In connection with any of the foregoing, Assignee will, at the request of Assignor, enter into such intercreditor agreements, standstill agreements, subordination agreements and other documents as shall be appropriate under the circumstances for the benefit of the holder of such other Liens or Indebtedness. Assignor shall have the right to sell, transfer and convey (the "Sale") the Collateral in whole or in part (the Collateral which is the subject of such Sale is hereinafter referred to as the "Conveyed Property") and in connection therewith obtain from Assignee a release of the Conveyed Property from the Lien of this Collateral and the Security Agreement provided that such Sale is made in accordance with the provisions of Section 1017 of the Indenture as if such Sale was an Asset Sale, as the term is defined in the Indenture, regardless of whether such Sale was in fact an Asset Sale. In connection therewith, Assignee shall execute, acknowledge and deliver to Assignor such documents as Assignor may reasonably require to effectuate such release. The Liens granted hereunder shall not and shall not be deemed to, apply to any Excluded Property (as defined in the Security Agreement). 16. This Assignment shall not be amended, modified, discharged, waived, in whole or in part, except by an agreement signed by the Assignor and the Assignee. -8- 17. In this Assignment, whenever the context so requires, the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural and conversely in each case. All demands, notices, requests and communications hereunder shall be given as provided in the Indenture. 18. Each of the provisions of this Assignment is subject to and shall be enforced in compliance with the provisions of the Casino Control Act. 19. THE ASSIGNOR ACKNOWLEDGES THAT IT HAS RECEIVED A TRUE COPY OF THIS ASSIGNMENT WITHOUT CHARGE. [SIGNATAURES SET FORTH ON FOLLOWING PAGE] * * * * -9- IN WITNESS WHEREOF, this Assignment has been duly executed by the Assignor the day and year first above written. Attest: GREATE BAY HOTEL AND CASINO, INC. a New Jersey Corporation By:___________________________ By:__________________________________ Name: Frederick H. Kraus Name: Timothy A. Ebling Its: Secretary Its: Executive Vice-President -10- COUNTY OF NEW YORK ) ) ss: STATE OF NEW YORK ) On September 29, 2000, before me, the subscriber, personally appeared Frederick H. Kraus who being by me duly sworn according to law on his oath saith that he is the Secretary of Greate Bay Hotel and Casino, Inc., a New Jersey corporation, the above-named Assignor; that the seal affixed to aforesaid Assignment is the corporate seal of the said corporation; that Timothy A. Ebling is the Executive Vice-President of the said corporation; that he saw the said Executive Vice-President sign the Assignment as the act and deed of said corporation, he being thereunto duly authorized; and that he signed his name to the Assignment as an attesting witness. _______________________ Subscribed before me this ______ day of September, 2000. __________________________ Notary Public -11- STATE OF NEW YORK ) ): ss COUNTY OF NEW YORK ) BE IT REMEMBERED, that on this 29th day of September, 2000, before me the subscriber, a Notary Public of the State of New York, personally appeared Timothy A. Ebling, who resides at 17 Monroe Drive, Laurel Springs, NJ 08021 and who is the Executive Vice-President of GREATE BAY HOTEL AND CASINO, INC. a New Jersey corporation and the mortgagor named in the within instrument, who I am satisfied is the person who executed the within instrument, as Executive Vice-President of said corporation, and he acknowledged that he signed, sealed with the proper corporate seal and delivered the same as such officer, that the within instrument is the voluntary act and deed of such corporation made by virtue of authority of its board of directors, on, behalf of and as the voluntary act and deed of such corporation, for the uses and purposes therein expressed, and that he received a true copy of the within instrument on its own behalf and on behalf of the mortgagor named therein. ________________________________ Notary Public of the State of New York Seal -12- SCHEDULE A-1 Casino Land TRACT #1: BEGINNING at a point, in the Easterly line of Illinois Avenue, distant 350 feet Southwardly from the Southerly line of Pacific Avenue; and extending thence (1) Eastwardly, parallel with Pacific Avenue 151 feet to the Westerly line of Mt. Vernon Avenue; thence (2) Southwardly, in and along the said Westerly line of Mt. Vernon Avenue, 50 feet; thence (3) Westwardly, parallel with Pacific Avenue, 151 feet to the Easterly line of Illinois Avenue; thence (4) Northwardly, in and along the said Easterly line of Illinois Avenue, 50 feet to the place of BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 48, formerly known as part of Lot 191 in Block 26, as shown on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. TRACT #2: BEGINNING at a point in the Easterly line of Illinois Avenue 400 feet South of Pacific Avenue, and extending thence (1) Eastwardly, parallel with Pacific Avenue, 151 feet to the Westerly line of Mt. Vernon Avenue; thence (2) Southwardly, along same 50 feet; thence (3) Westwardly, parallel with Pacific Avenue, 151 feet to the Easterly line of Illinois Avenue; thence (4) Northwardly, along same 50 feet to the BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 48, formerly known as part of Lot 191 in Block 26, as shown on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. -13- TRACT #3: BEGINNING at a point in the Westerly line of Kentucky Avenue (50 feet wide), said point being distant 200.00 feet South of the Southerly line of Pacific Avenue (60 feet wide); and extending from said beginning point the following courses and distances: (1) South 27 degrees 28 minutes 00 second East, in and along the Westerly line of Kentucky Avenue, a distance of 50.00 feet; thence (2) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 180.00 feet to the Easterly line of Mt. Vernon Avenue (19 feet wide); thence (3) North 27 degrees 28 minutes 00 seconds West, in and along the Easterly line of Mt. Vernon Avenue, a distance of 50.00 feet; thence (4) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 180.00 feet to the point and place of BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 49, formerly known as part of Lot 192 in Block 26, as shown on the Tax Map of the City of Atlantic City. TRACT #4: BEGINNING at a point in the Easterly line of Mt. Vernon Avenue (19 feet wide), said point being distant 250.00 feet South of the Southerly line of Pacific Avenue (60 feet wide); and extending from said beginning point the following course and distances: (1) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 30.00 feet; thence (2) South 27 degrees 28 minutes 00 seconds East, parallel with Mt. Vernon Avenue, a distance of 50.00 feet; thence (3) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 30.00 feet to the Easterly line of Mt. Vernon Avenue; thence (4) North 27 degrees 28 minutes 00 seconds West, in and along the Westerly line of Mt. Vernon Avenue, a distance of 50.00 feet to the point and place of BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 49, formerly known as Part of Lot 192 in Block 26, as shown on the Tax Map of the City of Atlantic City. -14- TRACT #5: BEGINNING in the Westerly line of Kentucky Avenue, 250 feet Southwardly from Pacific Avenue; and extending thence (1) Westwardly, parallel with Pacific Avenue, 150 feet; thence (2) Southwardly, parallel with Kentucky Avenue, 50 feet; thence (3) Eastwardly. parallel with Pacific Avenue, 150 feet to the Westerly line of Kentucky Avenue; thence (4) Northwardly, in and along same 50 feet to the point and place of BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 49, formerly known as Part of Lot 192 in Block 26, as shown on the Tax Map of the City of Atlantic City. TRACT #6: BEGINNING at a point in the Westerly line of Kentucky Avenue 300 feet Southwardly from the Southerly line of Pacific Avenue; and extending thence (1) Westwardly, parallel with Pacific Avenue, 180 feet; thence (2) Southwardly, parallel with Kentucky Avenue, 50 feet; thence (3) Eastwardly, parallel with Pacific