-----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, TGCh65cx1NkIMEXWA9SaFSLIGLDa+zryKPNE6/DJ7Ejlzugr6fiL6Th4jj5jHQHx VB1rTDswHSPE4becHy9FVw== 0001005477-99-005302.txt : 19991117 0001005477-99-005302.hdr.sgml : 19991117 ACCESSION NUMBER: 0001005477-99-005302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GB PROPERTY FUNDING CORP CENTRAL INDEX KEY: 0000912906 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 752502290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-69716 FILM NUMBER: 99754499 BUSINESS ADDRESS: STREET 1: C/O SANDS HOTEL & CASINO STREET 2: INDIANA AVE & BRIGHTON PARK 9TH FLOOR CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 609-441-07 MAIL ADDRESS: STREET 1: C/O SANDS HOTEL & CASINO STREET 2: INDIANA AVE & BRIGHTON PARK 9TH FLOOR CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATE BAY HOTEL & CASINO INC CENTRAL INDEX KEY: 0000906595 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222242014 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-69716-02 FILM NUMBER: 99754500 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 13455 NOEL CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 STREET 2: 13455 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GB HOLDINGS INC CENTRAL INDEX KEY: 0000912926 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 752502293 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-69716-01 FILM NUMBER: 99754501 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER 13455 NOEL ROAD STREET 2: STE 2200 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 STREET 2: 13455 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _____________________ Commission file number 33-69716 ------------------- GB PROPERTY FUNDING CORP. GB HOLDINGS, INC. GREATE BAY HOTEL AND CASINO, INC. - -------------------------------------------------------------------------------- (Exact name of each Registrant as specified in its charter) DELAWARE 75-2502290 DELAWARE 75-2502293 NEW JERSEY 22-2242014 - ------------------------------------------------ ----------------------------- (States or other jurisdictions of (I.R.S. Employer incorporation or organization) Identification No.'s) c/o Sands Hotel & Casino Indiana Avenue & Brighton Park Atlantic City, New Jersey 08401 - ------------------------------------------------ ----------------------------- (Address of principal executive offices) (Zip Code) (Registrants' telephone number, including area code): (609) 441-4517 -------------- (Not Applicable) - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether each of the Registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.
Registrant Class Outstanding at November 12, 1999 - -------------------------------- ------------------------------ -------------------------------- GB Property Funding Corp. Common stock, $1.00 par value 1,000 shares GB Holdings, Inc. Common stock, $1.00 par value 1,000 shares Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
1 PART I: FINANCIAL INFORMATION Introductory Notes to Financial Statements The registered securities consist of 10 7/8% First Mortgage Notes (the "First Mortgage Notes") in the original principal amount of $185,000,000 due January 15, 2004 issued by GB Property Funding Corp. ("GB Property Funding"). GB Property Funding's obligations were unconditionally guaranteed by GB Holdings, Inc. ("Holdings"), a Delaware corporation with principal executive offices at 136 S. Kentucky Avenue, Atlantic City, New Jersey 08401, and by Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation and a wholly owned subsidiary of Holdings with principal offices at 136 South Kentucky Avenue, Atlantic City, New Jersey 08401. GB Property Funding is wholly owned by Holdings. Holdings was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC was a wholly owned subsidiary of PPI Corporation ("PPI") which is wholly owned by Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc., a newly formed entity, controlled by certain stockholders of GBCC ("PBV"). GBCC's common stock is listed on the OTC Bulletin Board Service under the trading symbol "GEAAQ". As a result of a certain confirmed plan of reorganization of PCC and others in October, 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC, whose sole member as a result of the same reorganization is PPI ("GBLLC"). GB Property Funding was organized during September 1993 as a special purpose subsidiary of Holdings for the purpose of borrowing funds through the issuance of the First Mortgage Notes for the benefit of GBHC. GBHC owns the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands"). Substantially all of Holdings'assets and operations relate to the Sands. On January 5, 1998, Holdings, GB Property Funding and GBHC (collectively, the "Debtors") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The prior Boards of Directors resigned on January 2, 1998 and new Boards of Directors were elected at that time. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required by the Settlement Agreement, as defined in Note 1 to Holdings financial statements, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings , citing a newly arisen potential conflict of interest, resigned. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest can file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization and third modified disclosure statement (the "Plan"), which provides for, among other things, the pro rata distribution to holders of the First Mortgage Notes by GB Property Funding of $80,000,000 principal amount of new First Mortgage Notes and 100% of new common stock of Holdings. The Plan also provides that all the outstanding common stock of the Debtors will be cancelled and that new common stock of GB Property Funding and GBHC will be issued to Holdings. On October 4, 1999, the Bankruptcy Court approved the adequacy of the third modified disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). 2 On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under which PPE would sponsor a plan of reorganization of the Debtors (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. Under the Term Sheet, and if a plan incorporating the Term Sheet is confirmed, (i) PPE would make a $30,000,000 capital contribution and would receive an approximate 58% equity interest, (ii) First Mortgage Holders would receive a pro rata share of new first mortgage notes in the principal amount of $128 million (the "New Notes") and the remaining approximate 42% equity interest ("New Equity"), (iii) PPE would offer to exchange New Notes for New Equity at a stated exchange rate, (iv) MLAM would accept such exchange offer and receive no New Equity under the Term Sheet (the "MLAM Exchange"), (v) PPE would receive approximately 80.1% of the New Equity as a result of its capital contribution, its pro rata share of New Equity, and the MLAM Exchange, (vi) PPE would enter into a certain management agreement for GBHC, and (vii) all other classes of creditors would receive the same treatment as specified under the Plan. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. A plan of reorganization requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Casino Commission (the "Casino Commission"). There can be no assurance at this time that any plan of reorganization, when submitted, will be confirmed by the Bankruptcy Court and approved by the Casino Commission. In the event a plan of reorganization is confirmed, continuation of the business thereafter is dependent on Holdings' ability to achieve successful future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should Holdings be unable to continue as a going concern. Although management has not made a determination whether an impairment of the carrying value currently exists, future adjustments to the carrying amount of GBHC's assets are possible with respect to the fresh-start reporting which would take place at the effective date of a plan of reorganization confirmed by the Bankruptcy Court. Historically, the Sands' gaming operations have been highly seasonal in nature, with the peak activity occurring from May to September. Consequently, the results of operations for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the operating results to be reported for the full year. The financial statements of GB Property Funding and the consolidated financial statements of Holdings as of September 30, 1999 and for the three and nine month periods ended September 30, 1999 and 1998 have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, their respective financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly their respective financial positions as of September 30, 1999, their respective results of operations for the three and nine month periods ended September 30, 1999 and 1998, and their respective cash flows for the nine month periods ended September 30, 1999 and 1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in GB Property Funding's, Holdings' and GBHC's 1998 Annual Report on Form 10-K. 3 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) BALANCE SHEETS (Unaudited) ASSETS September 30, December 31, 1999 1998 ------------- ------------ Current Asset: Cash $ 1,000 $ 1,000 Interest Receivable from Affiliate 9,373,000 9,373,000 Note Receivable from Affiliate 182,098,000 182,243,000 ------------- ------------ $ 191,472,000 $191,617,000 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Subject to Compromise: Accrued interest payable $ 9,373,000 $ 9,373,000 Long-term debt 182,098,000 182,243,000 ------------- ------------ 191,471,000 191,616,000 ============ ============ Commitments and Contingncies Shareholder's Equity: Common stock, $1.00 par value per share, 1,000 shares authorized and outstanding 1,000 1,000 ------------- ------------ $ 191,472,000 $191,617,000 ============ ============ The accompanying introductory notes and notes to financial statements are an integral part of these balance sheets. 4 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, ------------------- 1999 1998 -------- ------- Revenues: Interest income (Note 2) $ -- $ -- Expenses: Interest expense (contractual interest of $4,951,000 and $4,962,000, respectively, for the three months ended September 30, 1999 and 1998) -- -- -------- ------- Net income $ -- $ -- ======== ======= The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 5 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended September 30, --------------------- 1999 1998 -------- -------- Revenues: Interest income (Note 2) $ -- $221,000 Expenses Interest expense (contractual interest of $14,857,000 and $14,885,000, respectively, for the nine months ended September 30, 1999 and 1998) -- 221,000 -------- -------- Net income $ -- $ -- ======== ======== The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 6 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, -------------------- 1999 1998 --------- -------- OPERATING ACTIVITIES: Net income $ -- $ -- Adjustments to reconcile net income to net cash provided by operating activities: Increase in interest receivable from affiliate -- (221,000) Increase in accrued interest payable -- 221,000 --------- --------- Net cash provided by operating activities -- -- Cash at beginning of period 1,000 1,000 --------- --------- Cash at end of period $ 1,000 $ 1,000 ========= ========= The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 7 GB PROPERTY FUNDING CORP. (Debtor-in Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Unaudited) (1) Organization and Operations GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation, was incorporated on September 29, 1993. GB Property Funding is a wholly owned subsidiary of GB Holdings, Inc. ("Holdings"), a Delaware corporation. Holdings was a wholly owned subsidiary of Pratt Casino Corporation ("PCC"), also a Delaware corporation, through December 31, 1998. Effective after December 31, 1998, PCC transferred 21% of the stock ownership of Holdings to PBV, Inc. ("PBV"), a newly formed entity, controlled by certain stockholders of Greate Bay Casino Corporation ("GBCC"). PCC was incorporated during September 1993 and was a wholly owned subsidiary of PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned subsidiary of GBCC. As a result of a certain confirmed plan of reorganization of PCC and others in October, 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC, whose sole member as a result of the same reorganization is PPI ("GBLLC"). Holdings was incorporated in September 1993 and, on February 17, 1994, acquired through capital contributions by its parent, all of the outstanding capital stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). GB Property Funding was formed for the purpose of borrowing $185,000,000 of first mortgage notes (the "First Mortgage Notes") for the benefit of GBHC; such debt was issued during February 1994 at the rate of 10 7/8% per annum and the proceeds were loaned to GBHC (see Note 2). GB Property Funding has no operations and is dependent on the repayment of its note from GBHC for servicing its debt obligations (see Note 2). Administrative services for GB Property Funding are provided by GBHC at no charge. The cost of such services is not significant. The operation of an Atlantic City casino/hotel is subject to significant regulatory control. Under provisions of the New Jersey Casino Control Act, GBHC is required to maintain a nontransferable license to operate a casino in Atlantic City. The accompanying financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code," and include disclosure of liabilities subject to compromise. On January 5, 1998, GB Property Funding, GBHC and Holdings (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). Each company continues to operate in the ordinary course of business as set forth in the Bankruptcy Code. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization and third modified disclosure statement (the "Plan"), which provides for, among other things, the pro rata distribution to holders of the First Mortgage Notes of $80,000,000 principal amount of new First Mortgage Notes by GB Property Funding and 100% of new common stock of Holdings. The Plan also provides that all the outstanding common stock of the Debtors will be cancelled and that new common stock of GB Property Funding and GBHC will be issued to Holdings. On October 4, 8 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) 1999, the Bankruptcy Court approved the adequacy of the third modified disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). A plan of reorganization requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Commission (the "Casino Commission"). There can be no assurance at this time that any plan of reorganization, when submitted, will be confirmed by the Bankruptcy Court or approved by the Casino Commission. In the event a plan of reorganization is confirmed, continuation of the business thereafter is dependent on GBHC ability to achieve successful future operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should GB Property Funding be unable to continue as a going concern. As discussed above, GB Property Funding was formed for the purpose of issuing the First Mortgage Notes for the benefit of GBHC. GB Property Funding loaned the proceeds from the First Mortgage Notes to GBHC and, at September 30, 1999, has a note receivable and related accrued interest receivable due from GBHC totaling $191,471,000. GB Property Funding has no operations and the note receivable and the accrued interest receivable represents virtually all of GB Property Fundings' assets. As discussed above, during 1998 the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code. As a result of the Chapter 11 filings, the First Mortgage Notes and related accrued interest payable have been classified as liabilities subject to compromise. To the extent that any proceeds are ultimately realized from GBHC as a result of the resolution of the bankruptcy proceedings, such amounts would be offered in full satisfaction of the First Mortgage Notes. No provision for any loss relating to the uncollectibility of these receivables has been reflected in the accompanying financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements as of September 30, 1999 and for the three and nine month periods ended September 30, 1999 and 1998 have been prepared by GB Property Funding without audit. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of GB Property Funding as of September 30, 1999, and the results of its operations for the three and nine month periods ended September 30, 1999 and 1998 and cash flows for the nine month periods ended September 30, 1999 and 1998. 9 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) (2) Long-Term Debt On February 17, 1994, GB Property Funding issued the First Mortgage Notes due January 15, 2004. Interest on the First Mortgage Notes accrued at the rate of 10 7/8% per annum, payable semiannually commencing July 15, 1994. Interest only was payable during the first three years. Commencing on July 15, 1997, semiannual principal payments of $2,500,000 were due on each interest payment date with the balance due at maturity. Such semiannual payments could be made in cash or by tendering First Mortgage Notes previously purchased or otherwise acquired by GB Property Funding. GB Property Funding acquired $2,500,000 face amount of First Mortgage Notes which were used to make the July 15, 1997 required principal payment. As a result of the filing under Chapter 11, the debt service payments due subsequent to January 5, 1998 were not made. The accrual of interest on the First Mortgage Notes for periods subsequent to the filing has been suspended. The indenture for the First Mortgage Notes (the "Indenture") contains various provisions which, among other things, restrict the ability of certain subsidiaries of GBCC to pay dividends to GBCC, to merge, to consolidate, to sell substantially all of their assets or to incur additional indebtedness beyond certain limitations. In addition, the Indenture requires the maintenance of certain cash balances and requires minimum expenditures, as defined in the Indenture, for property and fixture renewals, replacements and betterments at the Sands. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee for the First Mortgage Notes (the "Indenture Trustee") as reductions to the outstanding principal of the First Mortgage Notes. Payments amounting to $145,000 and $257,000 for the nine and twelve month periods ending September 30, 1999 and December 31, 1998, respectively, have been remitted to the Indenture Trustee as the proceeds on the sale of assets. No interest was paid or received with respect to the First Mortgage Notes and the loan to GBHC during the nine month periods ended September 30, 1999 and 1998. Interest receivable and payable with respect to the notes of $9,373,000 are included on the accompanying balance sheet at September 30, 1999 and December 31, 1998 in noncurrent assets and liabilities subject to compromise, respectively, as such payments are subject to terms of a reorganization plan which requires confirmation by the Bankruptcy Court. (3) Income Taxes As part of an agreement settling an adversary proceeding between the Debtors, on one side, and GBCC, certain of its affiliates, and certain former directors of GBHC on the other, GB Property Funding was included in GBCC's consolidated federal income tax return for the years ended December 31, 1997 and 1998. As part of this same agreement, GBCC agreed to allow the Debtors to become deconsolidated from the GBCC group for federal income tax purposes and, in accordance therewith, effective after December 31, 1998 PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group 10 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) for federal income tax purposes. Accordingly, beginning in 1999, Holdings and its subsidiaries' provisions for federal income taxes is calculated and paid on a stand alone basis. Prior to 1997, GB Property Funding was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"), the parent company of GBCC until HCC distributed the GBCC stock it owned to the shareholders of HCC as a dividend on December 31, 1996. GB Property Funding made no federal or state income tax payments during the three and nine month periods ended September 30, 1999 and 1998. (4) Legal Proceedings On January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1). 11 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
