<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1999
-------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE COMMISSION ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 1-6339
------------
GREATE BAY CASINO CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 75-1295630
- ------------------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O ADVANCED CASINO SYSTEMS CORPORATION
200 DECADON DRIVE, SUITE 100
EGG HARBOR TOWNSHIP, NEW JERSEY 08234
- ------------------------------------------ ---------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (609) 441-0704
---------------------------
(NOT APPLICABLE)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO______
------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 12, 1999
- --------------------------------- ----------------------------------------
Common Stock, $.10 par value 5,186,627 shares
1
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
- -----------------------------
INTRODUCTORY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------
Greate Bay Casino Corporation, a Delaware corporation, and its subsidiaries
("GBCC") are engaged in the operation and management of casino properties.
GBCC's principal operations consist of ownership of the Sands Hotel and Casino
located in Atlantic City, New Jersey (the "Sands") and management and consulting
contracts with gaming facilities located in Aurora, Illinois (the "Aurora
Casino") and Tunica County, Mississippi (the "Tunica Casino"). GBCC's common
stock is listed on the OTC Bulletin Board Service under the symbol "GEAAQ".
Prior to December 31, 1996, Hollywood Casino Corporation ("HCC", a Delaware
corporation) owned approximately 80% of the outstanding common stock of GBCC.
HCC distributed such stock to its shareholders; as a result, approximately 36%
of GBCC's outstanding stock is owned by certain general partnerships and trusts
controlled by Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt and by
other family members (collectively, the "Pratt Family"). The Pratt Family also
owns approximately 54% of HCC. HCC owns the Aurora Casino and the Tunica
Casino.
On January 5, 1998, GB Holdings, Inc. ("Holdings"), at the time a wholly
owned subsidiary of GBCC, together with Holdings' wholly owned subsidiaries,
Greate Bay Hotel and Casino, Inc. ("GBHC") and GB Property Funding Corp. ("GB
Property Funding"), 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"). 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 remain in
office, subject to the jurisdiction of the Bankruptcy Court. On January 11,
1999, the Bankruptcy Court terminated the debtors' exclusive right to file a
plan of reorganization. No plan of reorganization has been formally presented
by the debtors or any other party. Effective on December 31, 1998, GBCC's
ownership of Holdings was reduced to 79%.
The filings of such petitions constitute a default under the indenture for
$85 million principal amount of 11 5/8% senior notes due 2004 (the "PRT Funding
Notes") issued by PRT Funding Corp. ("PRT Funding") and guaranteed by Pratt
Casino Corporation ("PCC"), both wholly owned, indirect subsidiaries of GBCC.
Accordingly, the outstanding principal amount of the PRT Funding Notes has
accelerated and is currently due and payable. PRT Funding deferred payment of
interest due on the April 15 and October 15, 1998 and April 15, 1999 interest
payment dates. On October 22, 1998, PRT Funding paid to the bondholders an
amount equal to a single semiannual interest payment ($4.9 million) while
negotiations to restructure the notes continued. In connection with the
Restructuring (as defined below), PRT Funding paid deferred interest amounting
to $6.8 million to the bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, New Jersey Management, Inc. ("NJMI", a
PCC subsidiary) GBCC, HCC and the holders of substantially all of the PRT
Funding Notes entered into a voting agreement which provides for the
restructuring of the PRT Funding Notes (the "Restructuring"). The agreement
provides for HCC to acquire the stock of PCC, the parent of PRT Funding, from
GBCC for nominal consideration. When acquired by HCC, PCC's assets will consist
of its limited partnership interest in a management contract for the Aurora
Casino and a consulting contract for the Tunica Casino and its liabilities will
consist of a newly issued promissory note in the principal amount of $40.3
million payable to the Trustee for the PRT Funding noteholders. The voting
agreement provides for HCC to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.
2
<PAGE>
As a result of the Chapter 11 filings by Holdings, GB Property Funding and
GBHC, GBCC's control over the filing subsidiaries is subject to supervision of
the Bankruptcy Court and GBCC does not expect to have ownership or operating
control of such subsidiaries after reorganization. Furthermore, as the result
of a settlement agreement reached by GBCC and Holdings during September 1998,
GBCC no longer participates in the management of the Sands. Accordingly,
Holdings, GB Property Funding and GBHC are no longer included on the
accompanying consolidated balance sheets. As more fully explained in Note 1 of
the Notes to Consolidated Financial Statements, during the period from January
1, 1998 through June 30, 1998, the operations of Holdings and its subsidiaries
were accounted for by GBCC under the equity method of accounting. As a result
of GBCC no longer controlling the operations of the Sands, the continued
expectation that ownership control of Holdings will only be temporary and the
September 1998 settlement agreement which resolved certain significant
uncertainties, GBCC's investment in Holdings and its subsidiaries as well as
certain amounts due to Holdings were revalued to a zero basis effective on July
1, 1998. Accordingly, for periods subsequent to June 30, 1998, GBCC is
accounting for its investment in Holdings under the cost method of accounting.
The consolidated financial statements as of March 31, 1999 and for the three
month periods ended March 31, 1999 and 1998 have been prepared by GBCC without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. 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
GBCC as of March 31, 1999 and the results of its operations and cash flows for
the three month periods ended March 31, 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 consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in GBCC's 1998 Annual Report on Form 10-K.