Avenue, 180 feet to the Westerly line of Kentucky Avenue; thence (4) Northwardly, along same, 50 feet to the place of BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 49, formerly known as Part of Lot 192 in Block 26, as shown on the Tax Map of the City of Atlantic City. TRACT #7: BEGINNING at a point in the Westerly line of Kentucky Avenue (50 feet wide) said point being distant 350.00 feet South of the Southerly line of Pacific Avenue (60 feet wide); and extending from said beginning point in the following course and distances: (1) South 27 degrees 28 minutes 00 seconds East, in and along the Westerly line of Kentucky Avenue, a distance of 91.40 feet; thence (2) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 4.00 feet; thence -15- (3) South 27 degrees 28 minutes 00 seconds East, parallel with Kentucky Avenue, a distance of 1.00 feet; thence (4) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 26.00 feet; thence (5) South 27 degrees 28 minutes 00 seconds East, parallel with Kentucky Avenue, a distance of .075 feet; thence (6) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 16.60 feet; thence (7) South 27 degrees 28 minutes 00 seconds East, parallel with Kentucky Avenue, a distance of 10.00 feet; thence (8) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 133.40 feet to the Easterly line of Mt. Vernon Avenue (19 feet wide); thence (9) North 27 degrees 28 minutes 00 seconds West, in and along the Easterly line of Mt. Vernon Avenue, a distance of 103.15 feet; thence (10) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 180.00 feet to the point and place of BEGINNING. BEING KNOWN AS Part of Lot 10 in Block 49, formerly known as Part of Lot 192 in Block 26, as shown on the Tax Map of the City of Atlantic City. ALSO BEING KNOWN AS proposed Lot 119.01 in Block 26 as shown on minor subdivision plan prepared by Dennis E. Duffy Associates, dated September 26, 1985 and filed in the Atlantic County Clerk's Office on February 6, 1986 as Map #2358. TRACT #8: BEGINNING at a point in the Easterly line of Indiana Avenue (60 feet wide), said beginning point being South 27 degrees 28 minutes 00 seconds East, 200.10 feet from where the Easterly line of Indiana Avenue is intersected by the Southerly line of Pacific Avenue (60 feet wide); and extending thence (1) South 27 degrees 28 minutes 00 seconds East, in and along the Easterly line of Indiana Avenue, 305.54 feet to a point; thence (2) North 62 degrees 30 minutes 00 seconds East, parallel with Pacific Avenue 350.75 feet to a point in the Westerly line of Illinois Avenue (50 feet wide); thence -16- (3) In said Westerly line, North 27 degrees 28 minutes 00 seconds West, 305.64 feet to a point, said point being South 27 degrees 28 minutes 00 seconds East, 200.00 feet from the point of intersection of the Westerly line of Illinois Avenue, now known as Dr. Martin Luther King Boulevard with the Southerly line of Pacific Avenue; thence (4) South 62 degrees 30 minutes 00 seconds West, parallel with Pacific Avenue and along the line of the lands of the former Bala Motel, 150.75 feet to a point; thence (5) North 27 degrees 27 minutes 00 seconds West, parallel with Illinois and Indiana Avenue and along the line of the lands, now or late of the Bala Motel, 114.00 feet to a point; thence (6) South 62 degrees 30 minutes 00 seconds West, parallel with Pacific avenue, 50.00 feet to a point; thence (7) South 27 degrees 28 minutes 00 seconds East, parallel with Illinois Avenue and Indiana Avenue, along the lands now or late of Midtown Motor Inn, 64.00 feet to a point; thence (8) North 62 degrees 30 minutes 00 seconds East, still in said line and parallel with Pacific Avenue 5.00 feet to a point; thence (9) South 27 degrees 28 minutes 00 seconds East, still in said line and parallel with Illinois and Indiana Avenue 50.10 [tax map says 50 feet] to a point; thence (10) South 62 degrees 30 minutes 00 seconds West, still in said line and parallel with Pacific Avenue, 155.00 feet to the point and place of BEGINNING. SUBJECT to the easement for public right-of-way contained in deed Book 3684, page 254. BEING KNOWN AS