September 30, December 31, 1999 1998 ------------- ------------- Current Assets: Cash and cash equivalents $ 25,333,000 $ 23,844,000 Accounts receivable, net of allowances of $11,362,000 and $11,920,000, respectively 7,947,000 7,428,000 Inventories 3,493,000 3,402,000 Due from affiliates 237,000 398,000 Deferred income taxes 3,928,000 726,000 Prepaid expenses and other current assets 3,532,000 2,776,000 ------------- ------------- Total current assets 44,470,000 38,574,000 ------------- ------------- Property and Equipment: Land 49,766,000 38,929,000 Buildings and improvements 185,508,000 185,508,000 Operating equipment 105,315,000 99,854,000 Construction in progress 3,209,000 3,939,000 ------------- ------------- 343,798,000 328,230,000 Less - accumulated depreciation and amortization (187,255,000) (182,045,000) ------------- ------------- Net property and equipment 156,543,000 146,185,000 ------------- ------------- Other Assets: Obligatory investments 8,262,000 8,098,000 Other assets 3,291,000 6,291,000 ------------- ------------- Total other assets 11,553,000 14,389,000 ------------- ------------- $ 212,566,000 $ 199,148,000 ============= =============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated balance sheets. 12 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND SHAREHOLDER'S DEFICIT
September 30, December 31, 1999 1998 ------------- ------------- Current Liabilities Not Subject to Compromise: Current maturities of long-term debt $ 78,000 $ 73,000 Accounts payable 5,591,000 4,539,000 Accured liabilities - Salaries and wages 4,847,000 3,699,000 Reorganization costs 1,707,000 1,310,000 Insurance 1,654,000 1,037,000 Other 6,203,000 6,066,000 Due to affiliates 1,272,000 1,119,000 Other current liabilities 2,820,000 3,599,000 ------------- ------------- Total current liabilities 24,172,000 21,442,000 ------------- ------------- Liabilities Subject to Compromise (Note 3) 217,662,000 218,322,000 ------------- ------------- Long-Term Debt 859,000 918,000 ------------- ------------- Deferred Taxes and Other Noncurrent Liabilities 6,810,000 1,207,000 ------------- ------------- Commitments and Contingencies Shareholder's Deficit: Common stock, $1.00 par value per share; 1,000 shares authorized and outstanding 1,000 1,000 Additional paid-in capital 27,946,000 27,946,000 Accumulated deficit (64,884,000) (70,688,000) ------------- ------------- Total shareholder's deficit (36,937,000) (42,741,000) ------------- ------------- $ 212,566,000 $ 199,148,000 ============= =============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated balance sheets. 13 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30, ------------------------------ 1999 1998 ------------ ------------ Revenues: Casino $ 61,746,000 $ 60,995,000 Rooms 2,444,000 2,606,000 Food and beverage 7,857,000 7,142,000 Other 1,818,000 892,000 ------------ ------------ 73,865,000 71,635,000 Less - promotional allowances (6,988,000) (5,800,000) ------------ ------------ Net revenues 66,877,000 65,835,000 ------------ ------------ Expenses: Casino 52,496,000 50,723,000 Rooms 572,000 779,000 Food and beverage 2,888,000 2,786,000 Other 1,146,000 796,000 General and administrative 2,744,000 2,992,000 Depreciation and amortization, including write off of CRDA obligations 6,420,000 2,760,000 ------------ ------------ Total expenses 66,266,000 60,836,000 ------------ ------------ Income from operations 611,000 4,999,000 ------------ ------------ Non-operating income (expense): Interest income 262,000 134,000 Interest expense (contractual interest of $5,519,000 and $5,524,000, respectively, for the three months ended September 30, 1999 and 1998) (181,000) (14,000) Reorganization and other related costs (486,000) (1,159,000) Gain on disposal of assets 118,000 -- ------------ ------------ Total non-operating expense, net (287,000) (1,039,000) ------------ ------------ Income before income taxes 324,000 3,960,000 Income tax provision -- -- ------------ ------------ Net income $ 324,000 $ 3,960,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated statements. 14 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended September 30, -------------------------------- 1999 1998 ------------- ------------- Revenues: Casino $ 175,182,000 $ 166,513,000 Rooms 6,882,000 6,968,000 Food and beverage 20,851,000 18,937,000 Other 4,499,000 2,740,000 ------------- ------------- 207,414,000 195,158,000 Less - promotional allowances (17,723,000) (15,257,000) ------------- ------------- Net revenues 189,691,000 179,901,000 ------------- ------------- Expenses: Casino 149,472,000 138,737,000 Rooms 2,149,000 2,441,000 Food and beverage 7,878,000 7,592,000 Other 3,027,000 1,814,000 General and administrative 8,270,000 10,107,000 Depreciation and amortization, including write off of CRDA obligations 12,227,000 8,585,000 ------------- ------------- Total expenses 183,023,000 169,276,000 ------------- ------------- Income from operations 6,668,000 10,625,000 ------------- ------------- Non-operating income (expense): Interest income 520,000 843,000 Interest expense (contractual interest of $16,562,000 and $16,577,000, respectively, for the nine months ended September 30, 1999 and 1998) (221,000) (293,000) Reorganization and other related costs (1,420,000) (3,990,000) Gain on disposal of assets 257,000 28,000 ------------- ------------- Total non-operating expense, net (864,000) (3,412,000) ------------- ------------- Income before income taxes 5,804,000 7,213,000 Income tax provision -- -- ------------- ------------- Net income $ 5,804,000 $ 7,213,000 ============= =============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated statements. 15 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------------ 1999 1998 ------------ ------------ OPERATING ACTIVITIES: Net income $ 5,804,000 $ 7,213,000 Adjustments to reconcile net income to net cash provided by operating activities: Write-off reorganization related costs -- 942,000 Depreciation and amortization 12,227,000 8,585,000 Gain on disposal of assets (257,000) (28,000) Provision for doubtful accounts 1,696,000 1,251,000 Increase in accounts receivable (2,215,000) (1,379,000) Increase in accounts payable and accrued expenses 3,093,000 5,487,000 Net change in other current assets and liabilities (1,537,000) (1,461,000) Net change in other noncurrent assets and liabilities (220,000) (2,300,000) ------------ ------------ Net cash provided by operating activities 18,591,000 18,310,000 ------------ ------------ INVESTING ACTIVITIES: Purchase of property and equipment (15,146,000) (5,216,000) Purchase of Lieber Check Cashing (net of cash acquired) -- (245,000) Proceeds from disposal of assets 257,000 28,000 Obligatory investments (2,014,000) (1,881,000) ------------ ------------ Net cash used in investing activities (16,903,000) (7,314,000) ------------ ------------ FINANCING ACTIVITIES: Repayments of long-term debt (199,000) (42,000) ------------ ------------ Net cash used in financing activities (199,000) (42,000) ------------ ------------ Net increase in cash and cash equivalents 1,489,000 10,954,000 Cash and cash equivalents at beginning of period 23,844,000 13,871,000 ------------ ------------ Cash and cash equivalents at end of period $ 25,333,000 $ 24,825,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated statements. 16 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Organization, Business and Basis of Presentation GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC, a Delaware corporation, was incorporated during 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., a newly formed entity, controlled by certain stockholders of GBCC ("PBV"). As a result of a certain confirmed plan of reorganization of PCC and others in October, 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC, whose sole member as a result of the same reorganization is PPI ("GBLLC"). On February 17, 1994, Holdings acquired Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital contribution by its parent. GBHC's principal business activity is its ownership of the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated in September 1993 for the purpose of borrowing funds through the issuance of $185,000,000 of ten-year, first mortgage notes for the benefit of GBHC; such debt was issued in February 1994 at the rate of 10 7/8% per annum and the proceeds were loaned to GBHC (see Note 2). Holdings has no operating activities and its only significant asset is its investment in GBHC. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company which owns a land parcel adjacent to GBHC (the "Lieber Parcel") and GBHC acquired and caused an option agreement on other adjacent land parcels (the "Option Parcels") to be assigned to Lieber (the "Option Agreement"). On September 20, 1999, closing took place under the Option Agreement and Lieber, whose sole member is GHBC, obtained title to the Option Parcels (see Note 7). The Lieber Parcel and the Option Parcels provide GBHC with an expansion opportunity and frontage on Pacific Avenue, the principal street running parallel and closest to the boardwalk in Atlantic City, New Jersey. The demolition of the existing structures has commenced which will provide for a new front entrance to the Sands' facility. The accompanying consolidated financial statements include the accounts and operations of Holdings, GBHC, GB Property Funding, and, as of September 2, 1998, Lieber. All significant intercompany balances and transactions have been eliminated. GBHC estimates that a significant amount of the Sands' revenues are derived from patrons living in southeastern Pennsylvania, New Jersey 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. 17 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The accompanying consolidated financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting By Entities in Reorganization under the Bankruptcy Code", and include disclosure of liabilities subject to compromise (see Note 3). Holdings had experienced significant losses and has a net capital deficiency of $36,937,000 at September 30, 1999. On January 5, 1998, Holdings, GBHC 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"). The prior Boards of Directors resigned on January 2, 1998 and new Boards of Directors were elected at that time. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required by the Settlement Agreement, as defined below, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest can file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization and third modified disclosure statement (the "Plan"), which provides for, among other things, the pro rata distribution to holders of the First Mortgage Notes of $80,000,000 principal amount of new First Mortgage Notes and 100% of new common stock of Holdings. The Plan also provides that all the outstanding common stock of the Debtors will be cancelled and that new common stock of GB Property Funding and GBHC will be issued to Holdings. On October 4, 1999, the Bankruptcy Court approved the adequacy of the Plan and a confirmation hearing on the third modified disclosure statement was scheduled for December 17, 1999 (the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under which PPE would sponsor a plan of reorganization of the Debtors (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. Under the Term Sheet, and if a plan incorporating the Term Sheet is confirmed, (i) PPE would make a $30,000,000 capital contribution and would receive an approximate 58% equity interest, (ii) First Mortgage Holders would receive a pro rata share of new first mortgage notes in the principal amount of $128 million (the "New Notes") and the remaining approximate 42% equity interest ("New Equity"), (iii) PPE would offer to exchange New Notes for New Equity at a stated exchange rate, (iv) MLAM would accept such exchange offer and receive no New Equity under the Term Sheet (the "MLAM Exchange"), (v) PPE would receive approximately 80.1% of the New Equity as a result of its capital contribution, its pro rata share of New Equity, and the MLAM Exchange, (vi) PPE would enter into a certain management agreement for GBHC, and (vii) all other classes of creditors would receive the same treatment as specified under the Plan. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the 18 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. The Plan requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Commission (the "Casino Commission"). There can be no assurance at this time that a plan will be confirmed by the Bankruptcy Court and approved by the Casino Commission. In the event a plan is confirmed, continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should Holdings be unable to continue as a going concern. Although management has not made a determination whether an impairment of the carrying value currently exists, future adjustments to the carrying amount of GBHC's assets are possible with respect to the fresh-start reporting which would take place on the effective date of the confirmation of the Plan. Prior to July 8, 1998, New Jersey Management, Inc. ("NJMI"), then a wholly owned subsidiary of PCC, was responsible for the operations of the Sands under a management agreement dated August 19, 1987, as amended, with GBHC (the "Management Agreement"). On May 22, 1998, GBHC filed a motion with the Bankruptcy Court to reject the Management Agreement (the "Rejection Motion"). GBCC, NJMI, and certain of their affiliates, on one side, and the Debtors, on the other, entered into an agreement on June 27, 1998, which was approved by the Bankruptcy Court on July 7, 1998, and by the Casino Commission on July 8, 1998 (the "Settlement Agreement"). Under the Settlement Agreement, among other things, the Management Agreement was suspended and replaced with a services agreement until a decision by the Bankruptcy Court on the Rejection Motion, and GBHC ceded ownership rights to an affiliate of GBCC in, and obtained a perpetual license from the same affiliate for, the software used in its operations. On September 28, 1998, and as a result of the Second Settlement Agreement, as defined below, the Bankruptcy Court granted the Rejection Motion and, in conformity therewith, no further fees will be paid under either the Management Agreement or the Settlement Agreement (see Note 5). On July 27, 1998, GBHC filed an adversary proceeding in the Bankruptcy Court against GBCC, certain of its affiliates, and certain of the former directors of GBHC (collectively the "Defendants"), seeking to recover the Lieber Parcel and the Option Agreement for the Option Parcels and to restrain the use of its Net Operating Losses (the "NOL's"). Effective September 2, 1998, the Debtors, on one side, and the Defendants, on the other, reached an agreement resolving, among other things, the adversary proceeding (the "Second Settlement Agreement"). Under the Second Settlement Agreement, among other things, the Debtors agreed to be included in the consolidated federal income tax return of GBCC for the years ended December 31, 1997 and December 31, 1998. GBCC agreed to allow the Debtors to become deconsolidated from the GBCC group for federal income tax purposes and, in accordance therewith, effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes. The Second Settlement Agreement also resulted in the non-cash settlement of certain outstanding intercompany transactions, and the transfer of the membership interests in Lieber to GBHC, and the assignment of the Option Agreement for the Option Parcels to Lieber (see Note 7). 19 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) GBHC is self insured for a portion of its general liability, and certain health care and other liability exposures. Amounts over prescribed levels are insured by a third party. 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. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" requires, among other things, that an entity review its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The consolidated financial statements as of September 30, 1999 and for the three and nine month periods ended September 30, 1999 and 1998 have been prepared by Holdings without audit. In the opinion of management, these consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of Holdings as of September 30, 1999, the results of its operations for the three and nine month periods ended September 30, 1999 and 1998 and cash flows for the nine month periods ended September 30, 1999 and 1998. (2) Long-Term Debt and Pledge of Assets Long-term debt is comprised of the following: September 30, December 31, 1999 1998 ------------- ------------- 10 7/8% first mortgage, notes due 2004 (a) $ 182,098,000 $ 182,243,000 14 5/8% affiliate loan, due 2005 (b) 10,000,000 10,000,000 Lieber Mortgage (c) 528,000 572,000 Other 409,000 419,000 ------------- ------------- Total indebtedness 193,035,000 193,234,000 Less - current maturities (78,000) (73,000) Less - debt subject to compromise (Note 3) (192,098,000) (192,243,000) ------------- ------------- Total long-term debt $ 859,000 $ 918,000 ============= ============= - ---------- (a) On February 17, 1994, GBHC obtained $185,000,000 from GB Property Funding, which issued $185,000,000 of first mortgage notes due January 15, 2004 (the "First Mortgage Notes"). Interest on the First Mortgage Notes accrued at the rate of 10 7/8% per annum, payable semiannually commencing July 15, 1994. Interest only was payable during the first three years. Commencing on July 15, 1997, semiannual principal payments of $2,500,000 were due on each interest payment date with the balance due 20 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) at maturity. Such semiannual payments could be made in cash or by tendering First Mortgage Notes previously purchased or otherwise acquired by Holdings. Holdings acquired $2,500,000 face amount of First Mortgage Notes at a discount during May 1997, which it used during June 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 First Mortgage Notes for periods subsequent to the filing has been suspended. Subject to certain exceptions in the Security Agreement, substantially all of Holdings' and GBHC's assets are pledged in connection with their long-term indebtedness. GBHC filed a motion in the Bankruptcy Court, seeking to use "Cash Collateral", as defined by 11 U.S.C. ss.363. By opinion filed April 3, 1998 (the "Opinion"), the Bankruptcy Court granted GBHC the right to use "Cash Collateral" subject to providing certain adequate protection in favor of the Indenture Trustee for the First Mortgage Notes (the "Indenture Trustee") and concluded, among other things, that the Indenture Trustee did not have a perfected security interest in GBHC's deposit accounts or cash generated from casino revenues. An order was entered in conformity with the Opinion on May 5, 1998. The Indenture Trustee took an appeal of the order to the United States District Court for the District of New Jersey. On March 19, 1999, the United States District Court for the District of New Jersey affirmed the Bankruptcy Court's decision. The Indenture Trustee has now filed an appeal with the United States Court of Appeals for the Third Circuit. The Indenture for the First Mortgage Notes (the "Indenture") contains various provisions which, among other things, restrict the ability of certain subsidiaries of GBCC to pay dividends to GBCC, to merge, to consolidate, to sell substantially all of their assets or to incur additional indebtedness beyond certain limitations. In addition, the Indenture requires the maintenance of certain cash balances and requires minimum expenditures, as defined in the Indenture, for property and fixture renewals, replacements and betterments at the Sands. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee as reductions to the outstanding principal of the First Mortgage Notes. Payments amounting to $145,000 and $257,000 for the nine and twelve month periods ending September 30, 1999 and December 31, 1998, respectively, have been remitted to the Indenture Trustee as the proceeds on the sale of assets. (b) On February 17, 1994, GBHC issued to PRT Funding Corp., then an affiliate, a $10,000,000 promissory note, which is subordinated to the First Mortgage Notes (the "PRT Subordinated Note"). The PRT Subordinated Note is due on February 17, 2005 and bore interest at the rate of 14 5/8% per annum, which was payable semiannually commencing August 17, 1994, and payment was subject to certain conditions including the maintenance of average daily cash balances required by the Indenture. As a result of such payment restrictions, interest has been paid only through February 17, 1996. Repayment of the PRT Subordinated Note and the payment of the related interest are subject to any setoffs and defenses available under the Bankruptcy Code and applicable law and to the terms of the Plan, which requires confirmation 21 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) by the Bankruptcy Court and approval by the Casino Commission. The accrual of interest on the PRT Subordinated Note for periods subsequent to the filing under Chapter 11 has been suspended. As a result of the confirmation of a certain plan of reorganization of PRT Funding Corp. in October, 1999, the PRT Subordinated Note was transferred to GBLLC, whose sole member is PPI. (c) On September 2, 1998, and as part of the Second Settlement Agreement, GBHC acquired the membership interests in Lieber (see Note 7) which owns the Lieber Parcel. Principal mortgage indebtedness at the time of 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 payment schedule. The balance of the note is due in July, 2001. As a result of the Chapter 11 filing, principal payments with respect to the First Mortgage Notes and the PRT Subordinated Note are subject to the Plan, which requires confirmation by the Bankruptcy Court and approval by the Casino Commission. Pending such reorganization, the entire amount of the First Mortgage Notes and the PRT Subordinated Note are included in liabilities subject to compromise on the accompanying consolidated balance sheets at September 30, 1999 and December 31, 1998. Scheduled payments of long-term debt as of September 30, 1999, exclusive of payments on the First Mortgage Notes and the PRT Subordinated Note, are set forth below: 1999 (three months) $ 18,000 2000 80,000 2001 468,000 2001 19,000 2003 21,000 Thereafter 331,000 -------- Total $937,000 ======== Interest paid amounted to $60,000 and $35,000, respectively, for the nine month periods ended September 30, 1999 and 1998. At September 30, 1999 and December 31, 1998, accrued interest on the First Mortgage Notes in the amount of $9,373,000 is presented with liabilities subject to compromise on the accompanying consolidated balance sheet. 22 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (3) Liabilities Subject to Compromise Liabilities subject to compromise under Holdings' reorganization proceedings consist of the following: September 30, December 31, 1999 1998 ------------- ------------ Accounts payable and accrued liabilities $ 7,326,000 $ 7,751,000 First Mortgage Notes (Note 2) 182,098,000 182,243,000 PRT Subordinated Note (Note 2) 10,000,000 10,000,000 Borrowings from affiliate (Note 5) 5,000,000 5,000,000 Accrued interest (Notes 2 and 5) 12,855,000 12,855,000 Due to affiliates 383,000 473,000 ------------- ------------ Total $ 217,662,000 $218,322,000 ============= ============ 4) Income Taxes As part of the Second Settlement Agreement (see Note 1), Holdings' operations were included in GBCC's consolidated federal income tax return for the years ended December 31, 1997 and 1998. GBCC agreed to allow the Debtors to become deconsolidated from the GBCC group for federal income tax purposes and, in accordance therewith, effective after December 31, 1998 PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes. Accordingly, beginning in 1999, Holdings and its subsidiaries' provisions for federal income taxes is calculated and paid on a stand alone basis. Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"), the parent company of GBCC until HCC distributed the GBCC stock it owned to the shareholders of HCC as a dividend on December 31, 1996 (the "Spin Off"). Federal and state income tax provisions or benefits are based upon estimates of the results of operations for the current period and reflect the nondeductibility for income tax purposes of certain items, including certain amortization, meals and entertainment, and other expenses. Holdings paid federal income taxes in the amount of $255,000 during the nine month period ended September 30, 1999. No federal taxes were paid during the nine month period ended September 30, 1998. Holdings made no state tax payments during the nine month period ended September 30, 1999 and 1998, respectively. Deferred income taxes result primarily from the use of the allowance method rather than the direct write-off method for doubtful accounts, the use of accelerated methods of depreciation for federal and state income tax 23 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) purposes, and differences in the timing of deductions taken between tax and financial reporting purposes for contributions of, and adjustments to, the carrying value of certain investment obligations and for other accruals. At September 30, 1999, Holdings and its subsidiaries have deferred tax assets including net operating loss carryforwards ("NOL's"). The NOL's do not expire before the year 2009 for federal tax purposes and the year 2001 for state tax purposes. The availability of the NOL's and credit carryforwards may be subject to the tax consequences of a plan of reorganization approved by the Bankruptcy Court. In addition, the Second Settlement Agreement provides that GBCC may utilize NOL's of Holdings and its subsidiaries through December 31, 1998 to offset taxable income of GBCC and other members of the consolidated tax group. Representatives of GBCC have advised Holdings that Holdings should have approximately $13 million in NOL's available subsequent to December 31, 1998. The Debtors expect that these remaining NOL's will be utilized in the 1999 federal tax return of the Debtors, and if not utilized therein, any remaining NOL's will be eliminated as a result of a confirmation of a plan of reorganization. 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 September 30, 1999. Sales or purchases of Holdings' common stock could cause a "change of control", as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which would limit the ability of Holdings to utilize these loss carryforwards in later tax periods. Should such a change of control occur, the amount of annual loss carryforwards available for use would most likely be substantially reduced. Future treasury regulations, administrative rulings, or court decisions may also effect Holdings' future utilization of its loss carryforwards. Prior to 1997, Holdings was included in the consolidated federal income tax return of HCC. The Internal Revenue Service is currently examining the consolidated federal income tax returns of HCC for the years 1993 through 1996 in which Holdings' was included. Representatives of HCC have advised Holdings that the results of such examination will not have a material adverse effect on the consolidated financial position or results of operations of Holdings. In addition, during 1998 HCC reported that it may be required to file an amended federal tax return for calendar year 1996 and that it may experience a material increase in income tax liability as a result of the Spin Off. However, as part of the Second Settlement Agreement, and after use of any tax attributes available to members of the former HCC consolidated group, HCC and GBCC agreed to pay any increased taxes due, without contribution from the Debtors, that are attributable to the Spin Off. (5) Transactions with Related Parties Prior to July 8, 1998, NJMI was responsible for the operations of the Sands under a Management Agreement with GBHC. Under such agreement, NJMI was entitled to receive annually (i) a basic consulting fee of 1.5% of "adjusted gross revenues," as defined, and (ii) incentive compensation of between 5% and 7.5% of gross operating profits in excess of certain stated amounts should annual "gross operating profits," as defined, exceed $5,000,000. On May 22, 1998, GBHC filed the Rejection Motion. The Settlement Agreement, partially 24 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) resolving the Rejection Motion, was entered into on June 27, 1998 and was approved by the Bankruptcy Court on July 7, 1998 and by the Casino Commission on July 8, 1998. Under the Settlement Agreement and effective as of May 1, 1998 and until decision on the Rejection Motion, NJMI agreed to provide certain services to GBHC and GBHC agreed to pay a monthly fee of $165,000, which was payable $122,000 on a monthly basis in arrears and $43,000 per month upon confirmation of GBHC's plan of reorganization by the Bankruptcy Court. On September 28, 1998, and as part of the Second Settlement Agreement, the Bankruptcy Court approved the Rejection Motion. The current fees under the Settlement Agreement have been paid and the deferred fees have been accrued. As part of the Second Settlement Agreement, a rejection damages claim of NJMI was preserved provided it was filed in the Bankruptcy Court within 30 days of the entry of the order of the Bankruptcy Court on September 11, 1998 approving the Second Settlement Agreement. The rejection damages claim was not filed and expired along with the corresponding avoiding powers causes of action under the Bankruptcy Code of GBHC, as provided in the Second Settlement Agreement. Accordingly, other than the deferred fees, no further management fees will be paid under either the Management Agreement or the Settlement Agreement except that NJMI possessed a claim for prepetition management fees, which was settled for an unsecured claim in the amount of $75,000 and which was transferred to GBLLC along with the claim for the deferred fees. Fees under the Management Agreement are included in general and administrative expenses on the accompanying consolidated financial statements and amounted to $479,000 and $2,388,000, respectively, during the three and nine month periods ended September 30, 1998. As a result of the Second Settlement Agreement and the Rejection Motion, no such fees were incurred for the three and nine month periods ended September 30, 1999. Amounts payable under the Settlement Agreement to NJMI, which have been assigned to GBLLC, and included in due to affiliates on the accompanying consolidated balance sheet at September 30, 1999 amounted to $211,000. The $75,000 unsecured claim arising from the settlement of the prepetition management fee claim under the Management Agreement is included in liabilities subject to compromise on the accompanying consolidated balance sheet at September 30, 1999. GBHC's rights to the trade name "Sands" (the "Trade Name") are derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands for these rights are equal to the amounts paid to the unaffiliated third party. Such charges amounted to $73,000 and $78,000, respectively, for the three month periods ended September 30, 1999 and 1998 and $206,000 and $209,000, respectively, during the nine month periods ended September 30, 1999 and 1998. Under the Settlement Agreement, GBCC agreed not to seek to cancel the rights of GBHC to use the Trade Name prior to December 15, 1998, and GBHC preserved its legal position that GBCC lacked the right to cancel the rights of GBHC to use the Trade Name. GBCC filed a motion in the Bankruptcy Court seeking relief from the automatic stay, pursuant to 11 U.S.C. ss.362(a), to send a letter to the licensor, purporting to terminate the license agreement. GBHC opposed the motion and the motion was denied by Order of the Bankruptcy Court dated March 2, 1999. On March 10, 1999, GBCC took an appeal to the United States District Court for the District of New Jersey. On June 10, 1999, the United States District Court for the District of New Jersey affirmed the Bankruptcy Court's decision. On July 13, 1999, GBCC filed an appeal with the United States Court of Appeals for the Third Circuit. 25 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) An advance from GBHC to another GBCC subsidiary in the amount of $5,672,000 was outstanding at September 30, 1999, except that, under the Second Settlement Agreement, GBHC agreed not to sue the entity receiving the advance and its affiliates and reserved any rights it had to offset the advance against the PRT Subordinated Note, and the PCC Subordinated Note, as hereafter defined (collectively, the "Subordinated Notes"). Interest on the advance accrues at the rate of 16.5% per annum. The advance, together with accrued interest amounting to $5,615,000 and $4,914,000 at September 30, 1999 and December 31, 1998, respectively, are fully reserved as collection of the receivable is uncertain. During the third quarter of 1996, GBCC borrowed a total of $6,500,000 from HCC, which GBCC then loaned to GBHC to enable GBHC to make its debt service obligations and a property tax payment. According to the terms of the corresponding note, such borrowings accrued interest at the rate of 13 3/4% per annum payable quarterly commencing October 1, 1996. During the first quarter of 1997, GBHC borrowed an additional $1,500,000 from GBCC on similar stated terms. As part of the Second Settlement Agreement, GBHC settled certain intercompany obligations on a noncash basis. This loan to GBHC from GBCC, totaling $8,000,000 along with accrued interest totaling $1,508,000, and a deferred federal tax asset of GBHC's, totaling $10,902,000, representing a claim against an affiliate for the overpayment of federal income taxes under a previously existing tax sharing agreement, were mutually released. As the deferred federal tax asset had been previously fully reserved for 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. GBHC also borrowed $5,000,000 from another subsidiary of GBCC during January, 1997 at the stated rate of 14 5/8% per annum payable semiannually commencing July 15, 1997 and, as set forth in the terms of the corresponding note, the loan is subordinated to the First Mortgage Notes and payment is subject to certain conditions (the "PCC Subordinated Note"). At both September 30, 1999 and December 31, 1998, interest accrued on the PCC Subordinated Note amounted to $728,000, respectively, and is included in liabilities subject to compromise on the accompanying consolidated balance sheets. Repayment of the PCC Subordinated Note and the payment of the related interest are subject to approval of the Casino Commission and any setoffs and defenses available under the Bankruptcy Code and applicable law and to the terms of the Plan, which requires confirmation by the Bankruptcy Court and approval by the Casino Commission. The accrual of interest on the PCC Subordinated Note for periods subsequent to the filing under Chapter 11 has been suspended. As a result of the confirmation of a certain plan of reorganization of PCC in October, 1999, the PCC Subordinated Note was transferred to GBLLC. Net interest expense incurred with respect to affiliate advances and borrowings is as follows: Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1999 1998 1999 1998 -------- ------- -------- ------- Net Borrowings/(Advances) $ -- $ -- $ -- $20,000 PRT Subordinated Note (Note 2) -- -- -- 16,000 26 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Interest accrued on the PRT Subordinated Note (Note 2) of $2,754,000 is included in liabilities subject to compromise on the accompanying consolidated balance sheets at September 30, 1999 and December 31, 1998. Effective September 2, 1998, GBHC acquired Lieber as part of the Second Settlement Agreement and caused the Option Agreement for the Option Parcels to be assigned to Lieber. The assignment of the Option Agreement for the Option Parcels under the Second Settlement Agreement requires a confirmation payment of $500,000 to be paid to a designated affiliate of GBCC upon confirmation of a plan of reorganization. This amount was transferred to GBLLC and is included in due to affiliates in the accompanying consolidated balance sheets at September 30, 1999, and December 31, 1998. GBHC performed certain services for other subsidiaries of GBCC and for HCC and its subsidiaries and invoiced those companies for the Sands' cost of providing those services. Similarly, GBHC was charged for certain equipment and other expenses incurred by GBCC and HCC and their respective subsidiaries that relate to GBHC's business. Such affiliate transactions are summarized below: Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Billings to affiliates $ -- $ 61,000 $ 24,000 $199,000 Charges from affiliates 194,000 172,000 781,000 579,000 (6) Legal Proceedings On January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1). On May 22, 1998, GBHC filed the Rejection Motion with the Bankruptcy Court. The Management Agreement was suspended as a result of the Settlement Agreement and was replaced with a service agreement until the decision on the Rejection Motion. On September 28, 1998, and as part of the Second Settlement Agreement, the Bankruptcy Court granted the Rejection Motion (see Note 1). On July 27, 1998, GBHC filed an action in the Bankruptcy Court (the "Action") against GBCC, certain affiliates of GBCC, and Jack E. Pratt, Edward T. Pratt Jr. and William D. Pratt, former directors of GBHC and current directors of GBCC (collectively, the "Defendants"), alleging, inter alia, usurpation of corporate opportunities of GBHC and breach of fiduciary duty with respect to GBHC in connection with the acquisition of an option for certain land parcels and the acquisition of a land parcel on Pacific Avenue in Atlantic City, New Jersey adjoining the Sands (collectively, the "Parcels"), and seeking, inter alia, an order enjoining the Defendants from transferring the Parcels to third parties and requiring the Defendants to convey the Parcels to GBHC. The Action also sought to enjoin the Defendants from using the NOL's of the Debtors (see Note 4). Effective September 2, 1998, the parties entered into the Second Settlement Agreement resolving, among other things, the 27 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Action. The Second Settlement Agreement also resulted in the dismissal of all applications in the Bankruptcy Court related to the Action. The Debtors and the Defendants also entered into mutual and general releases subject to certain exceptions described in the Second Settlement Agreement. GBHC has filed tax appeals with the New Jersey Tax Court challenging the amount of its real property assessment for calendar years 1996, 1997, 1998, and 1999. The City of Atlantic City has also appealed the amount of the assessment of its assessor. GBHC is a party in various legal proceedings with respect to the conduct of casino and hotel operations. Although a possible range of losses can not be estimated, in the opinion of management, based upon the advice of counsel, settlement or resolution of these proceedings should not have a material adverse impact upon the consolidated financial position or results of operations of Holdings and GBHC. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above. (7) Acquisition of Lieber Check Cashing and the Agreement for the Option Parcels Effective September 2, 1998, and as part of the Second Settlement Agreement, (see Note 1), GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights under the Option Agreement for the Option Parcels from another affiliate of GBCC for a payment of $1.3 million and a payment of $500,000 at confirmation of a plan of reorganization. During September 1998, GBHC provided Lieber with $1 million, which Lieber paid to the owner of the Option Parcels to extend the closing under the Option Agreement for the Option Parcels to September 30, 1999. On April 20, 1999, GBHC filed a motion with the Bankruptcy Court seeking approval to close on the Option Agreement for the Option Parcels (the "Closing Motion"). In addition, on May 6, 1999, and subject to Bankruptcy Court approval, Lieber entered into a second amendment to the Option Agreement to set the closing date as September 20, 1999, to increase the down payment by $500,000, and to provide for the right to seek certain state and local land use approvals prior to the closing date without violation of the Option Agreement (the "Amendment"). On May 10, 1999, the Bankruptcy Court granted the Closing Motion and approved the Amendment. On May 10, 1999, $500,000 was paid to the Escrow Agent under the Option Agreement as required by the Amendment. The purchase price of the Option Parcels was $10 million, $2.5 million of which was paid prior to closing and $7.5 million of which was due at closing. On September 20, 1999, closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels. The demolition of the existing structures has commenced which will provide for a new front entrance to the Sands' facility. The new front entrance is expected to be completed by the first half of 2000. Principal mortgage indebtedness of Lieber outstanding at the acquisition date of the Lieber membership interests was $591,000 (see Note 2). The assets, liabilities, and results of operations of Lieber at the date of such acquisition are not material to the consolidated financial statements. Accordingly, pro forma financial information has not been provided. These transactions were accounted for by the purchase method of accounting, 28 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) and, as such, the accompanying consolidated financial statements include results of operations of Lieber as of September 2, 1998. (8) Reclassifications Certain reclassifications have been made to prior year's consolidated financial statements to conform to the 1999 consolidated financial statement presentation. 29 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements about the business, financial condition and prospects of Holdings. The actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, among other things, changes in competition, economic conditions, tax regulations, state regulations applicable to the gaming industry in general or Holdings in particular, and other risks indicated in Holdings' filings with the Securities and Exchange Commission. Such risks and uncertainties are beyond management's ability to control and, in many cases, can not be predicted by management. When used in this Quarterly Report on Form 10-Q, the words "believes", "estimates", "anticipates" and similar expressions as they relate to Holdings or its management are intended to identify forward-looking statements. LIQUIDITY AND CAPITAL RESOURCES Holdings owns GBHC which owns the Sands in Atlantic City. Prior to 1996, the Sands' cash flow was sufficient to meet debt service obligations and to fund a substantial portion of annual capital expenditures. The Sands also used short-term borrowings to fund seasonal cash needs for certain capital projects. However, over time, the competitive position of the Sands was impaired, which was due, in part, to insufficient capital expenditures. As a result, and due to adverse weather in the first quarter of 1996, declines in hold percentages in 1996, and increased marketing expenses in 1996 on an industry wide basis, cash flow decreased significantly in 1996 and improved in 1997, but 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 to meet debt service obligations. Substantial additional financial assistance would have been required to make the January 15, 1998 principal and interest payments due on the First Mortgage Notes. GBHC was unable to obtain additional borrowings from affiliates or other sources and, accordingly, on January 5, 1998, the Debtors filed petitions seeking protection under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of filing remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required under the Settlement Agreement, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest can file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization and third modified disclosure statement (the "Plan"), which provides for, among other things, the pro rata distribution to holders of First Mortgage Notes for 30 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the benefit of GBHC issued by GB Property Funding of $80,000,000 principal amount of new first mortgage notes and 100% of new common stock of Holdings. The Plan also provides that all the outstanding common stock of the Debtors will be cancelled and that new common stock of GB Property Funding and GBHC will be issued to Holdings. On October 4, 1999, the Bankruptcy Court approved the adequacy of the third modified disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under which PPE would sponsor a plan of reorganization of the Debtors (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. Under the Term Sheet, (i) PPE would make a $30,000,000 capital contribution and would receive an approximate 58% equity interest, (ii) First Mortgage Holders would receive a pro rata share of new first mortgage notes in the principal amount of $128 million (the "New Notes") and the remaining approximate 42% equity interest ("New Equity"), (iii) PPE would offer to exchange New Notes for New Equity at a stated exchange rate, (iv) MLAM would accept such exchange offer and receive no New Equity under the Term Sheet (the "MLAM Exchange"), (v) PPE would receive approximately 80.1% of the New Equity as a result of its capital contribution, its pro rata share of New Equity, and the MLAM Exchange, (vi) PPE would enter into a certain management agreement for GBHC, and (vii) all other classes of creditors would receive the same treatment as specified under the Plan. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. A plan requires confirmation by the Bankruptcy Court and approval by the Casino Commission. There can be no assurance at this time that a plan will be confirmed by the Bankruptcy Court and approved by the Casino Commission. As a result of the filings, GBHC has sufficient cash flow to continue normal operations while it pursues a plan of reorganization. Capital expenditures, other than normal recurring capital expenditures in the ordinary course of business, will require prior approval of the Bankruptcy Court. 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 capital expenditure program in the amount of approximately $13.6 million was approved in March, 1998. The renovations of the rooms and hotel suites has commenced and GBHC expects to complete the renovations in 2000. The replacement and upgrading of slot machines has commenced and is substantially completed, with the remaining slot machines to be replaced by the end of 1999. Operating Activities At September 30, 1999, GBHC had cash and cash equivalents of $25.3 million. During the nine month period ended September 30, 1999, net cash provided by operating activities was $18.6 million compared with net cash provided by operating activities of $18.3 million during the same period in 1998. GBHC utilized cash 31 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) from operations, in part, during the first nine months of 1999 to fund capital additions totaling $7.2 million, to close on the Option Agreement and obtain the Option Parcels in the amount of $8.0 million, and to make obligatory investments of $2.0 million. Financing Activities Semiannual principal payments of $2.5 million which became due commencing in July 1997 with respect to the First Mortgage Notes have been suspended as a result of the Chapter 11 filing. Exclusive of the First Mortgage Notes and the Subordinated Notes, which are subject to reorganization, total scheduled maturities of long-term debt during the remainder of 1999 are $18,000. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee as reductions to the outstanding principal of the First Mortgage Notes. During the current nine month period, $145,000 has been remitted to the Indenture Trustee as the proceeds on the sale of equipment. Investing Activities Effective September 2, 1998, and as part of the Second Settlement Agreement, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights under the Option Agreement for the Option Parcels from another affiliate of GBCC for payment of $1.3 million and a payment of $500,000 at confirmation of a plan of reorganization. During September 1998, GBHC provided Lieber with $1 million which Lieber paid to the owner of the Option Parcels to extend the closing under the Option Agreement for the Option Parcels to September 30, 1999. On May 10, 1999, the Bankruptcy Court approved the Closing Motion filed by GBHC seeking approval to close on the Option Agreement. On May 10, 1999, $500,000 was paid to the owner of the Option Parcels to accelerate the closing on the Option Parcels to September 20, 1999. The purchase price of the Option Parcels was $10 million, $2.5 million of which was paid prior to closing and $7.5 million of which was due at closing. On September 20, 1999, closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels. The demolition of the existing structures has commenced which will provide for a new front entrance to the Sands' facility. The new front entrance is expected to be completed by the first half of 2000. Capital expenditures at the Sands during the nine month period ended September 30, 1999 amounted to $15.2 million and management anticipates capital expenditures during the remainder of 1999 will be approximately $3.7 million. In addition to capital expenditures in the ordinary course of business totaling approximately $3.7 million, capital expenditures during 1999 will include approximately $6.7 million of a $13.6 million, two-year capital expenditure program approved by the Bankruptcy Court. Of this $6.7 million, it is anticipated that $4.0 million will be expended on the ongoing room and suite renovations and $2.7 million will be expended for slot machines and related equipment. Capital expenditures during 1999 also include $8.0 32 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) million for the acquisition of the Option Parcels. It is anticipated that approximately $1.8 will be expended on the new front entrance to the Sands facility during the remainder of 1999. The Sands is required by the New Jersey Casino Control Act ("Casino Act") to make certain deposits with the Casino Reinvestment Development Authority ("CRDA"), a governmental agency which administers the deposits required by casino licensees under the Casino Act. Deposit requirements for the first nine months of 1999 totaled $2.0 million and are anticipated to be approximately $753,000 during the remainder of 1999. The Sands has agreed to donate certain of its future investment obligations to the CRDA in connection with the construction of the Atlantic City Boardwalk Convention Center. The projected total donation will amount to $7.0 million which will be paid over the next 12 years based on the Sands future CRDA obligations. Summary On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Accordingly, there is significant doubt about Holdings' ability to continue as a going concern. A plan of reorganization requires confirmation by the Bankruptcy Court and approval by the Casino Commission. As a result of the filing, the debt service payments due subsequent to January 5, 1998 were not made and the accrual of interest on the First Mortgage Notes and on the Subordinated Notes for periods subsequent to the filing has been suspended. Management believes that cash flows generated from operations during 1999 will be sufficient to meet its operating plan. 33 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS Gaming Operations The following table sets forth certain unaudited financial and operating data relating to the Sands' operations:
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (in thousands, except percentages) Revenues: Slot machines $ 44,447 $ 43,981 $ 121,304 $ 116,580 Table games 16,479 16,223 51,548 47,750 Other (1) 820 791 2,330 2,183 ---------- ---------- ---------- ---------- Total $ 61,746 $ 60,995 $ 175,182 $ 166,513 ========== ========== ========== ========== Slot machines: Gross Wagering (Handle) (2) $ 563,563 $ 552,164 $1,527,068 $1,443,208 ========== ========== ========== ========== Hold Percentages: (3, 4) Sands 7.9% 8.0% 7.9% 8.1% Atlantic City 8.3% 8.5% 8.3% 8.4% Table games: Gross Wagering (Drop)(2) $ 126,773 $ 115,511 $ 343,198 $ 318,790 ========== ========== ========== ========== Hold Percentages: (3, 4) Sands 13.0% 14.0% 15.0% 14.9% Atlantic City 15.1% 15.6% 15.5% 15.3%
- ---------- (1) Consists of revenues from poker and simulcast horse racing wagering. (2) Gross wagering consists of the total value of coins wagered in slot machines (the "handle") and the total value of chips purchased for table games (the "drop"), excluding poker. Gross wagering for 1998 also includes drop for Keno wagering, however, Keno was discontinued in September of 1998. (3) 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". (4) The Sands' hold percentages are reflected on an accrual basis. Comparable data for the Atlantic City gaming industry is not available; industry percentages have been calculated based on information made available from the Casino Commission. 34 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Slot machine handle increased $11.4 million (2.1%) and $83.9 million (5.8%), respectively, during the three and nine month periods ended September 30, 1999 compared with the same periods in 1998. The Sands' increases in slot machine handle compares with increases of 7.9% and 6.2%, respectively, in handle for all other Atlantic City casinos during the same time period. The Sands' slot machine market share (expressed as a percentage of the Atlantic City industry aggregate slot machine handle) remained unchanged at 5.6% for the nine month period ended September 30, 1999 and 1998. The Sands' slot machine market share decreased to 5.6% from 5.9% during the three month period ended September 30, 1999 as compared to the same period in 1998. The number of slot machines have decreased slightly at the Sands since the third quarter of 1998. Expansions of other Atlantic City casinos resulted in an increase of approximately 15,000 square feet of gaming space and approximately 667 additional slot machines compared to September 30, 1998. While the number of slot machines has decreased slightly at the Sands, beginning in 1998 and continuing into 1999 older slot machines have been replaced with new and more popular machines as part of the Sands capital expenditure plan, which was approved by the Bankruptcy Court, and which has had a positive impact on slot machine handle. Table game drop at the Sands increased $11.3 million (9.7%) and $24.4 million (7.7%), respectively, during the three and nine month periods ended September 30, 1999 compared with the same periods in 1998. The Sands' increases compare to an increase of 1.9% for the three month period ended September 30, 1999, and a decrease of .8% for the nine month period ended September 30, 1999 in table drop for all other Atlantic City casinos. As a result, the Sands' table game market share increased to 5.9% and 6.0% during the three and nine month periods ended September 30, 1999 from 5.5%, during the same periods in 1998. The Sands' table game drop increases are attributable to increases in patron volume from both the rated and the unrated market segment. Management believes that the increase in the rated segment patron volume is a result of managements focus on the "mid" to "high" end patron through increased marketing programs directed at this segment, including increased headliner entertainment and events, and image positioning efforts through direct advertising campaigns and that the increase in the unrated segment is a result of managements efforts to cultivate new players through revue show entertainment and aggressive advertising campaigns. Revenues Casino revenues at the Sands, including poker and simulcast horse racing wagering revenues, increased by $751,000 (1.2%) and $8.7 million (5.2%) for the three and nine month periods ended September 30, 1999 compared with the same periods in 1998. Increases in slot machine and table game wagering were offset slightly by the decrease in slot machine hold percentage for the three and nine months period and table game hold percentage for the three month period as compared to last year. Rooms revenue did not change significantly during the nine month period ended September 30, 1999 compared with the same period in 1998. Rooms revenue decreased $162,000 (6.2%) during the three month period ended September 30, 1999 compared with the same period in 1998 due to a decrease in the average daily rate charged on rooms, which was partially offset by an increase in occupancy levels. Food and beverage revenues increased $715,000 (10%) and $1.9 million (10.1%), respectively, during the three and nine month periods ended 35 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) September 30, 1999 compared with the prior year periods. This increase is a result of increased banquet activity and the reopening of a previously closed gourmet buffet outlet, as well as increased volume due to increased casino patronage. Other revenues increased $926,000 (103.8%) and $1.8 million (64.2%) during the three and nine month periods ended September 30, 1999 compared to the prior year periods as a result of an increase in theater entertainment revenue primarily due to review shows, and the opening of a gift shop. 