3
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $11,590,000 $10,616,000
Accounts receivable 248,000 367,000
Inventories 441,000 378,000
Due from affiliates 1,483,000 1,303,000
Refundable deposits and other
current assets 955,000 938,000
----------- -----------
Total current assets 14,717,000 13,602,000
----------- -----------
Investment in Limited Partnership 3,109,000 3,104,000
----------- -----------
Property and Equipment:
Operating equipment 890,000 1,564,000
Less - accumulated depreciation (454,000) (1,100,000)
----------- -----------
Net property and equipment 436,000 464,000
----------- -----------
Other Assets:
Due from affiliates, net of valuation allowances 2,546,000 2,767,000
Other assets - 9,000
----------- -----------
Total other assets 2,546,000 2,776,000
----------- -----------
$20,808,000 $19,946,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
4
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- --------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 85,000,000 $ 85,000,000
Borrowings from affiliate 6,750,000 6,750,000
Accounts payable 1,332,000 2,232,000
Accrued liabilities -
Salaries and wages 120,000 235,000
Interest 11,482,000 8,780,000
Other 127,000 239,000
Other current liabilities 341,000 296,000
------------- -------------
Total current liabilities 105,152,000 103,532,000
------------- -------------
Long-Term Debt 36,318,000 35,040,000
------------- -------------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, $.10 par value per
share; 10,000,000 shares authorized;
5,186,627 shares issued and outstanding 519,000 519,000
Additional paid-in capital 75,212,000 75,212,000
Accumulated deficit (196,393,000) (194,357,000)
------------- -------------
Total shareholders' deficit (120,662,000) (118,626,000)
------------- -------------
$ 20,808,000 $ 19,946,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
5
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Computer services $ 1,903,000 $ 999,000
Management and consulting fees 300,000 1,466,000
Other - 17,000
----------- -----------
Total revenues 2,203,000 2,482,000
----------- -----------
Expenses:
Computer services 1,016,000 130,000
General and administrative 1,318,000 925,000
Depreciation and amortization 44,000 28,000
----------- -----------
Total expenses 2,378,000 1,083,000
----------- -----------
(Loss) income from operations (175,000) 1,399,000
----------- -----------
Non-operating income (expense):
Interest income 212,000 238,000
Interest expense (3,980,000) (4,089,000)
Equity in earnings of Limited Partnership 2,022,000 1,920,000
Equity in earnings of GB Holdings, Inc. - 2,869,000
Restructuring costs (82,000) (60,000)
----------- -----------
Total non-operating (expense) income, net (1,828,000) 878,000
----------- -----------
(Loss) income before income taxes (2,003,000) 2,277,000
Income tax provision (33,000) (2,000)
----------- -----------
Net (loss) income $(2,036,000) $ 2,275,000
=========== ===========
Basic and diluted net (loss) income per common share $(.39) $.44
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
6
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $(2,036,000) $ 2,275,000
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization, including
accretion of debt discount 1,322,000 1,170,000
Provision for doubtful accounts - 7,000
Equity in earnings of Limited Partnership (2,022,000) (1,920,000)
Distributions received from Limited Partnership 2,017,000 2,159,000
Equity in earnings of GB Holdings, Inc. - (2,869,000)
Deferred income tax provision (benefit) 6,000 (320,000)
Decrease (increase) in accounts receivable 119,000 (30,000)
Increase in accounts payable and
other accrued liabilities 1,441,000 2,687,000
Net change in other current assets and liabilities (41,000) (786,000)
Net change in other noncurrent assets and liabilities 10,000 (124,000)
----------- -----------
Net cash provided by operating activities 816,000 2,249,000
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (16,000) (30,000)
Collections on notes receivable 174,000 154,000
----------- -----------
Net cash provided by investing activities 158,000 124,000
----------- -----------
FINANCING ACTIVITIES:
Repayments of long-term debt - (13,000)
----------- -----------
Net cash used in financing activities - (13,000)
----------- -----------
Net increase in cash and cash equivalents 974,000 2,360,000
Cash and cash equivalents at beginning of period 10,616,000 6,555,000
----------- -----------
Cash and cash equivalents at end of period $11,590,000 $ 8,915,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
7
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Greate Bay Casino Corporation, a Delaware corporation, and its subsidiaries
("GBCC"), are engaged in the operation and management of casino properties.
GBCC's principal operations consist of the Sands Hotel and Casino located in
Atlantic City, New Jersey (the "Sands") and management and consulting contracts
with gaming facilities located in Aurora, Illinois (the "Aurora Casino") and
Tunica County, Mississippi (the "Tunica Casino") (see Note 6). GBCC, through
its subsidiaries and various joint ventures, has also engaged to a lesser extent
in other hotel and casino operations in the United States and the Caribbean.
On December 31, 1996, Hollywood Casino Corporation ("HCC"), owner of
approximately 80% of the outstanding common stock of GBCC, distributed such
stock to its shareholders. As a result, approximately 36% of GBCC's outstanding
stock is owned by Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt and
by certain general partnerships and trusts controlled by the Pratts and by other
family members (collectively, the "Pratt Family"). The Pratt Family also owns
approximately 54% of HCC. HCC owns the Aurora Casino and the Tunica Casino.
Effective April 1, 1997, HCC acquired the general partnership interest in
Pratt Management, L.P. ("PML"), the limited partnership which holds the
management contract on the Aurora Casino, from PPI Corporation, a wholly owned
subsidiary of GBCC. As a result, GBCC's investment in PML is now being
presented under the equity method of accounting (see Note 7).
On January 5, 1998, GB Holdings, Inc. ("Holdings"), at that time a wholly
owned subsidiary of GBCC, together with Holdings' wholly owned subsidiaries, GB
Property Funding Corp. ("GB Property Funding") and Greate Bay Hotel and Casino,
Inc. ("GBHC"), filed petitions for relief under Chapter 11 of the 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, and each company's executive officers and directors remain in office,
subject to the jurisdiction of the Bankruptcy Court. On January 11, 1999, the
Bankruptcy Court terminated the debtors' exclusive right to file a plan of
reorganization. No plan of reorganization has been formally presented by the
debtors or any other party. Effective on December 31, 1998, GBCC's ownership
of Holdings was reduced to 79% (see Note 9).
As a result of the Chapter 11 filings, GBCC's control over the filing
subsidiaries is subject to supervision of the Bankruptcy Court and GBCC does not
expect to have ownership or operating control of such subsidiaries after
reorganization. Prior to July 7, 1998, New Jersey Management, Inc. ("NJMI"), a
wholly owned subsidiary of GBCC, was responsible for the operations of the Sands
under a management agreement with GBHC (see Note 6). On May 22, 1998, GBHC
filed a motion with the Bankruptcy Court seeking to reject the existing
management agreement with NJMI. A substitute agreement (the "Interim
Agreement") was entered into on June 27, 1998 and approved by the Bankruptcy
Court on July 7, 1998. Under the Interim Agreement, NJMI continued to provide
certain agreed upon services to GBHC until September 28, 1998. Furthermore, as
the result of a settlement agreement reached by GBCC and Holdings during
September 1998 (see Note 9), GBCC no longer controls the management of the
Sands. Accordingly, Holdings, GB Property Funding and GBHC are no longer
included on the accompanying consolidated balance sheets. During the period
from January 1, 1998 through June 30, 1998, the operations of Holdings and its
subsidiaries were accounted for under the equity method of accounting (see
8
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 8). As a result of GBCC no longer controlling the operations of the Sands,
the expectation that ownership control of Holdings will only be temporary and
the September 1998 settlement agreement which resolved certain significant
uncertainties, GBCC's investment in Holdings and its subsidiaries as well as
certain amounts due to Holdings (see Note 3) were revalued to a zero basis
effective on July 1, 1998. Accordingly, for periods subsequent to June 30, 1998,
GBCC is accounting for its investment in Holdings under the cost method of
accounting.
The accompanying consolidated financial statements have been prepared
assuming that GBCC will continue as a going concern. As discussed above,
certain affiliates of GBCC filed for Chapter 11 bankruptcy protection on January
5, 1998. The affiliate filings under Chapter 11 have resulted in a default
under the indenture for $85,000,000 principal amount of 11 5/8% senior notes due
2004 (the "PRT Funding Notes") issued by PRT Funding Corp. ("PRT Funding"), an
indirect, wholly owned subsidiary of GBCC. Accordingly, the outstanding
principal amount of the PRT Funding Notes has accelerated and is currently due
and payable. Pratt Casino Corporation ("PCC"), a wholly owned subsidiary of
GBCC and guarantor of the PRT Funding Notes, does not have sufficient assets to
satisfy the outstanding amounts applicable to the PRT Funding Notes. PRT
Funding deferred payment of interest due on the April 15 and October 15, 1998
and April 15, 1999 interest payment dates. On October 22, 1998, PRT Funding
paid to the bondholders an amount equal to a single semiannual interest payment
($4,941,000) while negotiations to restructure the PRT Funding Notes continued.