Lot 12 in Block 47, formerly known as Lot 60 in Block 30 as shown on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. TRACT #9: PARCEL A: BEGINNING at a point in the Easterly line of Mt. Vernon Avenue (19 feet wide), said point being distant 358.00 feet South of the Southerly line of Pacific Avenue (60 feet wide); and extending from said beginning point, the following courses and distance: (1) South 27 degrees 28 minutes 00 seconds East, in and along the Easterly line of Mt. Vernon Avenue, a distance of 15.15 feet: thence -17- (2) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue and crossing Mt. Vernon Avenue, a distance of 19.00 feet to the Westerly line of Mt. Vernon Avenue; thence (3) North 27 degrees 28 minutes 00 seconds West, in and along the Westerly line of Mt. Vernon Avenue, a distance of 15.15 feet; thence (4) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue and crossing Mt. Vernon Avenue, a distance of 19.00 feet to the Easterly line of Mt. Vernon Avenue and the point and place of BEGINNING. BEING an area above the horizontal plane of Mt. Vernon Avenue between elevation 50.00 and elevation 70.00, said elevations in reference to U.S.C. and G.S. Datum (elevation 0.00 = mean sea level). BEING KNOW AS Lot 19 in Block 49, as shown on the Tax Map of the City of Atlantic City. PARCEL B BEGINNING at a point in the Easterly line of Mt. Vernon Avenue (19 feet wide), said point being distant 432.00 feet South of the Southerly line of Pacific Avenue (60 feet wide); and extending from said beginning point the following courses and distances: (1) South 27 degrees 28 minutes 00 seconds East, in and along the Westerly line of Mt. Vernon Avenue, a distance of 18.00 feet; thence (2) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue and crossing Mt. Vernon Avenue, a distance of 19.00 feet to the Westerly line of Mt. Vernon Avenue; thence (3) North 27 degrees 28 minutes 00 seconds West, in and along the Westerly line of Mt. Vernon Avenue, a distance of 18.00 feet; thence (4) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue and crossing Mt. Vernon Avenue, a distance of 19.00 feet to the Easterly line of Mt. Vernon Avenue and the point and place of BEGINNING. BEING an area above the horizontal plane of Mt. Vernon Avenue between elevation 30.00 feet and elevation 50.00, said elevations in reference to U.S.C. and G.S. Datum (Elevation 0.00 = mean sea level). BEING KNOW AS Lot 20 in Block 49, as shown on the Tax Map of the City of Atlantic City. -18- PARCEL C: BEGINNING at a point in the Easterly line of Illinois Avenue, now known as Dr. Martin Luther King Boulevard (50 feet wide), said point being distant 365.50 feet South of the Southerly line of Pacific Avenue (60 feet wide); and extending from said beginning point, the following courses and distances: (1) South 27 degrees 28 minutes 00 seconds East, in and along the Easterly line of Illinois Avenue, a distance of 15.50 feet; thence (2) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue and crossing Illinois Avenue, a distance of 50.00 feet to the Westerly line of Illinois Avenue; thence (3) North 27 degrees 28 minutes 00 seconds West, in and along the Westerly line of Illinois Avenue, a distance of 15.50 feet; thence (4) North 62 degrees 32 minutes 00 seconds east, parallel with Pacific Avenue and crossing Illinois Avenue, a distance of 50.00 feet to the Easterly Line of Illinois Avenue and the point and place of BEGINNING. BEING an area above the horizontal plane of Illinois Avenue between elevation 50.00 and elevation 70.00, said elevations in reference to U.S.C. and G.S. Datum (Elevations 0.00 = mean sea level). BEING KNOW AS Lot 19 in Block 49, as shown on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. -19- SCHEDULE A-2 Office Land BEGINNING at a point in the Westerly line of Kentucky Avenue (50 feet wide), distant 441.40 feet South of the Southerly line of Pacific Avenue (60 feet wide), as measured in and along the aforesaid Westerly line of Kentucky Avenue, said beginning point being in the division line between Lots 119.01 and 119.02 in Block 26 as shown on plan of minor