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 57.7% during the three month period ended September 30, 1999 from 54.5% during the same period in 1998. Such allowances increased to 55.0% from 53.3% during the nine month period ended September 30, 1999 as compared to the same period of 1998. The overall year to year increase is primarily attributable to an increase in marketing programs and other promotional activities directed at increasing patron volume. Departmental Expenses Casino expenses at the Sands increased $1.8 million (3.5%) and $10.7 million (7.7%), respectively, during the three and nine month periods ended September 30, 1999 compared with the same periods in 1998. This increase is primarily due to an increase in marketing and advertising expenses during 1999. This increased marketing activity also resulted in an increase in the allocation of rooms, food and beverage and other expenses to casino expense. Rooms expense decreased $207,000 (26.6%) and $292,000 (12.0%), respectively, during the three and nine month periods ended September 30, 1999 compared with the same periods in 1998. These decreases are a result of the increase in the allocation of rooms expense to casino expense due to a higher percentage of rooms being sold on a complimentary basis. Food and beverage expenses increased $102,000 (3.7%) and $286,000 (3.8%), respectively, for the three and nine month periods ended September 30, 1999 compared with the same periods in 1998. These increases are due to increased food and beverage volume and related expenses due to increased casino patronage. These increases were offset by the increase in the allocation of food and beverage expense to casino expense. Other expenses increased $350,000 (44.0%) and $1.2 million (66.9%), respectively, during the three and nine month periods ended September 30, 1999 compared to the same periods of 1998 period due to increased costs with respect to theater entertainment and additional costs of goods sold associated with the new gift shop. General and Administrative General and administrative expenses decreased $248,000 (8.3%) and $1.8 million (18.2%), respectively, during the three and nine month periods ended September 30, 1999 compared to the same periods in 1998. Management fee expenses incurred by the Sands decreased by $2.4 million (100%) for nine months ended September 30, 1999 compared to the prior year period as a result of the filing of the Rejection Motion and the Settlement Agreement and Second Settlement Agreement. This decrease was offset slightly by increases in operating expenses due to increased repair and maintenance activity to the property. 36 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Depreciation and Amortization Depreciation and amortization expense increased $3.7 million (132.6%) and $3.6 million (42.4%), respectively, during the three and nine month periods ended September 30, 1999 compared to the same periods in 1998. This increase was due to the expense associated with the recognition of a future donation liability to the CRDA. This liability represents the present value of the future cash donations committed to the CRDA. Interest Interest income increased $128,000 (95.5%) during the three month period ended September 30, 1999 compared to the same period in 1998 due to interest earned on the option payments on the Option Parcels. Interest income decreased $323,000 (38.3%) during the nine month period ended September 30, 1999 compared to the same period in 1998, due to interest earned during 1998 included a one time interest payment received on obligatory investments. Interest expense increased $167,000 (1,192.9%) during the three month period ended September 30, 1999 compared with the same period in 1998. This increase is due to the recognition of interest expense on the future CRDA donation liability. Interest expense decreased $72,000 (24.6%) during the nine months ended September 30, 1999 compared with the same period in 1998. As discussed in Notes 2 and 5 to Holdings' consolidated financial statements, GB Property Funding, Holdings, and GBHC filed petitions for relief under Chapter 11 of the United States Bankruptcy Code on January 5, 1998. As a result, the accrual of interest expense on the First Mortgage Notes, the Subordinated Notes and other affiliate advances for periods subsequent to the filing has been suspended. Income Tax Prior to 1997, Holdings was included in the consolidated federal income tax return of HCC, the parent company of GBCC until HCC distributed the GBCC stock it owned to the shareholders of HCC as a dividend on December 31, 1996. As required by the Second Settlement Agreement, and effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes. Accordingly, beginning in 1999, Holdings and its subsidiaries' provisions for federal income taxes are calculated and paid on a stand alone basis. As part of the Second Settlement Agreement, (see Note 1 ), Holdings' operations are included in GBCC's consolidated federal income tax return for the years ended December 31, 1997 and 1998. At September 30, 1999, Holdings and its subsidiaries have deferred tax assets including NOL's. The NOL's do not expire before the year 2009 for federal tax purposes and the year 2001 for state tax purposes. The availability of the NOL's and credit carryforwards may be subject to the consequences of a plan of reorganization approved by the Bankruptcy Court. In addition, the Second Settlement Agreement provides that GBCC may utilize NOL's of Holdings and it's subsidiaries through December 31, 1998 to offset taxable income of GBCC and other members of the consolidated tax group. Representatives of GBCC have advised Holdings that Holdings should have 37 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) approximately $13 million in NOL's available subsequent to December 31, 1998. The Debtors expect that these remaining NOL's will be utilized in the 1999 federal tax return of the Debtors, and if not utilized therein, any remaining NOL's will be eliminated as a result of a confirmation of a plan of reorganization. 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, a valuation allowance should be recorded. 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 September 30, 1999. 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. Year 2000 Compliance In the year 2000, the Sands' computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than 2000. Such an error could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions or engage in similar normal business activities. Management has initiated a program to prepare the Sands' computer systems and applications for the Year 2000. The objective of this program is to determine and assess the risks of the Year 2000 issue, and to plan and institute mitigating actions to minimize those risks. The Sands has completed an assessment and an inventory of its systems. Plans are in place and work is being undertaken to test and implement changes where required. No significant remediation has been identified. The appropriate vendors and suppliers have been contacted as to their Year 2000 compliance. The costs of testing and conversion have not been and are not expected to be material. All Year 2000 costs are expected to be funded through operating cash flows. The Sands is in the process of developing a contingency plan which includes the identification of significant vendors which will be Year 2000 compliant to replace significant vendors that will not be Year 2000 compliant. It is expected that this contingency plan will be completed in a timely manner. While management expects the Sands' 2000 date conversion projects to be completed on a timely basis, the potential impact of systems outside of the Sands' control, such as those of utility companies, phone and network systems, and financial institutions, is difficult to assess. There can be no assurance that the systems of other companies on whose systems the Sands relies will be timely converted or that any such failure to convert by another company would not have an adverse effect on the Sands' systems. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Because of the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of Year 2000 readiness of third party suppliers, the Sands is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Sands results of operations, liquidity, and financial condition. 38 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 Holdings' 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 Holdings' casino revenues and profitability. 39 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) PART II: OTHER INFORMATION Item 1. Legal Proceedings On January 5, 1998, Holdings, GB Property Funding, and GBHC filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The prior Boards of Directors resigned on January 2, 1998 and new Boards of Directors were elected at that time. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required under the Settlement Agreement, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest can file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization and third modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the third modified disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999. Item 3. Defaults Upon Senior Securities As a result of the filings discussed in Item 1. above, $182,500,000 principal amount of First Mortgage Notes issued by GB Property Funding are in default. The debt service payments due subsequent to January 5, 1998 were not made. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee as reductions to the outstanding principal of the First Mortgage Notes. Through November 11, 1999, $404,000 has been remitted to the Indenture Trustee as the proceeds on the sale of equipment. The accrual of interest on the First Mortgage Notes for periods subsequent to the filings has been suspended; such interest on a contractual basis amounts to $46,329,000 as of November 11, 1999. Item 6.(a) - Exhibits 2.1 Third modified plan of reorganization dated October 4, 1999. Item 6.(b) - Reports on Form 8-K The Registrants did not file any reports on Form 8-K for the quarter ended September 30, 1999 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each of the Registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GB HOLDINGS, INC. GB PROPERTY FUNDING CORP. ------------------------------ Registrants Date: November 15, 1999 By: /s/ Timothy A. Ebling ----------------------- -------------------------------- Timothy A. Ebling Executive Vice President, Chief Financial Officer and Principal Accounting Officer 40 EX-2.1 2 THIRD MODIFIED JOINT PLAN OF REORGANIZATION UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY - ---------------------------------------- In re: Case No. 98-10001 (JW), et seq. (Jointly Administered) GREATE BAY HOTEL AND CASINO, INC., a New Jersey Corporation, GB HOLDINGS, INC., a Delaware Corporation, and GB PROPERTY Chapter 11 FUNDING CORP., a Delaware Corporation, Debtors. - ---------------------------------------- DEBTORS' THIRD MODIFIED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE A Professional Corporation One Riverfront Plaza Newark, New Jersey 07102 (973) 596-4500 PD-9779 Attorneys for the Debtors and Debtors-in-Possession TABLE OF CONTENTS PAGE(S) ------- ARTICLE 1 DEFINITIONS........................................................1 ARTICLE 2 ADMINISTRATIVE AND PRIORITY TAX CLAIMS.............................7 2.01 Administrative Expense Claims....................................7 2.02 Bar Date for Administrative Expense Claims.......................8 2.03 Ordinary Course Liabilities......................................8 2.04 Priority Tax Claims..............................................8 2.05 Old Note Trustee Fees and Expenses...............................8 ARTICLE 3 CLASSIFICATION OF CLAIMS AND INTERESTS.............................9 3.01 Class 1 - Priority Claims........................................9 3.02 Class 2 - Allowed Claims of Old Notes............................9 3.03 Class 3 - Other Secured Claims...................................9 3.04 Class 4 - General Unsecured Claims...............................9 3.05 Class 5 - Intercompany Notes.....................................9 3.06 Class 6 - Subordinated Claims....................................9 3.07 Class 7 - Old Common Stock and Interests and Claims Relating Thereto..........................................................9 3.08 Classification Rules.............................................9 3.09 Inter-Company Claims............................................10 ARTICLE 4 TREATMENT OF CLASSES UNDER THE PLAN...............................10 4.01 Class 1 - Priority Claims.......................................10 4.02 Class 2 - Allowed Claims of Old Notes...........................10 4.03 Class 3 - Other Secured Claims..................................10 4.04 Class 4 - General Unsecured Claims..............................10 4.05 Class 5 - Claims of Holders of Intercompany Notes...............10 4.06 Class 6 - Subordinated Claims...................................11 4.07 Class 7 - Old Common Stock and Interests........................11 4.08 Controversy Concerning Impairment...............................11 ARTICLE 5 ACCEPTANCE OR REJECTION OF THE PLAN...............................11 5.01 Impaired Classes Entitled To Vote...............................11 5.02 Acceptance by an Impaired Class of Claims.......................11 5.03 Presumed Acceptance of Plan by Unimpaired Classes...............11 5.04 Possible Presumed Acceptance of Plan by Unimpaired Class 3......11 5.05 Presumed Rejection..............................................11 ARTICLE 6 MEANS FOR IMPLEMENTATION OF THE PLAN..............................12 6.01 New Notes.......................................................12 6.02 Unsecured Creditors Fund........................................12 6.03 Reserve.........................................................12 ARTICLE 7 CONDITIONS PRECEDENT..............................................12 7.01 Conditions Precedent to Confirmation Date.......................12 7.02 Conditions to Effective Date....................................13 7.03 Waiver of Conditions............................................13 ARTICLE 8 DISTRIBUTIONS UNDER THE PLAN......................................13 8.01 Distributions...................................................13 8.02 Regulatory Condition to Distribution............................14 8.03 Surrender of Notes and Other Securities.........................14 8.04 Survival of Certain Terms of the Old Notes Indenture............14 8.05 Method of Payment...............................................14 8.06 Timing of Payment...............................................14 8.07 Setoff..........................................................14 8.08 De Minimis Cash Distributions...................................15 8.09 Unclaimed Distributions to Creditors............................15 8.10 Rounding........................................................15 8.11 Treatment of Disputed Claims....................................16 8.12 Estimation of Claims............................................16 8.13 Registration and Listing of New Notes and New Common Stock......16 8.14 No Multiple Satisfactions.......................................16 ARTICLE 9 EXECUTORY CONTRACTS...............................................17 9.01 Assumption or Rejection of Executory Contracts and Unexpired Leases..........................................................17 ARTICLE 10 EFFECTS OF PLAN upon CONFIRMATION................................18 10.01 Revesting of Assets............................................18 10.02 Discharge and Injunction.......................................18 10.03 Retention of Jurisdiction......................................18 10.04 Subordination Rights...........................................19 10.05 Effectuating Documents; Further Transactions; Timing...........19 10.06 Ratification of Actions Taken..................................20 10.07 Modification of the Plan.......................................20 ARTICLE 11 MANAGEMENT AFTER CONFIRMATION....................................20 11.01 Board of Directors.............................................20 11.02 Officers.......................................................20 11.03 No Corporate Action Required...................................21 11.04 Powers and Duties of the Debtors...............................21 ARTICLE 12 MISCELLANEOUS PROVISIONS.........................................21 12.01 Exemption from Transfer Taxes..................................21 12.02 Exculpation....................................................21 12.03 Permanent Injunction...........................................21 ii 12.04 Revocation or Withdrawal of the Plan...........................22 12.05 Binding Effect.................................................22 12.06 Construction...................................................22 12.07 Time...........................................................22 12.08 Headings.......................................................22 12.09 Governing Law..................................................22 12.10 Existence of Committee.........................................22 12.11 Benefit Programs...............................................22 12.12 Retiree Benefits...............................................23 12.13 Payment of Statutory Fees......................................23 12.14 Cramdown.......................................................23 12.15 Execution of Plan Documents....................................23 12.16 Post Confirmation Fees and Expenses............................23 12.17 Closing of Case................................................24 iii Greate Bay Hotel and Casino, Inc. ("GBHC"), GB Property Funding Corp. ("Funding"), and GB Holdings, Inc. ("Holdings") (sometimes collectively "Debtors" and individually each a "Debtor" and sometimes collectively "Proponents") hereby propose the following Joint Plan of Reorganization pursuant to section 1121(a) of the Bankruptcy Code. ARTICLE 1 DEFINITIONS As used in the Plan, the following terms shall have the respective meanings specified below (such meanings to be equally applicable to the singular and plural, and the masculine, feminine and neuter forms of the terms defined). Administrative Expense Claim means a Claim for payment of any costs or expenses of administration of the Case incurred after the commencement of the Case allowable under section 503(b) or 507(a)(1) of the Bankruptcy Code, including, without limitation: (a) the actual and necessary expenses of preserving the estates of the Debtors; (b) the actual and necessary expenses of operating the business of the Debtors (such as wages, salaries or commissions for services rendered, or severance, bonuses or other amounts due and payable to employees of the Debtors pursuant to any Court Order); (c) indebtedness or obligations incurred or assumed by the Debtors in connection with the conduct of its business, the acquisition or lease of property, or the rendition of services to the Debtors; (d) allowances of compensation for legal and other services and reimbursement of expenses awarded pursuant to sections 330(a), 331 and 503(b) of the Bankruptcy Code, (e) any amounts necessary to cure defaults under assumed leases pursuant to ss. 363(b)(1)(A) of the Bankruptcy Code and (f) all fees or charges assessed against the estates of the Debtors under section 1930, title 28, United States Code; provided, however, that an Exempt Tax shall not be an Administrative Claim. Costs and expenses incurred by the Debtors after the Effective Date shall be paid in the ordinary course. Administrative Operating Expense Claim means all Administrative Expense Claims other than Administrative Claims of Professionals and fees and charges assessed under 28 U.S.C. ss. 1930. ADR Procedure means the alternative dispute resolution procedure for resolution of timely filed personal injury and product liability claims approved by an Order of the Bankruptcy Court dated August 24, 1998, including any litigation commenced or to be commenced in accordance with such procedure. Allowed, when used as an adjective preceding the words "Claim" or "Interest," means any Claim against or Interest in the Debtors: (a) proof or application for allowance of which was (i) Filed on or before the date designated by the Bankruptcy Court as the last date for Filing a Proof of Claim against or Proof of Interest in the Debtors, (ii) later Filed with Bankruptcy Court leave after notice and a hearing, or (iii) if no Proof of Claim or Proof of Interest or application for allowance was Filed, which Claim or Interest has been or hereafter is listed by the Debtors in the Schedules as liquidated in amount and not disputed or contingent; and (b) which (i) is due and payable and as to which no objection to the allowance thereof has been interposed within the applicable period of limitation fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules, the Local Rules or the Bankruptcy Court or (ii) as to which any objection has been determined by Final Order of the Bankruptcy Court to the extent such objection has been resolved in favor of the Holder of such Claim or Interest. Assets means all property of the Estate of each of the Debtors. Avoiding Power Causes of Action means rights and remedies accruing to the Debtors pursuant to Chapter 5 of the Bankruptcy Code, including 11 U.S.C. ss.ss. 544(b), 547, 548, 549, 550, or 553(b). Ballots means the ballots accompanying the Disclosure Statement and the Plan upon which impaired Creditors shall have indicated their acceptance or rejection of the Plan. Bankruptcy Code means the Bankruptcy Reform Act of 1978, as amended, and as codified in title 11 of the United States Code. Bankruptcy Court means the United States Bankruptcy Court for the District of New Jersey or any court having competent jurisdiction to hear appeals or certiorari proceedings therefrom, or any successor thereto that may be established by act of Congress or otherwise, and that has competent jurisdiction over the Case. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended from time to time, as applicable to the Case. Bar Date is the last date for filing Claims as fixed by the Bankruptcy Court. Business Day means any day except Saturday, Sunday or a "legal holiday," as such term is defined in Bankruptcy Rule 9006(a). Case means the above-captioned cases under Chapter 11 of the Bankruptcy Code in which GBHC, Funding and Holdings are the Debtors. Causes of Action means all legal and equitable claims, demands, or causes of action held by the Debtors against any entity, including Avoiding Power Causes of Action. Cash means cash and cash equivalents held by the Debtors. Casino Commission means the New Jersey Casino Control Commission. Claim shall mean a "claim" within the meaning of section 101(5) of the Bankruptcy Code. Class means a class of Claims or Interests as classified in the Plan. 2 Collateral means any property of the Estate that secures an Allowed Secured Claim. Committee means the official committee of general unsecured Creditors which was appointed in the Case pursuant to section 1102 of the Bankruptcy Code. Confirmation Date means the date the Clerk of the Bankruptcy Court enters the Confirmation Order on the docket of the Bankruptcy Court. Confirmation Hearing means the hearing before the Bankruptcy Court to consider confirmation of the Plan. Confirmation Order means an order of the Bankruptcy Court confirming the Plan in accordance with the provisions of Chapter 11 of the Bankruptcy Code. Creditor means any Entity that has a Claim against the Debtors that arose on or before the Petition Date or a Claim against the Estate of any kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code. Debtors means GBHC, Funding, and Holdings in administratively consolidated Case Nos. 98-10001, 98-10002 and 98-10003, and includes GBHC, Funding and Holdings as debtors-in-possession. Disbursing Agent means the Debtors. Disclosure Statement means the written disclosure statement and its appendices, as they may be amended, supplemented or further modified from time to time, filed by Proponents, with respect to the Plan. Disputed Claim means a Claim which is not an Allowed Claim. Effective Date means a Business Day determined by the Proponents that is not more than fifteen (15) days after the Confirmation Date, and upon which (a) no stay of the Confirmation Order is in effect and (b) the conditions to the Effective Date set forth in the Plan have been satisfied or waived. The Proponents shall file a notice of the Effective Date within three (3) days after its occurrence, which shall be served upon parties in interest. Entity means an "entity" within the meaning of section 101(15) of the Bankruptcy Code. Estate means the estate created upon the commencement of each Case as to each Debtor by section 541 of the Bankruptcy Code. 3 Exempt Tax means any stamp, recording or similar tax or charge (including any penalties, interest or additions thereto) within the meaning of section 1146(c) of the Bankruptcy Code which may be imposed by the laws of any state upon the transactions contemplated under, or necessary for the success of, the Plan, including without limitation, any mortgage recording, securities transfer, deed transfer, documentary transfer or gains taxes. File, Filed, Filing or Files shall mean file, filed, filing or files, respectively, with the Bankruptcy Court in the Case. Final Order means an order or judgment of the Bankruptcy Court or other court of competent jurisdiction, as entered on the docket of such court, that has not been reversed or stayed, and as to which: (a) the time to appeal or petition for certiorari has expired and no timely-filed appeal or petition for certiorari is pending, or (b) any appeal taken or petition for certiorari filed has been resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought. Fractional Pool Trust means the trust to be established for the purpose of aggregating, holding for so long as is necessary and liquidating as soon as practicable for the account and benefit of the Old Note Holders, the fractional New Notes and distributing the proceeds thereof to the beneficial holders of Old Note Claims in proportion to their respective rights to receive fractional New Notes. Fractional Pool Trust Agreement means the form of agreement establishing the Fractional Pool Trust. Fractional Pool Trustee means the Entity retained by the Debtors under the Fractional Pool Trust Agreement to administer the Fractional Pool Trust. General Unsecured Claim means any Claim against the Debtors which arose or which is deemed by the Bankruptcy Code to have arisen prior to the Petition Date, and which is not a Claim or an Interest in any other Class. Holder means any entity holding a Claim or Interest, and includes the beneficial Holder of such Claim or Interest. Intercompany Notes means that certain Subordinated Promissory Note of GBHC in favor of PRT Funding Corp. dated February 17, 1994 in the principal amount of $10,000,000.00 and that certain Subordinated Promissory Note of GBHC in favor of Pratt Casino Corporation dated January 14, 1997 in the principal amount of $5,000,000.00. Interest means any and all rights arising out of the ownership of Old Common Stock, including all Claims against the Debtors resulting from the rescission of a purchase or sale of Old Common Stock, for damages arising from the purchase or sale of Old Common Stock or for reimbursement or contribution allowed under section 502 on account of such a claim, and all rights arising out of contracts, options or warrants to purchase or sell Old Common Stock. 4 Local Rules means the Local Bankruptcy Rules of the District of New Jersey, as applicable to the Case. New Common Stock shall mean the ten (10) million shares of new common stock of Holdings to be issued pursuant to the Plan, in accordance with the exemption from registration under Bankruptcy Code Section 1145. New Notes means the $80 million principal amount 10% First Mortgage Notes due 2009, to be issued by Funding on the Effective Date pursuant to this Plan, and pursuant to the exemption from registration under Bankruptcy Code Section 1145. New Notes Indenture means the trust indenture in accordance with which the New Notes will be issued. New Notes Trustee means the financial institution which will serve as trustee under the New Notes Indenture. Old Common Stock shall mean the common stock of Holdings, GBHC and Funding issued and outstanding prior to the Petition Date, and includes any options or warrants with the right to acquire Old Common Stock. Old Guarantees means the guarantees by GBHC and Holdings of the Old Notes. Old Notes means the 10-7/8% First Mortgage Notes due 2004 issued by Funding and guaranteed by GBHC and Holdings. Old Notes Disbursing Agent means the Entity retained by the Debtors to make distributions of Plan Securities to Holders of Old Notes. Old Notes Indenture means the Indenture pursuant to which the Old Notes were issued. Old Notes Trustee or Trustee means the Entity which, as of the Effective Date, serves as trustee under the Old Notes Indenture. Petition Date means January 5, 1998, the date of Filing of the voluntary petitions for relief commencing the Case. Plan means this Plan of Reorganization proposed by the Debtors. Any appendices or supplements to the Plan are incorporated into and made a part hereof as if fully set forth herein. Plan Securities means the New Notes and the New Common Stock. 5 Plan Supplement means the appendices and/or supplements that may be filed by the Proponents prior to Confirmation which may include, but not be limited to, the New Notes Indenture, a revised Certificate of Incorporation and By Laws, and such other documents as may be necessary or appropriate. Priority Claim means any Claim to the extent entitled to priority in payment under sections 507(a)(2)-(7) or (9) of the Bankruptcy Code. Priority Tax Claim means any Claim to the extent entitled to priority in payment under section 507(a)(8) of the Bankruptcy Code. Professionals means Entities whose Administrative Claims must be Allowed by Final Order of the Bankruptcy Court under the Bankruptcy Code prior to payment. Proof of Claim or Proof of Interest means a Filed Proof of Claim or Proof of Interest. Record Date means the date on which Creditors entitled to vote on the Plan are determined by their record ownership of Claims, which date shall be the date of entry of an Order of the Bankruptcy Court approving the Disclosure Statement. Regulatory Conditions means those conditions described in Section 8.02 of this Plan. Reorganized Debtors means the Debtors after the Confirmation Order has been entered. Sands means substantially all of the real and personal property owned by GBHC and used or useful in the conduct of the business of the Sands Casino Hotel, Indiana Avenue and Brighton Park, Atlantic City, New Jersey. Schedules means the Schedules of Assets and Liabilities and Statements of Executory Contracts and Financial Affairs, Filed by the Debtors in accordance with the Bankruptcy Rules, as amended. Security Documents means the documents that create and perfect all liens, mortgages and security interests which secure the Debtors obligations under the Old Notes. Secured Claim means a Claim against the Debtors which is deemed by the Bankruptcy Code to have arisen prior to the Petition Date and which is (i) secured by a valid lien, security interest, or other encumbrance on Collateral, or (ii) subject to setoff under section 553 of the Bankruptcy Code, but only to the extent of the value of the Collateral, or to the extent of the amount subject to setoff, determined in accordance with section 506(a) of the Bankruptcy Code, as modified by section 1111(b) of the Bankruptcy Code. 6 Subordinated Claims means Claims against any of the Debtors which are junior in priority to General Unsecured Claims by virtue of contract, applicable law, or Final Order of the Bankruptcy Court. Unclaimed Distribution means, in respect of any Class of Claims, all Cash or other property deemed to be "Unclaimed Distributions" pursuant to the Plan. Unliquidated, Disputed or Contingent Claim means any Claim, the amount of which is undetermined or the liability for which is not proven or is contingent, or disputed, as reflected in either the Schedules or the Proof of Claim Filed by any Creditor. Unsecured Creditors Fund means an account to be established under the Plan and used to pay Allowed General Unsecured Claims. Unsecured Creditors Fund Administrator means the Entity designated by the Committee to administer the Unsecured Creditors Fund. Voting Procedures Order means the Order Scheduling Confirmation Hearing for the Third Modified Plan of Reorganization and Establishing Voting Procedures thereto dated ________, 1999. Document References. All references to documents shall include all addenda, exhibits and schedules attached thereto or referred to therein. Other Definitions. A term used and not defined herein, but that is defined in the Bankruptcy Code, shall have the meaning set forth therein. The words "herein," "hereof," "hereto," "hereunder," and others of similar import refer to the Plan as a whole and not to any particular section, subsection, or clause contained in the Plan. The word "including" shall mean "including, without limitation." The singular shall include the plural and vice versa unless the context otherwise requires. ARTICLE 2 ADMINISTRATIVE AND PRIORITY TAX CLAIMS 2.01 Administrative Expense Claims. Except as set forth in section 2.03 below, Allowed Administrative Expense Claims (other than Claims for compensation and reimbursement of expenses of Professionals) will be paid in full, in Cash, on the Effective Date, or, if such Claim becomes Allowed after the Effective Date, within five (5) days after such Claim becomes Allowed. Any fees due and owing to the United States Trustee shall be paid in full on the Effective Date, or as soon thereafter as practicable. All requests by Professionals for final allowance of compensation and reimbursement of expenses accrued as of the Confirmation Date must be Filed with the Court within sixty (60) days of the Confirmation Date and will be paid within five (5) days after such Claims become Allowed. The estimated amount of unpaid fees and 7 expenses of Professionals as of the Effective Date will be deposited by the Debtors in a segregated account on the Confirmation Date. Such escrowed funds shall be used to pay Allowed Administrative Claims of Professionals and any funds remaining after making all such payments shall revest in the Reorganized Debtors. 2.02 Bar Date for Administrative Expense Claims. (a) In General. Unless the payment date is otherwise established by an Order of the Bankruptcy Court, and other than Administrative Expense Claims of Professionals, requests for payment of Administrative Expense Claims must be Filed and served on the Debtors no later than thirty (30) days after the Effective Date. Any Entity that is required to File and serve a request for payment of an Administrative Expense Claim and that fails to timely File and serve such request, shall be forever barred, estopped and enjoined from asserting such Claim against the Debtors, the Estate of the Debtors or their respective property. (b) Professionals. Professionals or other Entities requesting compensation or reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered before the Confirmation Date shall File an application for final allowance of compensation and reimbursement of expenses no later than sixty (60) days after the Confirmation Date. Objections to applications of professionals or other Entities for compensation or reimbursement of expenses must be Filed no later than ninety (90) days after the Confirmation Date. 2.03 Ordinary Course Liabilities. Holders of Administrative Operating Expense Claims shall not be required to File any request for payment of such Claims. All Administrative Operating Expense Claims which are not due and payable by their terms as of Confirmation Date shall be assumed by the Reorganized Debtors, and paid in accordance with their terms, subject to all applicable offsets and defenses which the Debtors may hold to payment of such Claims. 2.04 Priority Tax Claims. At the option of the Debtors, each holder of an Allowed Priority Tax Claim shall be paid the full amount of such Allowed Priority Tax Claim, (a) in Cash, on the later of (i) the Effective Date (or as soon thereafter as is practicable), or (ii) the first Business Day after such Claim becomes an Allowed Claim (or as soon thereafter as is practicable); or (b) in equal quarterly installments of principal and interest at the applicable legal rate over a period not to exceed six (6) years from the date of assessment of such Priority Tax Claim. 2.05 Old Notes Trustee Fees and Expenses. After application to the Court within sixty (60) days of the Confirmation Date in an amount determined by Final Order of the Court, the Debtors will pay all reasonable Allowed fees and expenses of the Old Notes Trustee incurred in or in connection with the Case. The Debtors will deposit the estimated amount of fees and expenses of the Old Notes Trustee in a segregated account on the Confirmation Date, which funds will be used to make payments of Allowed fees and expenses of the Old Notes Trustee. Nothing contained in this Plan affects the Old Notes Trustee's rights pursuant to the Old Notes Indenture to assert a lien on the distributions due to Holders of Old Notes to secure payment of 8 its fees and expenses. The reasonable fees and expenses of the Old Notes Trustee incurred in making the distribution to Holders of Old Notes under the Plan shall be paid by the Reorganized Debtor in the ordinary course. If the Old Notes Trustee does not serve as the Old Notes Disbursing Agent, then the Plan Securities distributed to the Old Notes Disbursing Agent may be subject to the lien of the Old Notes Trustee under the Old Notes Indenture. ARTICLE 3 CLASSIFICATION OF CLAIMS AND INTERESTS 3.01 Class 1 - Priority Claims. Class 1 consists of all Allowed Priority Claims against any Debtor. Class 1 is not impaired. 3.02 Class 2 - Allowed Claims of Old Notes. Class 2 consists of all Allowed Claims of Holders of Old Notes against any Debtor. Class 2 is impaired. 3.03 Class 3 - Other Secured Claims. Class 3 consists of all Allowed Secured Claims (other than the Old Notes) against any Debtor. Class 3 may be unimpaired depending upon the treatment option selected by the Proponents. 3.04 Class 4 - General Unsecured Claims. Class 4 consists of all Allowed General Unsecured Claims against any Debtor. Class 4 is impaired. 3.05 Class 5 - Intercompany Notes. Class 5 consists of all Allowed Claims of Holders of any Intercompany Notes against any Debtor. Class 5 is impaired. 3.06 Class 6 - Subordinated Claims. Class 6 consists of all Allowed Subordinated Claims against any Debtor. Class 6 is impaired. 3.07 Class 7 - Old Common Stock and Interests and Claims Relating Thereto. Class 7 consists of all Old Common Stock Interests in the Debtors. Class 7 is impaired. 3.08 Classification Rules. Claim is in a particular Class only to the extent that the Claim qualifies within the description of Claims of that Class, and such Claim is in a different Class to the extent that the remainder of the Claim qualifies within the description of the different Class. Pursuant to section 1123(a)(4) of the Bankruptcy Code, all Allowed Claims of a particular Class shall receive the same treatment unless the Holder of a particular Allowed Claim agrees to a less favorable treatment for such Allowed Claim. For purposes of the Plan, and pursuant to section 510(a) of the Bankruptcy Code, the Plan shall give effect to subordination agreements which are enforceable under applicable nonbankruptcy law, except to the extent the beneficiary or beneficiaries thereof agree to less favorable treatment. The Plan shall also give effect to the subordination rules of sections 510(b) and (c) of the Bankruptcy Code. The inclusion of a Creditor by name in any Class is for purposes of general description only, and includes all Entities claiming as beneficial interest holders, assignees, heirs, devisees, transferees or successors in interest of any kind of the Creditor named. 9 3.09 Inter-Company Claims. Claims by any Debtor against any other Debtor shall be cancelled and extinguished, including all Claims arising out of the Old Guarantees. ARTICLE 4 TREATMENT OF CLASSES UNDER THE PLAN 4.01 Class 1 - Priority Claims. Each holder of an Allowed Priority Claim shall be paid the Allowed amount of such Claim, including all applicable interest and other charges to which the Holder of such Allowed Priority Claim may be entitled under applicable law or contract, to the extent permitted under the applicable provision of section 507(a), in Cash, on the later of: (a) the Effective Date (or as soon thereafter as is practicable) and (b) the first Business Day after such Claim becomes an Allowed Claim (or as soon thereafter as is practicable). 