In connection with the Restructuring (as defined below) PRT Funding paid
deferred interest amounting to $6,768,000 to the bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for the Aurora Casino and a consulting contract for the Tunica Casino and its
liabilities will consist of a newly issued promissory note in the principal
amount of $40,329,000 payable to the Trustee for the PRT Funding noteholders.
The voting agreement provides for HCC to immediately discharge the promissory
note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed.
After consummation of the Restructuring, GBCC's only significant remaining
operating activity will be the development, installation and maintenance of
casino systems by its wholly owned subsidiary,
9
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Advanced Casino Systems Corporation ("ACSC"). GBCC and its subsidiaries will
continue to have debt outstanding to HCC consisting of (i) demand notes and
accrued interest thereon totaling $8,763,000 at March 31, 1999 (see Notes 3 and
6) and (ii) a 14 7/8% secured promissory note due 2006 in the amount of
$36,318,000 at March 31, 1999 (see Note 4). The current level of ACSC's
operations is not sufficient to provide debt service on the HCC obligations and,
consequently, GBCC will be insolvent after the Restructuring. GBCC has commenced
discussions with HCC to restructure its obligations; however, there can be no
assurance at this time that such discussions will result in a restructuring of
GBCC's obligations with HCC.
The insolvency of GBCC raises substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
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.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), effective for fiscal years
beginning after June 15, 1999. SFAS 133 requires, among other things, that
derivatives be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives may, depending on circumstances, be recognized in earnings
or deferred as a component of shareholders' equity until a hedged transaction
occurs. GBCC does not believe the adoption of SFAS 133 will have a significant
impact on its financial position or results of operations.
The consolidated financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998 have been prepared by GBCC
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
GBCC as of March 31, 1999 and the results of its operations and cash flows for
the three month periods ended March 31, 1999 and 1998.
(2) NET (LOSS) INCOME PER COMMON SHARE -
Basic earnings per common share is calculated by dividing the net (loss)
income by the weighted average number of shares of common stock outstanding.
Diluted earnings per common share is calculated for periods in which income from
continuing operations was earned by dividing the components of net income by the
weighted average number of shares of common stock and potential common shares
outstanding. All potential common shares are excluded from the calculation of
diluted net loss per share for periods during which a loss was incurred because
the effect of their inclusion would be antidilutive.
10
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
For each of the three month periods ended March 31, 1999 and 1998, there
were no potential common shares outstanding and basic and diluted (loss) income
per share were the same. The weighted average number of shares of common stock
used in the calculation of both basic and diluted (loss) income per share was
5,186,627 for each of the three month periods ended March 31, 1999 and 1998.
(3) BORROWINGS FROM AFFILIATES
GBCC and its subsidiaries had outstanding affiliate borrowings from HCC of
$6,750,000 as of both March 31, 1999 and December 31, 1998. During the third
quarter of 1996, GBCC borrowed $6,500,000 from HCC on a demand basis with
interest at the rate of 13 3/4% per annum payable quarterly commencing October
1, 1996; such funds were loaned by GBCC to GBHC for working capital purposes on
the same terms. On September 2, 1998, the working capital loans to GBHC were
cancelled as part of a settlement agreement among GBCC and Holdings, together
with certain of their subsidiaries, and HCC (see Note 9). In addition, a
$250,000 loan from HCC with interest at the rate of 14% per annum payable
semiannually was due on April 1, 1998; to date, such payment has not been made.
(4) LONG-TERM DEBT AND PLEDGE OF ASSETS
The January 5, 1998 filings for relief under Chapter 11 of the Bankruptcy
Code by Holdings, GB Property Funding and GBHC (see Note 1) constitute a default
under the indenture for the PRT Funding Notes. Accordingly, the outstanding
principal amount of the PRT Funding Notes has accelerated, is currently due and
payable and is classified as current on the accompanying consolidated balance
sheets.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
11 5/8% senior notes, due 2004 (a) $ 85,000,000 $ 85,000,000
14 7/8% secured promissory note, due 2006, net of
discount of $11,285,000 and $12,563,000,
respectively (b) 36,318,000 35,040,000
------------ ------------
Total indebtedness 121,318,000 120,040,000
Less - current maturities 85,000,000 85,000,000
------------ ------------
Total long-term debt $ 36,318,000 $ 35,040,000
============ ============
</TABLE>
_________________
(a) On February 17, 1994, PRT Funding issued the PRT Funding Notes. Interest
on the PRT Funding Notes accrues at the rate of 11 5/8% per annum, payable
semiannually commencing October 15, 1994. The PRT Funding Notes are
redeemable at the option of the issuer, in whole or in part, on or after
April 15, 1999 at stated redemption prices ranging up to 104.36% of par
plus accrued
11
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
interest. The indenture for the PRT Funding Notes contains various
provisions which, among other things, restrict the ability of certain
subsidiaries of GBCC to pay dividends to GBCC, to merge, consolidate or
sell substantially all of their assets or to incur additional indebtedness
beyond certain limitations. The PRT Funding Notes will be replaced by a new
note to be issued by PCC as part of the Restructuring (see Note 1).
(b) On February 17, 1994, PPI Funding Corp., a subsidiary of GBCC, issued
$40,524,000 discounted principal amount of new deferred interest notes (the
"PPI Funding Notes") to HCC in exchange for the $38,779,000 principal
amount of 15 1/2% unsecured notes (the "PCPI Notes") held by HCC and issued
by PCPI Funding Corp., another subsidiary of GBCC. The PPI Funding Notes
were discounted to yield interest at the rate of 14 7/8% per annum and had
a face value of $110,636,000. Subsequent principal payment by PPI Funding
Corp. reduced the maturity value of the notes to $98,353,000 at December
31, 1996. During the second quarter of 1997, HCC assigned $13,750,000
undiscounted principal amount of the PPI Funding Notes to PPI Corporation
as consideration, in part, for HCC's acquisition of the general partnership
interest in PML (see Note 6). Such assignment reduced the maturity value
of the notes to $84,603,000. At December 31, 1997, an additional
$37,000,000 undiscounted face value ($23,631,000 discounted value) of the
PPI Funding Notes was forgiven by HCC, further reducing the maturity value
to $47,603,000. Because of the continued affiliation of HCC and GBCC, the
forgiveness of debt was reflected by GBCC as a credit to paid-in capital
during 1997. Payment of interest on the PPI Funding Notes is deferred
through February 17, 2001 at which time interest will become payable
semiannually, with the unpaid principal balance due on February 17, 2006.