subdivision prepared by Dennis E. Duffy Associates, Project No. 3361, dated September 26, 1985 and filed February 11, 1986, filed Map #2358, and extending from said beginning point; thence (1) South 27 degrees 28 minutes 00 seconds East, in and along the aforesaid Westerly line of Kentucky Avenue, a distance of 108.60 feet to a point in the Northerly line of Lot 13 in said Block 49; thence (2) South 62 degrees 32 minutes 00 seconds West, in and along the same and parallel with Pacific Avenue, a distance of 150.00 feet to a corner common to Lots 11, 12 and 13 in said Block 49; thence (3) North 27 degrees 28 minutes 00 seconds West, in and along the Easterly line of Lot 12 and parallel with Kentucky Avenue, a distance of 50.00 feet to the Northeasterly corner of said Lot 12; thence (4) South 62 degrees 32 minutes 00 seconds West, in and along the Northerly line of said Lot 12 and parallel with Pacific Avenue, a distance of 30.00 feet to a point in the Easterly line of Mount Vernon Avenue (19 feet wide); thence (5) North 27 degrees 28 minutes 00 seconds West, in and along same, a distance of 46.85 feet to a point in the aforesaid division line between Lots 11 and 10; thence (6) North 62 degrees 32 minutes 00 seconds East, in and alone same and parallel with Pacific Avenue, a distance of 133.40 feet to a point; thence (7) North 27 degrees 28 minutes 00 seconds West, continuing in and along the said division line and parallel with Kentucky Avenue, a distance of 10.00 feet to a point; thence (8) North 62 degrees 32 minutes 00 seconds East, still in and along the said division line and parallel with Pacific Avenue, a distance of 16.60 feet to a point; thence (9) North 27 degrees 28 minutes 00 seconds West, still in and along the said division line and parallel with Kentucky Avenue, a distance of 0.75 feet to a point; thence (10) North 62 degrees 32 minutes 00 seconds East, still in and along the said division line and parallel with Pacific Avenue, a distance of 26.00 feet to a point; thence -20- (11) North 27 degrees 28 minutes 00 seconds West, still in and along the said division line and parallel with Kentucky Avenue, a distance of 1.00 feet to a point; thence (12) North 62 degrees 32 minutes 00 seconds East, still in and along the said division line and parallel with Pacific Avenue, a distance of 4.00 feet to a point in a the aforesaid Westerly line of Kentucky Avenue and the point and place of BEGINNING. BEING Lot 119.02 in Block 26 as shown on plan of minor subdivision prepared by Dennis E. Duffy Associates, dated September 26, 1985, Project No. 3361, filed in the Atlantic County Clerk's Office on February 11, 1986, filed Map #2358. ALSO BEING KNOWN AS Lot 11 in Block 49, formerly known as Lot 119.02 in Block 26, as shown on the Tax Map of the City of Atlantic City. -21- SCHEDULE A-3 Expansion Land Tract # 1 ALL THAT CERTAIN LOT, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point in the Easterly line of Illinois Avenue (50' wide), distant 200.00' South of the Southerly line of Pacific Avenue (60'wide), when measured in and along the said Easterly line of Illinois Avenue, and extending from said beginning point; thence (1) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 151.00' to a point in the Westerly line of Mount Vernon Avenue (19' wide); thence (2) South 27 degrees 28 minutes 00 seconds East, in and along the same, a distance of 45.00' to a point; thence (3) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 151.00' to a point in the Easterly line of Illinois Avenue; thence (4) North 27 degrees 28 minutes 00 seconds West, in and along same, a distance of 45.00' to the point and place of BEGINNING. BEING KNOWN AS Lot 8 in Block 48, formerly known as Lot 117 in Block 26, as shown on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. And subject to Ordinance No. 1994-95 of the City of Atlantic City. Tract # 2 All that certain Land and Premises, Tract or Parcel, situate in the City of Atlantic City, County of Atlantic County and State of New Jersey, bounded and described as follows: Beginning in the Northwesterly Line of Pacific Avenue (60 Ft. Wide) at a point that is 150.75 Feet Northeastwardly of the Northeasterly Line of Indiana Avenue (50 Ft. Wide) and extending thence by N.J.P.C.S. MERIDIAN: (1) North 27 degrees 40 minutes 05 seconds West, at right angles to Pacific avenue, 150.00 Feet; thence (2) North 62 degrees 19 minutes 55 seconds East, parallel with Pacific Avenue, 50.00 Feet; thence -22- (3) South 27 degrees 40 minutes 05 seconds East, at right angles to Pacific Avenue, 150.00 Feet to the first mentioned Northwesterly Line of Pacific Avenue; thence (4) South 62 degrees 19 minutes 55 seconds West, along said Northwesterly Line of Pacific Avenue, 50.00 Feet to the POINT AND PLACE OF BEGINNING. Being known as Lot 29, Block 156, formerly Lot 27, Block 33, on the Tax Map of the City of Atlantic City. Tract # 3 ALL THAT CERTAIN LOT, tract or parcel of land and premises situate, lying and being in the CITY OF ATLANTIC CITY, County of ATLANTIC and State of New Jersey, bounded and described as follows: BEGINNING in the Southeasterly line of Pacific Avenue (60 feet wide) at a point that is 50.75 feet Southwestwardly of the Southwesterly line of Dr. Martin Luther King Jr. Boulevard (50 feet wide) and extending thence by N.J.P.C.S. MERIDIAN: (1) South 27 Degrees 40 minutes 05 seconds East, parallel with Dr. Martin Luther King Jr. Boulevard, 100.00 feet; thence (2) South 62 degrees 19 minutes 55 seconds West, parallel with Pacific Avenue, 50.00 feet; thence (3) North 27 degrees 40 minutes 05 seconds West, parallel with Dr. Martin Luther King Jr. Boulevard, 100.00 feet to the first mentioned Southeasterly line of Pacific Avenue; thence (4) North 62 degrees 19 minutes 55 seconds East, along said Southeasterly line of Pacific Avenue, 50.00 feet to the POINT AND PLACE OF BEGINNING. BEING Lot 7 in Block 47, formerly known as Lot 14 in Block 30, as shown on the Tax Map of the City of Atlantic City. Tract # 4 ALL THAT CERTAIN LOT, tract or parcel of land and premises situate, lying and being in the CITY of ATLANTIC CITY County of ATLANTIC and State of New Jersey, bounded and described as follows: -23- TRACT A BEGINNING at a point in the Southeasterly line of Pacific Avenue (60 feet wide), said point being distant 100.75 feet Southwestwardly from the intersection of the said line of Pacific Avenue with the Southwesterly line of Illinois Avenue (50 feet wide), said point being corner to lands of the former White Tower; thence (1) Southwestwardly along said Pacific Avenue a distance of 100 feet to corner to lands of the former Mid Town Motor Inn, said point being distant 150 feet Northeastwardly from the Northeasterly line of Indiana Avenue; thence (2) Southeastwardly parallel with Indiana Avenue (60 feet wide) a distance of 86 feet to a point; thence (3) Northeastwardly parallel with pacific Avenue a distance of 50 feet to a point; thence (4) Southeastwardly parallel with Illinois Avenue a distance of 114 feet to a point; thence (5) Northeastwardly parallel with Pacific Avenue a distance of 150.75 feet to the Southwesterly line of Illinois Avenue; thence (6) Northwestwardly along the Southwesterly line of Illinois Avenue a distance of 100 feet to a point; thence (7) Southwestwardly parallel with Pacific Avenue a distance of 100.75 feet to a point; thence (8) Northwestwardly parallel with Illinois Avenue a distance of 100 feet to the Southwesterly line of Pacific Avenue to the point and place of BEGINNING. The above description is in accordance with a survey drawn by Arthur W. Ponzio Co. and Associates dated November 7, 1984 and revised November 23, 1984, January 7, 1985, July 11, 1985, July 12, 1985 and August 5, 1985. BEING KNOWN AS Lots 6, 5, 4, 10 and 9 in Block 47, formerly known as Lots 2, 3, 16, 42 and 19 in Block 30, on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. TRACT B BEGINNING at the intersection of the Southeasterly line of Pacific Avenue (60 feet wide) with the Northeasterly line of Indiana Avenue (60 feet wide); thence (1) Northeastwardly along the Southeasterly line of Pacific Avenue a distance of 150 to a point corner to the former Bala Motel; thence (2) Southeastwardly