4.02 Class 2 - Allowed Claims of Old Notes. Holders of Old Notes shall share pari passu and pro rata in (i) the New Notes, including the New Notes allocated to this Class pursuant to Section 4.05, and (ii) the New Common Stock. All distributions to Class 2 shall occur on the Effective Date or as soon as legally permissible thereafter. 4.03 Class 3 - Other Secured Claims. Holders of Allowed Secured Claims, other than Holders of Old Notes, at the option of the Proponents, shall either (a) be paid in full in Cash the Allowed Amount of such Secured Claim in full satisfaction and discharge of such Creditor's lien, (b) receive deferred Cash payments totalling the Allowed amount of such Claim of a value as of the Effective Date at least equal to the value of such Creditor's interest in the Collateral securing such Claim, and shall retain the lien securing such Claim and all rights under any instrument evidencing such Claim until paid as provided herein, (c) will receive, pursuant to abandonment by the Debtors possession of and the right to foreclose its lien on the Collateral securing such Claim, or (d) will be treated in accordance with an agreement between the Proponents and the Holder of such Claim. In the event the treatment provided in subparagraphs (a), (b) or (c) above results in payment to such Creditor of less than the Allowed amount of its Claim, it shall be entitled to assert a General Unsecured Claim against the Debtors for any deficiency. 4.04 Class 4 - General Unsecured Claims. Holders of Allowed General Unsecured Claims shall share pari passu and pro rata in the net amount remaining in the Unsecured Creditors Fund after payment of the expenses of the Unsecured Creditors Fund Administrator. 4.05 Class 5 - Claims of Holders of Intercompany Notes. Holders of Allowed Intercompany Notes in Class 5 shall be allocated New Notes in a principal amount equal to the Allowed Amount of Intercompany Note Claims. All New Notes allocated to Intercompany Note Claims shall be distributed to Holders of Old Notes in Class 2, on account of and pursuant to the subordination provisions of the Intercompany Notes. 10 4.06 Class 6 - Subordinated Claims. Holders of Allowed Claims in this Class shall receive no distribution in respect of their Claims. 4.07 Class 7 - Old Common Stock and Interests. Holders of Old Common Stock and Interests in the Debtors shall receive no distribution under the Plan. The Old Common Stock and Interests shall be cancelled, extinguished and of no further force and effect as of the Effective Date. 4.08 Controversy Concerning Impairment. In the event of a controversy as to whether any Creditor or Holder of an Interest or Class of Creditors or Class of Holders of Interests is impaired under the Plan, the Bankruptcy Court shall, after notice and a hearing, determine such controversy. ARTICLE 5 ACCEPTANCE OR REJECTION OF THE PLAN 5.01 Impaired Classes Entitled To Vote. Classes 2 through 7 are impaired under the Plan (with the possible exception of Class 3 depending on the treatment selected by the Proponents). Each impaired Holder of an Allowed Claim in Classes 2 through 4, including Holders of Allowed Class 3 Claims, shall be entitled to vote to accept or reject the Plan. The Trustee does not vote on any claims with respect to the Notes. 5.02 Acceptance by an Impaired Class of Claims. A Class of Creditors shall have accepted the Plan if Creditors holding at least two-thirds in the aggregate dollar amount and more than one-half in number of the Allowed Claims of such Class that have accepted or rejected the Plan vote to accept the Plan. 5.03 Presumed Acceptance of Plan by Unimpaired Classes. Class 1 is unimpaired under the Plan, and, therefore, is conclusively presumed to accept the Plan pursuant to section 1126(f) of the Bankruptcy Code and they do not have a right to vote on the Plan. 5.04 Possible Presumed Acceptance of Plan by Unimpaired Class 3. In the event that the Proponents elect not to impair Class 3 Claims, the Proponents reserve the right to have Class 3 presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code, notwithstanding the actual votes of Holders of such claims. 5.05 Presumed Rejection. Classes 5, 6 and 7 are presumed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code and do not have the right to vote on the Plan. 11 ARTICLE 6 MEANS FOR implementation OF THE PLAN 6.01 New Notes. On the Effective Date, (i) Funding will issue in integral multiples of $1,000, and Holdings and GBHC will guarantee, the New Notes in accordance with the New Notes Indenture and all mortgages, liens and security interests securing the New Notes will be created and perfected, (ii) Holdings will reserve for issuance, in accordance with the Plan, the New Common Stock, (iii) Funding and GBHC will each issue to Holdings 100 shares of common stock in exchange for $250, which will represent all of the issued and outstanding common stock of Funding and GBHC, and (iv) the Old Notes Indenture, the Security Documents and all mortgages, liens, security interests and encumbrances securing the Old Notes will be deemed canceled, terminated, extinguished and of no force or effect as between the Debtors and the Old Notes Trustee. 6.02 Unsecured Creditors Fund. On the Effective Date, the Committee will designate the Unsecured Creditors Fund Administrator. The Disbursing Agent will pay into the Unsecured Creditors Fund a total of $4,200,000, as follows: $700,000 on the Effective Date, and $700,000 on each succeeding anniversary of the Effective Date until the full amount has been paid. The present value of unpaid amounts due to the Unsecured Creditors Fund (discounted at a 5% rate) will become due and payable in full on GBHC's transfer of title to the Sands. If GBHC sells the Sands and (i) proceeds of more than $300 million are received prior to January 1, 2001, or (ii) proceeds of more than $325 million are received prior to June 30, 2001, then GBHC will pay into the Unsecured Creditors Fund an additional amount equal to the lesser of (a) proceeds in excess of $300 million (if received before January 1, 2001) or $325 million (if received before June 30, 2001), (b) $3,000,000, or (c) an amount which, when added to $4,200,000, equals the Allowed Amount of General Unsecured Claims. 6.03 Reserve. On the Effective Date, the Disbursing Agent will reserve for distribution all Cash to be distributed on the Effective Date under the Plan. ARTICLE 7 CONDITIONS PRECEDENT 7.01 Conditions Precedent to Confirmation Date. The occurrence of the Confirmation Date of the Plan is subject to satisfaction or waiver of each of the following conditions: (a) the Bankruptcy Court has entered the Confirmation Order containing findings, supported by evidence adduced by the Debtors at the Confirmation Hearing, that the issuance of all Plan Securities and the execution of any required indenture and security documents in respect thereto, shall have been duly and validly authorized by all necessary corporation action; that the 12 lien, title or other interest in collateral created by such indenture and instruments shall be valid and binding and enforceable against the Reorganized Debtors, as the case may be, and such collateral shall be subject to no prior, pari passu or subordinate encumbrances or claims except as provided for in such documents; that any fractional note pool trustee as required by the Fractional Note Pool Trust Agreement is authorized to serve as such under the Fractional Pool Trust Agreement and is authorized to rely on information concerning the identity and size of beneficial holders of the Old Notes from registered holders of such Notes and that the disbursing agents are authorized to aggregate and deliver fractional New Notes aggregated into New Notes to such Fractional Pool Trustee; and in such other form and substance reasonably satisfactory to the Proponents; (b) the Debtors have been authorized to assume all leases and executory contracts which they may seek to assume; (c) the Debtors have received the consent of any governmental units whose consent is required for confirmation; (d) the estimated unpaid fees and expenses of Professionals have been deposited in a segregated account. 7.02 Conditions to Effective Date. The occurrence of the following shall be a separate condition to the Effective Date of the Plan: (a) the Confirmation Order has become a Final Order; and (b) the New Notes Indenture has been qualified under the Trust Indenture Act, no conditions (other than Regulatory Conditions) to the issuance or authentication of the New Notes to be distributed to the Old Notes Disbursing Agent pursuant to the Plan or the New Notes Indenture shall be unsatisfied, the New Notes have been authenticated and distributed to the Old Notes Disbursing Agent and all other requirements of applicable laws have been satisfied. 7.03 Waiver of Conditions. The Proponents shall have the right to waive any of the foregoing conditions to Confirmation Date, or to the Effective Date, except for 7.01(a) and (c) and 7.02(b). Without limiting the foregoing, the Effective Date may occur notwithstanding the pendency of an appeal of the Confirmation Order or any order related thereto so long as there is no stay in effect. The Effective Date may occur before the expiration of time to take an appeal or to seek reconsideration of the Confirmation Order without the giving of any notice to any objecting party. In the event of any such appeal, the Proponents may seek the dismissal of such appeal as moot following the Effective Date of the Plan. ARTICLE 8 DISTRIBUTIONS UNDER THE PLAN 8.01 Distributions. All distributions under the Plan shall initially be made by the Disbursing Agent. All distributions under the Plan to Holders of Old Notes shall be made by the 13 Disbursing Agent, by delivering same to the Old Notes Disbursing Agent for redistribution to Holders of Old Notes. All distributions to members of Class 4 shall be made by the Unsecured Creditors Fund Administrator. 8.02 Regulatory Condition to Distribution. The Old Notes Disbursing Agent will issue the New Notes and New Common Stock to Holders of Old Notes entitled to receive such securities as and when all regulatory approvals required as a condition to issuance of such New Notes or New Common Stock to such Holder have either been granted by the appropriate regulatory body, have been waived, or are not required under applicable law. Until the New Common Stock has been issued to an Entity, the Entity who is not entitled to be issued New Common Stock by reason of Regulatory Conditions shall have no rights of a Holder of such New Common Stock, including rights to vote such shares. 8.03 Surrender of Notes and Other Securities. Except as otherwise ordered by the Bankruptcy Court, in order to receive any distribution under the Plan, each Holder of an Old Notes Claim will be required to surrender all of its Old Notes to the Old Notes Disbursing Agent. Failure to comply with such requirements will bar a Holder of Old Notes from receiving any distributions under the Plan. Notwithstanding the foregoing, all of the Old Notes will be deemed surrendered, canceled and of no further force or effect as of the Effective Date, whether or not the Old Notes are delivered to the Old Notes Disbursing Agent. Delivery of the Old Notes is required for administrative convenience only and any such delivery shall not alter a Holder of Old Notes' legal or equitable rights against any Entity other than the Debtors, if any. The manner and procedure to be followed for surrendering Old Notes and for providing necessary affidavits and bonds shall be prescribed by the Old Notes Disbursing Agent upon reasonable notice sent to all holders of Class 2 Claims. 8.04 Survival of Certain Terms of the Old Notes Indenure. Notwithstanding the termination and cancellation of the Old Notes, the Old Notes Indenture and the Security Documents as respects the Debtors, the provisions of the Old Notes Indenture governing the relationship of the Old Notes Trustee and the Holders of Old Notes, including those provisions relating to distributions, the Old Notes Trustee's right to payment and liens on property to be distributed to Holders of Old Notes, if any, and the Trustee's right of indemnity, if any, shall not be affected by the Plan. 8.05 Method of Payment. Any Cash payment made by the Disbursing Agent pursuant to the Plan shall be in U.S. dollars, either by check drawn on a domestic bank or wire transfer therefrom. 8.06 Timing of Payment. Any payment or distribution required to be made under the Plan on a day other than a Business Day shall be due on the next succeeding Business Day. 8.07 Setoff. Nothing contained herein shall be deemed to waive the Debtors' statutory or common law right of setoff, which may be enforced as to Class 4 Claims by the Unsecured Creditors Fund Administrator. 14 8.08 De Minimis Cash Distributions. The Disbursing Agent or Unsecured Creditors Fund Administrator shall not be required to distribute Cash to any Creditor if the amount of Cash to be distributed to such Creditor is less than $5.00. 8.09 Unclaimed Distributions to Creditors. (a) Non-Negotiated Checks and Other Consideration. If the Holder of an Allowed Unsecured Claim fails to present for payment a check issued to such Holder pursuant to the Plan within ninety (90) days of the date such check was issued, or if any distributions are returned to the Unsecured Creditors Fund Administrator due to an incorrect or incomplete address for which neither the Debtors nor Unsecured Creditors Fund Administrator have received a correct address, then the amount of Cash or other property attributable to such check or distribution shall be deemed to be Unclaimed Distributions in respect of such Holder's Class of Claims and the payee of such check or distribution shall be deemed to have no further Claim in respect of such check or distribution, and shall not be entitled to participate in any further distributions under the Plan. In the event that any New Notes or New Common Stock distributable to the Holders of Old Notes has not been distributed by the Old Notes Disbursing Agent to the Holders of an Old Notes Claim within two (2) years of the later of the Effective Date or the satisfaction of or failure to satisfy the Regulatory Conditions, then such consideration shall be deemed to be Unclaimed Distributions. The above time limits shall not apply to distributions to Holders of Old Notes that the Old Notes Trustee may make pursuant to the Old Notes Indenture that are independent of the consideration being distributed pursuant to the Plan. (b) Revesting of Unclaimed Distributions. All Unclaimed Distributions of Cash, New Notes, or New Common Stock shall revest in the Reorganized Debtors. 8.10 Rounding. Whenever any payment of a fraction of a cent would otherwise be called for, the actual payment shall reflect a rounding of such fraction to the nearest whole cent, with one-half cent being rounded up to the nearest whole cent. To the extent Cash remains undistributed as a result of the rounding of such fraction to the nearest whole cent, such Cash shall be treated as unclaimed cash under Section 8.08. Whenever any distribution of a fraction of a share of New Common Stock would otherwise be called for, the actual distribution will reflect a rounding of such fraction down to the nearest whole number of shares. Whole shares of New Common Stock not distributed because of the provisions of this Section will be treated as unclaimed securities under Section 8.09. New Notes will be issued in integral multiples of $1,000. No fractional portions of New Notes will be issued. Notwithstanding this "Rounding" provision, Fractional New Notes will be aggregated by the Old Notes Disbursing Agent based upon information on beneficial holder Ballots or otherwise from registered Holders of Old Notes and intermediary Holders of Old Notes, and will be delivered to the Fractional Note Pool Trustee for sale pursuant to the Fractional Pool Trust Agreement, with the cash proceeds to be distributed to Holders of Old Notes in lieu of fractional portions, as provided by the Fractional Pool Trust Agreement as directed by the Old Notes Disbursing Agent. 15 8.11 Treatment of Disputed Claims. Disputed Claims shall be treated as follows under the Plan: (a) Objections to Claims. Except as otherwise provided by the Bankruptcy Court or in the Plan, all objections to Claims shall be Filed and served on the Holders of such Claims on or before the later of (i) sixty (60) days after the Confirmation Date, (ii) sixty (60) days after a particular Proof of Claim is Filed, except that such Claim shall not be deemed an Allowed Claim until after the sixty (60) day period lapses, and (iii) such additional date as the Bankruptcy Court may fix upon application of the Debtor; provided, however, that no party in interest shall be required to File an objection to any Claim listed in the Schedules as disputed, contingent, unliquidated or undetermined and for which no Proof of Claim was Filed, which Claim shall be barred and disallowed in its entirety. After the Effective Date, the Unsecured Creditors Fund Administrator shall have the sole right to object to or seek the estimation of any Claims which are to be paid from the Unsecured Creditors Fund. (b) No Distributions Pending Allowance. Notwithstanding any other provision of the Plan to the contrary, no distribution shall be made to the Holder of a Disputed Claim or the Holder of a Claim who is the subject of a proceeding against it by the Debtors, unless and until such Disputed Claim becomes an Allowed Claim or such proceeding is resolved. (c) Distributions After Allowance. Once a Disputed Claim becomes an Allowed Claim, distribution on account of such Claim shall be made in accordance with the provisions of the Plan governing the Class of Claims to which the respective Claim belongs. (d) ADR Procedure. The ADR Procedure will continue in effect after the Effective Date in the Unsecured Creditors Fund Administrator's sole discretion. All costs and expenses of administering the ADR Procedure incurred on or after the Effective Date shall be paid from the Unsecured Creditors Fund. The Unsecured Creditors Fund Administrator shall administer the ADR Procedure after the Effective Date. 8.12 Estimation of Claims. At any time prior to the Effective Date, or within sixty (60) days thereafter, the Debtors, Committee or the Unsecured Creditors Fund Administrator may seek the estimation of a Disputed Claim in accordance with the applicable provisions of the Bankruptcy Code and Bankruptcy Rules; provided however, that after the Effective date, only the Unsecured Creditors Fund Administrator may seek the estimation of a Disputed Class 4 Claim. The estimated amount of a Disputed Claim shall be fixed by Final Order, which shall be deemed the amount of such Claim for all purposes under the Plan. 8.13 Registration and Listing of New Notes and New Common Stock. After the Effective Date, the Reorganized Debtors will use their reasonable good faith best efforts to register the New Notes and New Common Stock in accordance with applicable law and to cause such securities to be listed on a national exchange; however, such securities shall be issued under this Plan in reliance on the exemption from registration provided in Section 1145 of the Bankruptcy Code, subject to the approval of the Casino Commission. 