The PPI Funding Notes are collateralized by a pledge of all of the common
stock of a subsidiary of GBCC.
Scheduled payments of long-term debt as of March 31, 1999, exclusive of the
PRT Funding Notes which are currently in default and accelerated, are
$47,603,000 in 2006.
No interest was paid during the three month period ended March 31, 1999.
Interest paid amounted to $10,000 during the three month period ended March 31,
1998.
12
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) INCOME TAXES
GBCC's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Federal income tax (provision) benefit:
Current $ (25,000) $(270,000)
Deferred 377,000 654,000
State income tax (provision) benefit:
Current (2,000) (52,000)
Deferred 161,000 461,000
Valuation allowance (544,000) (795,000)
--------- ---------
$ (33,000) $ (2,000)
========= =========
</TABLE>
GBCC paid federal income taxes totaling $25,000 and $270,000 during the
three month periods ended March 31, 1999 and 1998, respectively. GBCC paid no
state income taxes during the three month period ended March 31, 1999; GBCC paid
state income taxes totaling $2,000 during the three month period ended March 31,
1998.
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 meals and
entertainment and certain other expenses. Deferred taxes are computed based on
the expected future tax effects of differences between the financial statement
and tax bases of assets and liabilities, using enacted tax rates. Deferred
income taxes result primarily from differences in the bases of investments in
subsidiaries and in outstanding obligations between financial and federal tax
reporting purposes and from the use of the allowance method rather than the
direct write-off method for doubtful accounts.
As a result of the distribution of GBCC's stock by HCC to its shareholders
at December 31, 1996, GBCC is no longer included in HCC's consolidated federal
income tax return. In addition, as a result of a settlement agreement entered
into in September 1998 (see Note 9), Holdings and its subsidiaries are no longer
included in the consolidated tax return of GBCC for periods subsequent to
December 31, 1998. As of March 31, 1999, GBCC and its subsidiaries, exclusive of
Holdings and its subsidiaries, have net operating loss carryforwards ("NOL's")
totaling approximately $35,300,000 for federal income tax purposes, most of
which do not begin to expire until the year 2005. Additionally, GBCC and its
subsidiaries have various tax credits available totaling approximately
$2,030,000, most of which expire by the year 2004. Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
requires that the tax benefit of such NOL's, credit carryforwards and deferred
tax assets resulting from temporary differences be recorded as an asset and, to
the extent that management can not
13
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
assess that the utilization of such asset is more likely than not, a valuation
allowance should be recorded. Due to the continued availability of NOL's
originating in prior years and uncertainties regarding GBCC's ability to
continue as a going concern, management is unable to determine that realization
of such asset is more likely than not and, thus, has provided valuation
allowances for substantially all of the deferred tax assets for all periods
presented. The remaining deferred tax assets represent state timing differences
expected to be utilized and are included in other current assets on the
accompanying consolidated balance sheets.
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 12,821,000 $ 11,946,000
Allowance for doubtful accounts 130,000 130,000
Investment and other tax credits 2,030,000 2,339,000
Investment in consolidated subsidiary 2,866,000 2,866,000
Other liabilities and accruals 87,000 113,000
Deferred financing costs 1,372,000 1,374,000
Other 242,000 242,000
------------ ------------
Deferred tax asset 19,548,000 19,010,000
Valuation allowance (19,505,000) (18,961,000)
------------ ------------
$ 43,000 $ 49,000
============ ============
</TABLE>
Sales or purchases of GBCC common stock by certain five percent
stockholders, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), can cause a "change of control", as defined in Section 382 of the Code,
which would limit the ability of GBCC 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 GBCC's future utilization of its loss carryforwards.
The Internal Revenue Service is currently examining the consolidated
federal income tax returns of HCC for the years 1993 through 1996 in which GBCC
was included. Management believes that the results of such examination will not
have a material adverse effect on the consolidated financial position or results
of operations of GBCC.
(6) TRANSACTIONS WITH RELATED PARTIES
PML, a limited partnership wholly owned through March 31, 1997 by GBCC,
earns management fees pursuant to a management agreement with Hollywood Casino -
Aurora, Inc. ("HCA"), an HCC
14
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
subsidiary. Such fees include a base management fee equal to 5% of the Aurora
Casino's operating revenues (as defined in the agreement) subject to a maximum
of $5.5 million annually, and an incentive fee equal to 10% of gross operating
profit (as defined in the agreement to generally include all revenues, less
expenses other than depreciation, interest, amortization and taxes). Effective
as of April 1, 1997, HCC acquired the general partnership interest in PML from
PPI Corporation, a wholly owned subsidiary of GBCC.
HCC issued a five-year note in the original amount of $3,800,000 and assigned
$13,750,000 undiscounted principal amount ($7,597,000 discounted value) of PPI
Funding Notes (see Note 4) and $350,000 of accrued interest due from GBCC to PPI
Corporation in exchange for the general partnership interest in PML. The
$3,800,000 note is payable in monthly installments of $83,000, including
interest at the rate of 14% per annum, commencing on May 1, 1997, with
additional quarterly variable principal payments commencing on July 1, 1997 in
an amount equal to the general partner's share of quarterly cash distributions,
as defined, from PML. The remaining note balances at March 31, 1999 and
December 31, 1998 are $2,662,000 and $2,836,000, respectively. Of those
balances, $668,000 and $622,000 are included in current amounts due from
affiliates at March 31, 1999 and December 31, 1998, respectively. Interest
income on the note from HCC amounted to $94,000 and $116,000, respectively,
during the three month periods ended March 31, 1999 and 1998. Accrued interest
receivable of $32,000 and $34,000, respectively, is included in amounts due from
affiliates on the accompanying consolidated balance sheets at March 31, 1999 and
December 31, 1998.
Prior to May 1, 1998, NJMI was responsible for the operations of the Sands
under a management agreement with GBHC. 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 a motion with the
Bankruptcy Court seeking to reject the existing management agreement with NJMI.
The Interim Agreement was entered into on June 27, 1998 and was approved by the
Bankruptcy Court on July 7, 1998. Under the Interim Agreement, effective as of
May 1, 1998 and terminating on September 28, 1998, NJMI continued to provide
certain agreed upon services to GBHC at a monthly fee of $165,000 of which
$122,000 was paid on a monthly basis in arrears and the remaining $43,000 was
deferred and is to be paid upon confirmation of GBHC's plan of reorganization by
the Bankruptcy Court. All management fees terminated upon the granting of
GBHC's motion to reject the management contract by the Bankruptcy Court on
September 28, 1998. As a consequence of the September 1998 settlement agreement
(see Note 9), GBCC and GBHC may no longer assert claims against each other with
respect to the operation of the management contract and, with the passage of
time, the cancellation thereof.