along said lands and extensions thereof and parallel with Indiana Avenue a distance of 150 feet to a point; thence -24- (3) Southwestwardly parallel with Pacific Avenue a distance of 150 feet to the Northeasterly line of Indiana Avenue; thence (4) Northwestwardly along the Northeasterly line of Indiana Avenue a distance of 150 feet to the point and place of BEGINNING. The above description is in accordance with a survey drawn by Arthur W. Ponzio Co. and Associates dated November 7, 1984 and revised July 11, 1985, August 5, 1985 and August 6, 1985. BEING Lots 1, 2 and 3 in Block 47, formerly known as Lots 7, 6 and 5 in Block 30, as shown on the Tax Map of the City of Atlantic City. TRACT C BEGINNING at a point on the Northerly sideline of Pacific Avenue, said point being 100.75 feet Northeast from the intersection of the Northerly sideline of Pacific Avenue and the Easterly sideline of Indiana Avenue (said point also being 250.00 feet West of Illinois Avenue) and running thence; (1) North 27 degrees 28 minutes 00 seconds West 150.00 feet to a point; thence (2) South 62 degrees 32 minutes 00 seconds West 0.75 feet to a point; thence (3) North 27 degrees 28 minutes 00 seconds West parallel with Indiana Avenue, 25 feet to a point; thence (4) North 62 degrees 32 minutes 00 seconds East 50.00 feet to a point; thence (5) South 27 degrees 28 minutes 00 seconds East 25.00 feet to a point; thence (6) North 62 degrees 32 minutes 00 seconds East 0.75 feet to a point; thence (7) South 27 degrees 28 minutes 00 seconds East 150.00 feet to the point; thence (8) South 62 degrees 32 minutes 00 seconds West 50.00 feet to a point and the place of BEGINNING. The above description is in accordance with a survey drawn by Arthur W. Ponzio Co. and Associates dated November 7, 1984 and revised July 11, 1985, July 12, 1985 and August 5, 1985. BEING KNOWN AS Lot 31 in Block 156, formerly known as Lot 73 in Block 33, as shown on the Tax Map of the City of Atlantic City. Illinois Avenue now known as Dr. Martin Luther King Boulevard. -25- TRACT # 5 ALL THAT CERTAIN LOT, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING in the Northeasterly line of Indiana Avenue (60 feet wide) at a point 150 feet Southeastwardly of the Southeasterly line of Pacific Avenue (60 feet wide); and extending thence (1) North 62 degrees 32 minutes East, parallel with pacific Avenue, 155 feet; thence (2) South 27 degrees 28 minutes East, parallel with Indiana Avenue, 50.10 feet; thence (3) South 62 degrees 32 minutes West, parallel with Pacific Avenue 155 feet to the first mentioned Northeasterly line of Indiana Avenue; thence (4) North 27 degrees 28 minutes West, along same, 50.10 feet to the point and place of BEGINNING. BEING KNOWN AS Lot 11 in Block 47 as shown on the current tax map of the City of Atlantic City. -26- SCHEDULE A-4 Easement EASEMENT I DESCRIPTION FOR EASEMENT FOR THE PEOPLEMOVER SYSTEM TOGETHER WITH SUPPORTING COLUMNS ON INDIANA AVENUE. BEGINNING at a point in the Westerly line of Indiana Avenue (60 feet wide), said point being distant 342.00 feet South of the Southerly line of Pacific Avenue (60 feet wide), and extending from said beginning point; thence (1) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue a distance of 10.00 feet; thence (2) South 27 degrees 28 minutes 00 seconds East, parallel with Indiana Avenue a distance of 94.00 feet; thence (3) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue a distance of 50.00 feet to the Easterly line of Indiana Avenue; thence (4) South 27 degrees 28 minutes 00 seconds East, in and along the Easterly line of Indiana Avenue, a distance of 30.00 feet: thence (5) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue a distance of 50.00 feet; thence (6) South 27 degrees 28 minutes 00 seconds East, parallel with Indiana Avenue a distance of 498.90 feet; thence (7) South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue a distance of 10.00 feet to the Westerly line of Indiana Avenue; thence (8) North 27 degrees 28 minutes 00 seconds West, in and along the Westerly line of Indiana Avenue, a distance of 622.90 feet to the point and