16 8.14 No Multiple Satisfactions. An Entity that holds a Claim against more than one Debtor that arises from the same right to payment or equitable remedy that gives rise to a right to payment, such as a Holder of a Claim for a loan given to one Debtor, which loan is guaranteed by another Debtor, shall only receive a distribution as if the Entity was the Holder of a Claim against one Debtor. Such distribution shall be deemed to be in full satisfaction of the Entity's Claims against all Debtors. ARTICLE 9 EXECUTORY CONTRACTS 9.01 Assumption or Rejection of Executory Contracts and Unexpired Leases. (a) Executory Contracts. Subject to Section 9.01(d), all executory contracts that exist between the Debtors and any Entity which have not been assumed or rejected prior to the Effective Date shall be deemed rejected as of the Effective Date, except for any executory contract that has been assumed pursuant to an order of the Bankruptcy Court entered at or prior to the Effective Date, or which is subject to a pending application to assume or extend time to assume or reject. Nothing contained herein shall constitute a waiver of any claim, right or cause of action that the Debtors may hold against any party to any executory contract with the Debtors, including the insurer under any policy of insurance. (b) Options. Any options, warrants or other equity interests representing the right to acquire Old Common Stock shall be canceled as of the Effective Date. All Claims arising under such warrants or options shall be classified in Class 7. (c) Unexpired Leases. All unexpired leases that exist between the Debtors and any Entity, which have not been assumed or rejected prior to the Effective Date shall be deemed rejected as of the Effective Date, except for any unexpired lease that has been assumed pursuant to an order of the Bankruptcy Court entered at or prior to the Effective Date, or which is subject to a pending application to assume or extend time to assume or reject. Nothing contained herein shall constitute a waiver of any claim, right or cause of action that the Debtors may hold against any lessor or lessee. (d) Approval of Assumption or Rejection of Leases and Contracts. Entry of the Confirmation Order shall constitute the approval, pursuant to section 365(a) of the Bankruptcy Code, of the assumption or rejection of the executory contracts and unexpired leases to be assumed or rejected pursuant to the Plan. Notice of the hearing on Confirmation of this Plan shall constitute notice to any non-debtor party to an executory contract or unexpired lease, which is to be assumed or rejected under this Plan, of the Debtors' intent to assume or reject such contract or lease. (e) Bar Date for Filing Proofs of Claim Relating to Executory Contracts and Unexpired Leases Rejected Pursuant to the Plan. Any and all Proofs of Claim arising out of the rejection of an executory contract or unexpired lease pursuant to this Article 9 must be Filed 17 within thirty (30) days after the Effective Date. Any Holder of a Claim arising out of the rejection of an executory contract or unexpired lease who fails to File a Proof of Claim within such time shall be forever barred, estopped and enjoined from asserting such Claim against the Debtors or their Estates. Unless otherwise ordered by the Bankruptcy Court, all Claims arising from the rejection of executory contracts and unexpired leases shall be treated as General Unsecured Claims under the Plan. Nothing contained herein shall extend the time for Filing a Proof of Claim for rejection of any contract or lease rejected prior to the Confirmation Date. ARTICLE 10 EFFECTS OF PLAN UPON CONFIRMATION 10.01 Revesting of Assets. Except as otherwise set forth herein, subject to the provisions of and for the purposes of distributions in accordance with the Plan, all property of the Estates, including all Causes of Action, shall revest in the Reorganized Debtors on the Confirmation Date. Such revested property shall be free and clear of all liens, claims, encumbrances and interests, except as otherwise provided in the Plan. The Debtors shall be authorized to prosecute such Avoiding Power Causes of Action after Confirmation. 10.02 Discharge and Injunction. Pursuant to section 1141 of the Bankruptcy Code, all Claims against or Interests in the Debtors will be discharged and deemed satisfied upon entry of the Confirmation Order. As of the Effective Date, all Entities that have held, currently hold or may hold a Claim or other debt or liability against the Debtors affected by the Plan are enjoined from taking any actions to collect or recover in any manner on account of any such Claims, debts or liabilities from any or all of the Assets, except as otherwise provided in the Plan. The Unsecured Creditors Fund Administrator and all General Unsecured Creditors will have no recourse against the Reorganized Debtors after the Effective Date, except for payments due to the Unsecured Creditors Fund. 10.03 Retention of Jurisdiction. The Bankruptcy Court shall retain and have jurisdiction over the Case for the following purposes: (a) to adjudicate all controversies concerning the classification or allowance of any Claims or Interests; (b) to liquidate, allow, or disallow any Claims which are disputed, contingent or unliquidated; (c) to determine any and all objections to the allowance of Claims or Interests, or counterclaims to any Claim; (d) to determine any and all applications for allowance of compensation and reimbursement of expenses and any other fees and expenses authorized to be paid or reimbursed under the Bankruptcy Code or the Plan; 18 (e) to determine any applications pending on the Effective Date for the rejection or assumption of executory contracts or unexpired leases or for the assumption and assignment, as the case may be, of executory contracts or unexpired leases to which any Debtor is a party or with respect to which it may be liable, and to hear and determine, and if need be to liquidate, any and all Claims arising therefrom; (f) to adjudicate any actions brought by the Debtors on any Causes of Action or Avoiding Power Causes of Action, at any time prior to expiration of the relevant statute of limitations; (g) to determine any and all applications, adversary proceedings and contested or litigated matters that may be pending on the last date for objections to Claims; (h) to consider any modifications of the Plan, remedy any ambiguity, defect or omission or reconcile any inconsistency in any order of the Bankruptcy Court, including the Confirmation Order, to the extent authorized by the Bankruptcy Court; (i) to determine all controversies, suits and disputes that may arise in connection with the interpretation, enforcement or consummation of the Plan; (j) to consider and act on the compromise and settlement of any Claim or cause of action by or against the Estate, including but not limited to determining all controversies, suits and disputes that may arise in connection with the interpretation, enforcement or consummation of such compromises and settlements previously approved by the Bankruptcy Court or that may be approved in the future; (k) to issue orders in aid of execution of the Plan to the extent authorized by section 1142 of the Bankruptcy Code; (l) to determine such other matters as may be set forth in the Confirmation Order or which may arise in connection with the Plan or the Confirmation Order; (m) to adjudicate disputes over the issuance of New Notes or New Common Stock to Holders of Allowed Claims; and (n) to administer the ADR Procedure. 10.04 Subordination Rights. The classification and treatment of all Claims and Interests under the Plan shall be in full settlement and satisfaction of any contractual, legal and equitable subordination rights, whether arising under general principles of equitable subordination, section 510(c) of the Bankruptcy Code or otherwise, that a Holder of a Claim or Interest may have against other Claim Holders with respect to any distribution made pursuant to the Plan. 10.05 Effectuating Documents; Further Transactions; Timing. The Debtors are authorized to execute, deliver, file or record such contracts, instruments, releases and other 19 agreements or documents and to take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. All transactions that are required to occur on the Effective Date under the terms of the Plan shall be deemed to have occurred simultaneously. The Old Note Trustee shall deliver in recordable form all documents or instruments reasonably requested by the Debtors to cancel of record all mortgages, liens, security interests and encumbrances on any Collateral for the Old Notes. 10.06 Ratification of Actions Taken. Entry of the Confirmation Order shall ratify all transactions effected by the Debtors from and including the Filing of the Case through the Confirmation Date. After entry of the Confirmation Order, all Creditors and Interest Holders shall be enjoined and restrained from commencing or continuing any action or proceeding arising out of or related to the consummation of the transactions contemplated by the Plan. 10.07 Modification of the Plan. The Proponents reserve the right, in accordance with the Bankruptcy Code, to amend or modify the Plan and related documents in any manner prior to the entry of the Confirmation Order. After entry of the Confirmation Order, the Proponents may, upon order of the Bankruptcy Court, amend or modify the Plan and related documents in accordance with, and to the extent permitted by, Section 1127 of the Bankruptcy Code, and remedy any defect or omission, or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. Every amendment or modification of the Plan shall supersede and render null and void all prior versions of the Plan. ARTICLE 11 MANAGEMENT AFTER CONFIRMATION 11.01 Board of Directors. The Boards of Directors of the Debtors shall continue in place after the Effective Date until the first meeting of Holders of New Common Stock. The first meeting of Holders of New Common Stock shall occur as soon as reasonably practicable after a total of not less than 2 million shares of New Common Stock has been issued in accordance with Section 8.02 of this Plan, provided that at least one Creditor entitled to receive New Common Stock under the Plan has been qualified by the Casino Commission to receive distribution of the New Common Stock or the necessity for such qualification has been waived. At the first meeting, Holders of New Common Stock shall be entitled to elect the Board of Directors of Reorganized Holdings. The Board of Directors of Holdings shall appoint the Boards of Directors of GBHC and Funding. 11.02 Officers. The principal executive officers of the Debtors shall continue in office after the Effective Date, until changed by the Boards of Directors of the Debtors, subject to the Bankruptcy Court's Order of March 31, 1998, providing for severance payments to certain officers. 20 11.03 No Corporate Action Required. As of the Effective Date, the issuance of New Notes and New Common Stock, the adoption, execution, delivery and implementation of all contracts, leases, documents, instruments, and other agreements related to or contemplated by the Plan, and the other matters provided for, under or in furtherance of the Plan involving action to be taken by or required of the Debtors shall be deemed to have occurred and be effective as provided herein, and shall be authorized and approved in all respects without further order of the Bankruptcy Court or any requirement of further action by stockholders or directors of the Debtors. All documents or instruments which must be executed and delivered by the Debtors under this Plan shall be deemed appropriately executed if signed by either of the President, Chief Executive Officer, Executive Vice President or any Vice President, of the Debtors. 11.04 Powers and Duties of the Debtors. From and after the Confirmation Date, the Debtors shall have the powers and exercise the duties, as set forth in section 1123(b)(3) of the Bankruptcy Code, to retain, enforce, settle and prosecute all Causes of Action. ARTICLE 12 MISCELLANEOUS PROVISIONS 12.01 Exemption from Transfer Taxes. Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of securities or other property under the Plan; the creation, transfer, filing or recording of any mortgage, deed of trust, financing statement or other security interest; or the making, delivery, filing or recording of any deed or other instrument of transfer under, in furtherance of or in connection with the Plan, shall not be subject to any stamp tax, real estate tax, conveyance, filing or transfer fees, mortgage, recording or other similar tax or other government assessment. All recording officers and other entities whose duties include recordation of documents lodged for recording shall record, file and accept such documents delivered under the Plan without the imposition of any charge, fee, governmental assessment or tax. 12.02 Exculpation. Neither the Debtors nor the Committee, nor any of their officers, directors, members, employees, advisors, consultants, attorneys, affiliates, or agents shall have or incur any liability to any Holder of a Claim or Interest for any act or omission in connection with, or arising out of, the Case, the proposed confirmation or consummation of the Plan or the administration of the Case or Plan or the property to be distributed under the Plan, except for willful misconduct or gross negligence, and in all respects shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. 12.03 Permanent Injunction. Except as otherwise set forth in the Plan, on and after the Effective Date all persons and entities that have held, hold or may hold (a) any Claim against or Interest in the Debtors shall be permanently enjoined from and against (i) commencing or continuing in any manner any suit, action or other proceeding of any kind against the Debtors 21 or the Estates with respect to any such Claim or Interest (ii) the enforcement, attachment, collection or recovery by any manner or means of any judgment, award, decree or order against the Debtors or the Estate, (iii) creating, perfecting or enforcing any lien or encumbrance of any kind against the Debtors or the Estate or against any of their properties or interests in property with respect to such Claim or Interest and (iv) asserting any right of setoff, subrogation or recoupment of any kind against any obligation due from the Debtors or against any property or interest in property of the Debtors with respect to any such Claim or Interest and (b) any Claim, right, action, cause of action against or Interest in the Debtors or the Estates shall be permanently enjoined from and against commencing or continuing any suit, action or proceeding against, asserting or attempting to recover any Claim against or Interest in, or otherwise affecting the Debtors or the Estate with respect to any matter that is the subject of the Plan. 12.04 Revocation or Withdrawal of the Plan. The Proponents reserve the right to revoke or withdraw the Plan at any time prior to the Effective Date. If the Proponents revoke or withdraw the Plan, then the Plan shall be deemed null and void. 12.05 Binding Effect. The Plan shall be binding upon, and shall inure to the benefit of, the Debtors, the Holders of all Claims and Interests and their respective successors and assigns. Confirmation of the Plan binds each of the Holders of Claims and Interests to the terms and conditions of the Plan, whether or not such Creditor or Interest Holder has accepted the Plan. 12.06 Construction. The rules of construction set forth in section 102 of the Bankruptcy Code shall apply to construction of the Plan. 12.07 Time. In computing any period of time prescribed or allowed by the Plan, unless otherwise set forth herein, the provisions of Bankruptcy Rule 9006 shall apply. 12.08 Headings. The headings used in the Plan are inserted for convenience only and neither constitute a portion of the Plan nor are intended in any manner to affect any interpretation of the provisions of the Plan. 12.09 Governing Law. Except to the extent that the Bankruptcy Code or other federal law is applicable, the rights, duties and obligations of any Entity arising under the Plan shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New Jersey, without regard to New Jersey choice of law provisions. 12.10 Existence of Committee. The Committee shall continue in existence until the Effective Date, upon which the Committee shall disband. 12.11 Benefit Programs. As of the Confirmation Date, all programs or plans maintained by the Debtors for the benefit of present or former employees and dated on or before 22 the Petition Date which have not been previously terminated shall be continued in force and effect and assumed by the Reorganized Debtors. Any Entity with a Claim arising from such termination shall be treated as a Holder of a General Unsecured Claim. 12.12 Retiree Benefits. Except as otherwise provided in the Plan, any obligations of the Debtors to any Entity for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by the Debtors prior to the Petition Date, if any, shall be continued by the Reorganized Debtors. 12.13 Payment of Statutory Fees. No later than the Effective Date, the Debtors shall have paid all fees due to the United States Trustee through the Effective Date. Such fees which accrue after the Effective Date and until the Cases are closed shall be payable by the Reorganized Debtors. 12.14 Cramdown. At the Confirmation Hearing, the Proponents will seek Confirmation of this Plan notwithstanding the rejection of the Plan by any impaired Class of Creditors or Interest Holders. 12.15 Execution of Plan Documents. Upon application by the Debtors or Committee, the Court may issue an order directing any necessary party to execute, deliver, or to join in the execution or delivery of an instrument or document, and to perform any act necessary for the consummation of this Plan. 12.16 Post Confirmation Fees and Expenses. The Debtors shall be authorized to pay the fees and expenses of any professional retained by the Debtors accruing after the Confirmation Date in accordance with the terms of engagement of such professional, and without the need for a hearing or Bankruptcy Court order. 23 12.17 Closing of Case. Unless otherwise ordered by the Bankruptcy Court, the Case shall be deemed closed six months after the Effective Date. Closing of the Case shall not affect the pendency of any adversary proceeding or contested matter filed before the Case is closed. Closing of the Case shall terminate the Debtors' obligation to pay fees to the United States Trustee. GB HOLDINGS, INC. By:___________________________________ Name: Title: GB PROPERTY FUNDING CORP. By:___________________________________ Name: Title: GREATE BAY HOTEL AND CASINO, INC. By:___________________________________ Name: Title: Dated: October __, 1999 24 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GB PROPERTY FUNDING CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000912906 GB PROPERTY FUNDING CORP. 1,000 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JAN-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 1 1 0 0 0 0 0 0 0 0 1 1 0 0 0 0 191,472 191,472 0 0 182,098 182,098 0 0 0 0 1 1 0 0 191,472 191,472 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GB HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000912926 GB HOLDINGS INC. 1,000 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JUL-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 25,333 25,333 0 0 19,309 19,309 11,362 11,362 3,493 3,493 44,470 44,470 343,798 343,798 (187,255) (187,255) 212,566 212,566 24,172 24,172 182,098 182,098 0 0 0 0 1 1 (36,937) (36,937) 212,566 212,566 0 0 66,877 189,691 0 0 56,444 160,830 9,650 21,917 658 1,696 (81) (299) 324 5,804 0 0 0 0 0 0 0 0 0 0 324 5,804 0 0 0 0
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