Fees earned by NJMI under the management agreement and Interim Agreement
amounted to $1,166,000 for the three months ended March 31, 1998. Management
fees receivable from the Sands at both March 31, 1999 and December 31, 1998
amounted to $267,000 net of a valuation allowance of
15
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
$115,000. Of the amount receivable at March 31, 1999 and December 31, 1998,
$30,000, net of the aforementioned valuation allowance, which was earned prior
to GBHC's bankruptcy filing, is included in noncurrent due from affiliates on
the accompanying consolidated balance sheets and is subject to terms of a
reorganization plan which requires confirmation by the Bankruptcy Court (see
Note 9).
Pursuant to a consulting agreement which expires in December 2003 with
Hollywood Casino -Tunica, Inc. ("HCT"), the HCC subsidiary which owns and
operates the Tunica Casino, a subsidiary of GBCC receives monthly consulting
fees of $100,000. Total fees earned for each of the three month periods ended
March 31, 1999 and 1998 amounted to $300,000.
HCC and its subsidiaries allocate certain general and administrative costs to
GBCC and its subsidiaries pursuant to services agreements. Net allocated costs
and fees charged to GBCC and its subsidiaries by HCC and its subsidiaries
amounted to $157,000 and $296,000, respectively, during the three month periods
ended March 31, 1999 and 1998. Net amounts due to HCC and its subsidiaries
amounted to $49,000 and $239,000 at March 31, 1999 and December 31, 1998,
respectively.
ACSC provides computer, marketing and other administrative services to HCC
and its subsidiaries and to GBHC. Computer services provided include hardware,
software and operator support and, for the most part, such services are billed
by ACSC at its direct cost plus expenses incurred. ACSC and HCT entered into a
Computer Services Agreement dated as of January 1, 1994 and renewed through
December 31, 1999 to provide such services and to license or sublicense to HCT
computer software necessary to operate HCT's casino, hotel and related
facilities and business operations. HCT pays ACSC for such equipment and
licenses such software at amounts and on terms and conditions that ACSC provides
to unrelated third parties. HCT also pays ACSC a fixed license fee of $33,600
per month. ACSC's billings to HCC and its subsidiaries for such services
amounted to $289,000 and $297,000 for the three month periods ended March 31,
1999 and 1998, respectively. Unpaid charges to HCC and its subsidiaries
included in due from affiliates on the accompanying consolidated balance sheets
at March 31, 1999 and December 31, 1998 amounted to $166,000 and $122,000,
respectively. Billings to GBHC amounted to $232,000 and $148,000 for the three
month periods ended March 31, 1999 and 1998, respectively. Unpaid charges to
GBHC included in due from affiliates on the accompanying consolidated balance
sheets at March 31, 1999 and December 31, 1998 amounted to $353,000 and
$251,000, respectively. Such receivables from GBHC were partially offset by
amounts due to GBHC by ACSC totaling $242,000 at both March 31, 1999 and
December 31, 1998.
Interest expense with respect to borrowings from HCC is set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
------------- ----------
<S> <C> <C>
PPI Funding Notes (Note 4) $1,278,000 $1,142,000
Short-term borrowings (Note 3) 232,000 232,000
</TABLE>
16
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During 1994, a GBCC subsidiary issued $40,524,000 discounted principal
amount of PPI Funding Notes in exchange for the PCPI Notes held by HCC (see Note
4). Accretion of interest on the PPI Funding Notes is included in the
outstanding note payable balance at March 31, 1999 and December 31, 1998.
Interest accrued on short-term borrowings (see Note 3) amounting to
$2,013,000 and $1,781,000, respectively, at March 31, 1999 and December 31, 1998
is included in interest payable on the accompanying consolidated balance sheets.
GBHC issued a promissory note in the amount of $10,000,000 on February 17,
1994 to PRT Funding. Such note accrues interest at the rate of 14 5/8% per
annum and is payable semiannually commencing on August 17, 1994. The principal
amount of the note is due on February 17, 2005. During the first quarter of
1997, GBHC also borrowed $5,000,000 from PCC for working capital purposes. Such
borrowing accrues interest at the rate of 14 5/8% per annum payable semiannually
commencing July 15, 1997. In accordance with certain provisions of the
September 1998 settlement agreement with GBCC (see Note 9), GBHC preserves
whatever rights of offset, if any, it might have with respect to an advance made
by GBHC to a GBCC subsidiary in the amount of $5,672,000 against the $10,000,000
and $5,000,000 loans described above. As a result of (i) GBHC no longer being
included as a consolidated subsidiary and (ii) GBHC's filing under Chapter 11
making prospects for ultimate collection doubtful, the notes, together with
accrued interest of $6,200,000 and $5,652,000, respectively, are fully reserved
on the accompanying consolidated balance sheets at March 31, 1999 and December
31, 1998.
During the third quarter of 1996, GBCC loaned $6,500,000 to GBHC for
working capital purposes. Such advance accrues interest at the rate of 13 3/4%
per annum, payable quarterly commencing October 1, 1996. An additional
$1,500,000 was loaned to GBHC during the first quarter of 1997 on the same
terms. Repayment of such advances and the payment of the related interest are
subject to terms of a reorganization plan which requires confirmation by the
Bankruptcy Court and to approval by the New Jersey Casino Control Commission
(the "Casino Commission"). For the same reasons cited in the previous paragraph,
the total advances to GBHC of $8,000,000, together with the related interest
receivable of $1,496,000, were reflected as an adjustment to GBCC's negative
investment in Holdings at December 31, 1997. On September 2, 1998, the working
capital loans to GBHC were cancelled as part of a settlement agreement among
GBCC and Holdings, together with certain of their subsidiaries, and HCC (see
Note 9).
(7) INVESTMENT IN PRATT MANAGEMENT, L.P.
Effective as of April 1, 1997, HCC acquired the general partnership
interest in PML (see Notes 1 and 6) from PPI Corporation. PML earns management
fees from the Aurora Casino and incurs operating and other expenses with respect
to its management thereof. The general partner receives 99% of the first $84,000
of net income earned by the partnership each month and 1% of any income earned
above such amount. PML earned management fees amounting to $2,600,000 and
$2,546,000, respectively, during the three month periods ended March 31, 1999
and 1998. PML also incurred operating and other expenses amounting to $307,000
and $357,000, respectively, during the three month periods ended March 31, 1999
and 1998.
17
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(8) EQUITY IN EARNINGS OF GB HOLDINGS, INC.
As discussed in Note 1, the operations of Holdings and its subsidiaries
were accounted for under the equity method of accounting for the six month
period from January 1, 1998 through June 30, 1998. Due to the significance of
Holdings' operations, summarized consolidated results of operations of Holdings
for the three month period ended March 31, 1998 are set forth below.