place of BEGINNING. The above described Easement is located over and along the right of way of Indiana Avenue. It is understood that the above description is for an elevated peoplemover system, together with supporting columns on Indiana Avenue and for an elevated pedestrian passageway or bridge connecting the peoplemover system to the Claridge and to the Sands respectively. It is further understood that the bottom of said easement shall be located at elevation 20, mean sea level datum and the top of said easement shall be at elevation 45.0. -27- EASEMENT II DESCRIPTION OF A PEOPLEMOVER SYSTEM ENTRANCE AND MUSEUM AT THE BOARDWALK END OF INDIANA AVENUE. ALL THAT CERTAIN LOT, tract, or parcel of land and premises situate, lying, and being in the city of Atlantic City, County of Atlantic, and State of New Jersey, bounded and described as follows: BEGINNING at a point distant 946.90 feet South of the Southerly line of Pacific Avenue (60 feet wide) and 26.00 feet West of the Westerly line of Indiana Avenue (60 feet wide), when measured at tight angles to said avenues respectively, and extending from said beginning point; thence (1) North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue a distance of 62.00 feet; thence (2) South 27 degrees 28 minutes 00 seconds East, parallel with Indiana Avenue a distance of 59.37 feet to the Inland or Interior Line of Public Park; thence (3) South 77 degrees 07 minutes 07 seconds West, in and along the Inland or Interior Line of Public Park, a distance of 64.06 feet; thence (4) North 27 degrees 28 minutes 00 seconds West, parallel with Indiana Avenue a distance of 43.23 feet to the point and place of BEGINNING. The above described easement is located partly in the right of way of Indiana Avenue and partly on Lot 5, Block 46 as shown on the Tax Map of the City of Atlantic City. It is understood that the above description is for the Museum and Peoplemover System entrance area at the Boardwalk end of Indiana Avenue. -28- Schedule B Permitted Encumbrances 1. Permitted Liens as defined in the Indenture. 2. All those certain encumbrances listed on Schedule B - Section II of that certain ALTA Loan Policy - __________ _____, 2000, No. 12134052, issued by the Title Company of Jersey, as agent for Stewart Title Guaranty Company, dated September _____, 2000. 3. The terms of a lease, license or management agreement(s) with an energy management company(s), supplier(s), or intermediary(s) related thereto now or hereafter entered into concerning or with respect to the supply and/or management of utility services and/or the operation of existing or newly supplied equipment at the property, including, but not limited to heating, ventilation, and air-conditioning and energy production related equipment. 4. That certain unrecorded Lease Agreement for Lot 29 in Block 156 between Mortgagor as Landlord, and T&M Parking, Inc., as Tenant, dated March 20, 1996, having a month-to-month term. 5. That certain License Agreement by and between Mortgagor and Eva Daush, d/b/a Sansations Hair Salon, dated April 28, 1999, and amended March 15, 2000, for a term to expire September 15, 2000, and to be renewed upon substantially the same terms. 6. That certain License Agreement by and between Mortgagor and Bill's Vending Service, Inc., dated July 12, 1999, and amended October 1, 1999, for a term of three (3) years. A-29 SCHEDULE 1 1. Brighton Park Improvements Agreement between Assignor and the Claridge at Park Place, Inc., dated November 5, 1987, as amended April 5, 2000. 2. Lease Agreement for Lot 29 in Block 156 between Assignor, as Landlord, and T&M Parking, Inc., as Tenant, dated March 20, 1996, having a month-to-month term. 3. License Agreement by and between Assignor and Eva Davsch, d/b/a Sansations Hair Salon, dated April 228, 1999, and amended March 15, 2000, for a term to expire September 15, 2000, and to be renewed upon substantially the same terms. 4. License Agreement by and between Assignor and Bill's Vending Service, Inc., dated July 12, 1999, and amended October 1, 1999, for a term of three (3) years. -----END PRIVACY-ENHANCED MESSAGE-----