Transactions with Holdings and its subsidiaries are included in Note 6.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-------------------
<S> <C>
Net revenues $55,613,000
-----------
Departmental expenses 45,285,000
General and administrative expenses 3,981,000
Depreciation and amortization 2,899,000
-----------
Total operating expenses 52,165,000
-----------
Income from operations 3,448,000
-----------
Interest, net 494,000
Gain on disposal of assets 28,000
-----------
Total non-operating income 522,000
-----------
Income before taxes and other item 3,970,000
Income tax provision -
-----------
Income before other items 3,970,000
Reorganization and other related costs (1,101,000)
-----------
Net income $ 2,869,000
===========
</TABLE>
(9) LITIGATION
SUBSIDIARY CHAPTER 11 FILINGS AND RELATED LITIGATION -
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the Bankruptcy Code. Each company continues to
operate in the ordinary course of business, as set forth in the Bankruptcy Code,
and each company's executive officers and directors remain in office, subject to
the jurisdiction of the Bankruptcy Court. On January 11, 1999, the Bankruptcy
Court terminated the debtors' exclusive right to file a plan of reorganization.
No plan of reorganization has been formally presented by the debtors or any
other party.
18
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As a result of the default and automatic acceleration under the indenture for
the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment; however, no such
proceedings have been initiated. On April 28, 1999, PCC, PRT Funding, NJMI,
GBCC, HCC and the holders of substantially all of the PRT Funding Notes entered
into a voting agreement with HCC which provides for the Restructuring of the PRT
Funding Notes. The agreement provides for HCC to acquire the stock of PCC, the
parent of PRT Funding, from GBCC for nominal consideration. When acquired by
HCC, PCC's assets will consist of its limited partnership interest in a
management contract for the Aurora Casino and a consulting contract for the
Tunica Casino and its liabilities will consist of a newly issued promissory note
in the principal amount of $40,329,000 payable to the Trustee for the PRT
Funding noteholders. The voting agreement provides for HCC to immediately
discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.
On May 22, 1998, GBHC filed a motion with the Bankruptcy Court seeking to
reject the management agreement with NJMI (see Note 6). The Interim Agreement
was entered into and approved by the Bankruptcy Court on July 7, 1998 and the
motion to reject the management agreement was approved by the Bankruptcy Court
on September 28, 1998. As a consequence of the September 1998 settlement
agreement described below, GBCC and GBHC may no longer assert claims against
each other with respect to the operation of the management contract and, with
the passage of time, the cancellation thereof.
On July 27, 1998, GBHC filed an action in the Bankruptcy Court against GBCC,
certain affiliates of GBCC and Jack E. Pratt, Edward T. Pratt, Jr. and William
D. Pratt as directors of GBCC and former directors of GBHC (collectively, the
"GBCC Parties"), which alleged, among other things, usurpation of corporate
opportunities of GBHC and breach of fiduciary duty with respect to GBHC in
connection with the acquisition of certain land parcels in Atlantic City, New
Jersey. The action sought, among other things, to enjoin the GBCC Parties from
transferring the land parcels to third parties and to require that the land
parcels be conveyed to GBHC. The action also sought to enjoin GBCC from using
the tax NOL's of GBHC.
On September 2, 1998, the GBCC Parties reached a settlement with GBHC which
was approved by the Bankruptcy Court. The terms of the settlement agreement
provided, among other things, (i) that the GBCC Parties convey the land parcels
and related mortgage note to GBHC in exchange for a cash payment equal to the
GBCC Parties' cost in such land parcels with an additional $500,000 payment due
upon confirmation of a plan of reorganization by the Bankruptcy Court and (ii)
that GBHC be included in the
19
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
consolidated federal income tax return of GBCC for 1997 and 1998 enabling GBCC
to utilize GBHC's tax NOL's. The agreement also provided that on or before
December 31, 1998, GBCC would cause Holdings and its subsidiaries to be
deconsolidated from the GBCC federal income tax return by means of transferring
21% of the stock ownership of Holdings to an unconsolidated entity. Such
transfer was accomplished effective as of December 31, 1998. In addition, the
settlement agreement also allowed GBHC to offset its working capital loan from
GBCC in the amount of $8,000,000 together with interest accrued thereon (see
Note 6) against a claim asserted by GBHC against GBCC under the existing tax
allocation agreements.
GBCC licenses the "Sands" name under a license agreement dated as of May 19,
1987, which rights are sublicensed to GBHC. The license agreement has a term of
99 years and requires a royalty payment of the greater of 1.5% of gross room
charges, as defined in the agreement, payable monthly, or $100,000 per calendar
year. The license agreement may be terminated by either party in the event of a
material breach, bankruptcy, suspension of normal business operations or certain
other actions by the other party. GBCC intends to terminate the license
agreement as a result of the licensor's suspension of normal business operations
evidenced by the destruction of the Sands Hotel and Casino in Las Vegas in 1996.
Pursuant to the terms of the sublicense agreement, termination of the license
agreement results in automatic termination of the sublicense agreement. GBCC
filed a motion with the Bankruptcy Court to allow GBCC's termination of the
license agreement and the resulting termination of the sublicense agreement; the
Bankruptcy Court denied such motion. As a result, GBCC may not be able to
terminate the license agreement, although the Bankruptcy Court may, at some
future time, allow GBCC to do so. If unable to terminate the license agreement,
GBCC may remain liable for future royalty payments. GBCC filed an appeal to the
decision of the Bankruptcy Court on March 10, 1999.
On April 22, 1999, GBHC filed a motion with the Bankruptcy Court seeking to
disallow NJMI's pre-petition claims (see Note 6). The motion to disallow is
scheduled to be heard by the Bankruptcy Court on May 24, 1999.
PLANET HOLLYWOOD LITIGATION -
Planet Hollywood International, Inc., a Delaware corporation, and Planet
Hollywood (Region IV), Inc., a Minnesota corporation (collectively, "PHII"),
filed a complaint in the United States District Court for the Northern District
of Illinois, Eastern Division on July 29, 1996 against HCC, HCA and a member of
the Pratt Family (collectively, the "Original Hollywood Defendants"). The
Original Hollywood Defendants filed with the Court on September 18, 1996 an
answer to PHII's lawsuit, along with numerous counterclaims against PHII, Robert
Earl and Keith Barish (collectively, the "PHII Defendants"). PHII filed with
the Court on January 21, 1997, an amendment to their complaint which, among
other things, added HCT (together with the Original Hollywood Defendants, the
"Hollywood Defendants") and GBCC as defendants. The Original Hollywood
Defendants filed with the Court on February 4, 1997, and GBCC and HCT filed with
the Court on February 20, 1997, answers and counterclaims to such amended
complaint.
In its lawsuit, PHII alleges, among other things, that the Hollywood
Defendants and GBCC have, in opening and operating the Hollywood Casino concept,
infringed on PHII's trademark, service mark and
20
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
trade dress and have engaged in unfair competition and deceptive trade
practices. In their counterclaims, the Hollywood Defendants and GBCC allege,
among other things, that the PHII Defendants have, through their planned use of
their mark in connection with casino services, infringed on certain of HCC's
service marks and trade dress and have engaged in unfair competition.
Given the uncertainties inherent in litigation, no assurance can be given
that the Hollywood Defendants and GBCC will prevail in this litigation; however,
the Hollywood Defendants and GBCC believe that PHII's claims are without merit
and intend to defend their position and pursue their counterclaims vigorously.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of the uncertainties described
above.
OTHER LITIGATION -
On October 8, 1998, GBCC and HCC filed a complaint in the District Court of
Dallas County, Texas against Arthur Andersen LLP, GBCC and HCC's former
independent accountants, and selected partners alleging negligent advice and
breach of contract with respect to the tax consequences resulting from the spin-
off of GBCC's stock to HCC's shareholders on December 31, 1996. The lawsuit is
currently in the initial stages of discovery.
(10) RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the 1999 consolidated financial statement
presentation.
21
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
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, results of operations, cash flows, financial condition and
prospects of GBCC. 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 GBCC in particular, and other risks indicated in GBCC's filing
with the Securities and Exchange Commission. Such risks and uncertainties are
beyond management's ability to control and, in many cases, can not be predicted
by management. When used in this Quarterly Report on Form 10-Q, the words
"believes", "estimates", "anticipates" and similar expressions as they relate to
GBCC or its management are intended to identify forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
GBCC and its subsidiaries conduct three major business activities. These
activities may be grouped by company as follows: (i) GBCC, PPI Corporation and
their direct, wholly owned subsidiaries, (ii) PCC and NJMI and (iii) Holdings
and GBHC.
GBCC, PPI Corporation and their direct subsidiaries have provided management
personnel for GBCC's non-casino operations. ACSC, a subsidiary of PPI
Corporation, licenses casino information technology systems to HCC's casino
facilities, the Sands and non-affiliated casino companies. As a result of
GBCC's exit from non-casino hotel operations, ACSC's operations have become the
most significant source of liquidity for GBCC, PPI Corporation and their direct
subsidiaries. The results of ACSC's operations for the three month periods
ended March 31, 1999 and 1998 are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
------------ --------
<S> <C> <C>
Computer service revenues $1,903,000 $999,000
Computer service expenses 1,016,000 130,000
General and administrative 886,000 444,000
Depreciation and amortization 44,000 28,000
---------- --------
1,946,000 602,000
---------- --------
(Loss) income from operations $ (43,000) $397,000
========== ========
</TABLE>
The decrease in operating income in the first quarter of 1999 from the same
period in 1998 is due to increased salaries and relatively fixed overhead costs
associated with ACSC's sales of information technology products to unaffiliated
third parties (see "Results of Operations" below).
22
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PCC and NJMI provide management and consulting services or invest in entities
which provide such services to affiliates which own hotel and casino properties.
Prior to 1998, cash flow from such activities, specifically the limited
partnership interest in PML held by PCC, the Tunica Consulting Contract and the
Sands Management Contract were sufficient to meet debt service obligations on
the PRT Funding Notes ($9.9 million annually) and, when permitted by the PRT
Funding Note indenture, on the Junior Subordinated Notes.
As a consequence of the Chapter 11 filings by Holdings, GB Property Funding
and GBHC on January 5, 1998, PRT Funding is in default on the $85 million
principal amount of PRT Funding Notes which, together with accrued interest,
accelerated and became immediately due and payable. The bankruptcy filing of
GBHC also permitted it to reject the Sands Management Agreement, an important
source of funds for debt service on the PRT Funding Notes. Management of GBHC
requested modification to the fee arrangement under the Sands management
agreement and reserved its right to reject the agreement. A modified agreement
was entered into effective May 1, 1998 and expired on September 28, 1998 which
reduced the monthly fee to $165,000 compared to an average monthly fee of
$532,000 during the same period in 1997. GBHC's motion to reject the management
agreement was approved by the Bankruptcy Court on September 28, 1998. As a
consequence of the September 1998 settlement agreement (see Note 9 of the Notes
to Consolidated Financial Statements), GBCC and GBHC may no longer assert claims
against each other with respect to the operations of the management contract
and, with the passage of time, the cancellation thereof. PCC does not have the
financial resources or the capacity to borrow sufficient cash to satisfy the $85
million principal amount of the PRT Funding Notes which have accelerated. PRT
Funding deferred payment of interest due on the April 15 and October 15, 1998
and April 15, 1999 interest payment dates. On October 22, 1998, PRT Funding
paid to the bondholders an amount equal to a single semiannual interest payment
($4.9 million) while negotiations to restructure the PRT Funding Notes
continued. In connection with the Restructuring, PRT Funding paid deferred
interest amounting to $6.8 million to the bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the Restructuring of the PRT Funding Notes. The agreement provides
for HCC to acquire the stock of PCC, the parent of PRT Funding, from GBCC for
nominal consideration. When acquired by HCC, PCC's assets will consist of its
limited partnership interest in a management contract for the Aurora Casino and
a consulting contract for the Tunica Casino and its liabilities will consist of
a newly issued promissory note in the principal amount of $40.3 million payable
to the Trustee for the PRT Funding noteholders. The voting agreement provides
for HCC to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed.
23
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
After consummation of the Restructuring, GBCC's only significant remaining
operating activity will be the development, installation and maintenance of
casino systems by ACSC. GBCC and its subsidiaries will continue to have debt
outstanding to HCC consisting of (i) demand notes (the "GBCC Notes") and accrued
interest thereon totaling approximately $8.8 million at March 31, 1999 and (ii)
a 14 7/8% secured promissory note due 2006 (the "PPI Funding Notes") in the
amount of approximately $36.3 million at March 31, 1999 (see "Financing
Activities" below). The current level of ACSC's operations is not sufficient to
provide debt service on the HCC obligations and, consequently, GBCC will be
insolvent after the Restructuring. GBCC has commenced discussions with HCC to
restructure its obligations; however, there can be no assurance at this time
that such discussions will result in a restructuring of GBCC's obligations with
HCC.
The insolvency of GBCC raises substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Holdings and GBHC own the Sands Hotel and Casino in Atlantic City. Prior to
1996, the Sands' cash flow was sufficient to meet debt service obligations and
fund a substantial portion of annual capital expenditures. The Sands also used
short-term borrowings to fund seasonal cash needs for certain capital projects.
During 1996 and 1997, 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 10 7/8% First Mortgage Notes.
GBHC was unable to obtain additional borrowings from affiliates or other
sources and, accordingly, on January 5, 1998, Holdings, GB Property Funding and
GBHC filed petitions seeking protection under Chapter 11 of the Bankruptcy Code.
As a result of these filings, the Sands has sufficient cash flow to continue
normal operations while it seeks to develop a plan of reorganization for
submission to its creditors and the Bankruptcy Court. On January 11, 1999, the
Bankruptcy Court terminated the debtors' exclusive right to file a plan of
reorganization. No plan of reorganization has been formally presented by the
debtors or any other party. Capital expenditures, other than normal recurring
capital expenditures in the ordinary course of business, will require prior
approval of the Bankruptcy Court. The Bankruptcy Court has approved a $13.6
million, two-year capital expenditure program including $7.1 million for rooms
renovations and $6.5 million for the replacement of slot machines. There can be
no assurance at this time that GBHC's plan of reorganization, when submitted,
will be accepted by its creditors or the Bankruptcy Court. In any event, it is
not anticipated that GBCC will retain a substantial equity position in Holdings
as a result of a reorganization and, accordingly, it is not anticipated that the
Holdings group will contribute significantly to the future cash flows of the
GBCC consolidated group.
FINANCING ACTIVITIES
During 1994, GBCC issued $40.5 million discounted principal amount of
deferred interest notes (the "PPI Funding Notes") to HCC in exchange for $38.8
million principal amount of 15 1/2% notes issued by another GBCC subsidiary and
held by HCC. Effective as of April 1, 1997, HCC acquired from PPI Corporation
the general partnership interest in PML, which holds the Aurora Management
contract. The
24
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GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
acquisition price for the general partnership interest included a note in the
amount of $3.8 million and the assignment of $7.6 million discounted amount of
the PPI Funding Notes to PPI Corporation. Annual principal and interest payments
by HCC on the $3.8 million note approximate the general partner's share of
annual partnership distributions which are now being made to HCC. During 1997,
HCC forgave $23.6 million discounted principal amount of the PPI Funding Notes.
The remaining PPI Funding Notes have a maturity value of $47. 6 million. Payment
of interest on the PPI Funding Notes is deferred through February 17, 2001 at
which time interest will become payable semiannually with the unpaid balance due
on February 17, 2006.
During the third quarter of 1996, GBCC borrowed $6.5 million from HCC which
accrues interest at the rate of 13 3/4% per annum payable quarterly commencing
October 1, 1996 (the "GBCC Notes"). GBCC loaned such funds to GBHC on similar
terms. The loans to GBHC together with the related interest were cancelled as
part of a settlement agreement approved by the Bankruptcy Court on September 2,
1998.
As previously described, GBCC has commenced discussions with HCC to
restructure its obligations; however, there can be no assurance at this time
that such discussions will result in a restructuring of GBCC's obligations with
HCC.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Property and equipment additions during the three month period ended March
31, 1999 totaled $16,000; management anticipates that capital expenditures
during the remainder of 1999, consisting only of ongoing equipment replacements
and enhancements at ACSC, will not be significant.
RESULTS OF OPERATIONS
GENERAL
As a result of the filings by Holdings, GB Property Funding, and GBHC, GBCC's
control over the filing subsidiaries is subject to the supervision of the
Bankruptcy Court. GBCC does not expect to have ownership or operating control
of such subsidiaries after reorganization. Accordingly, the accompanying
consolidated statement of operations for the three month period ended March 31,
1998 reflects the operations of the filing subsidiaries under the equity method
of accounting. For the three month period ended March 31, 1999, however, the
accompanying consolidated statement of operations reflects the operations of
Holdings and its subsidiaries under the cost method of accounting.
25
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GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
REVENUES
Total revenues of GBCC declined $279,000 (11.2%) during the three month
period ended March 31, 1999 compared to the prior year period. Computer
services revenues provided by ACSC, a GBCC subsidiary that provides computer
hardware and software to the gaming industry, increased $904,000 (90.5%) during
the three month period ended March 31, 1999 compared to the same period of 1998.
Such increase results from a significant installation contract for ACSC's slot
monitoring system. The increase was more than offset, however, by the
termination of the Sands Management Contract in September 1998 which generated
management fees of $1.2 million during the first quarter of 1998.
COMPUTER SERVICES EXPENSES
Computer services expenses increased $886,000 (681.5%) during the three month
period ended March 31, 1999 compared to the three month period ended March 31,
1998. Such increase is primarily attributable to increased hardware and
installation costs associated with the aforementioned system installation
contract.
GENERAL AND ADMINISTRATIVE EXPENSES
GBCC's general and administrative expenses increased by $393,000 (42.5%)
during the three month period ended March 31, 1999 compared to the 1998 period.
The increase is primarily due to an increase in salaries and overhead costs
incurred in connection with ACSC's increased marketing efforts to sell its
information technology products to unaffiliated third parties.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the first quarter of 1999 increased
by $16,000 (57.1%) compared to the same period of 1998 due to an expansion of
office space by ACSC.
INTEREST
Interest income decreased $26,000 (10.9%) during the first quarter of 1999
compared to the same period during 1998. All interest income earned by GBCC on
loans and advances to Holdings and its subsidiaries for periods subsequent to
the January 5, 1998 bankruptcy filings is being reserved. Interest expense did
not change significantly during 1999 compared to the prior year period.
EQUITY IN EARNINGS OF LIMITED PARTNERSHIP
Effective February 17, 1994, PCC acquired the limited partnership interest in
PML, a limited partnership which earns management fees from the operation of the
Aurora Casino. The Agreement of Limited Partnership of PML provides for
distributions to PCC of 1% of the first $84,000 of net income earned by PML each
month and 99% of any net income earned above such amount, with all remaining
income distributed to the general partner. PCC's equity in the earnings of PML
increased $102,000 (5.3%) during the first quarter of 1999 from the same period
of 1998. The 1999 increase reflects improved management fees earned by PML
which are based, in part, on the operating results of the Aurora Casino.
26
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GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITY IN EARNINGS OF GB HOLDINGS, INC.
GBCC's equity in the earnings of Holdings' for the three month period ended
March 31, 1998 amounted to $2.9 million. As a result of GBCC no longer
controlling the operations of the Sands, the expectation that control of
Holdings will only be temporary and the September 1998 settlement agreement
which resolved certain significant uncertainties, GBCC's investment in Holdings
and its subsidiaries as well as certain intercompany balances with Holdings were
revalued to a zero basis effective July 1, 1998. Accordingly, GBCC is no longer
recognizing equity in the earnings of Holdings and its subsidiaries.
RESTRUCTURING COSTS
Restructuring costs increased $22,000 (36.7%) during the three month period
ended March 31, 1999 as compared to the same period of 1998 due to professional
fees and other corporate overhead costs in connection with the default of the
PRT Funding Notes and efforts to consummate the Restructuring (see "Liquidity
and Capital Resources - Operating Activities").
INCOME TAX PROVISION
As a result of a settlement agreement entered into in September 1998 (see
Note 9 of Notes to Consolidated Financial Statements), Holdings and its
subsidiaries are no longer included in the consolidated tax return of GBCC for
periods subsequent to December 31, 1998. Due to the continued availability of
NOL's originating in prior years and uncertainties regarding GBCC's ability to
continue as a going concern, management is unable to determine that realization
of deferred tax assets resulting from NOL's and temporary differences is more
likely than not. Accordingly, under the provisions of Statement of Financial
Accounting Standards No. 19, "Accounting for Income Taxes", GBCC has provided
valuation allowances for substantially all of the deferred tax assets at March
31, 1999 and December 31, 1998. The remaining deferred tax assets represent
state timing differences expected to be utilized.
On July 27, 1998 GBHC filed an action in the Bankruptcy Court against GBCC,
certain affiliates of GBCC and Jack E. Pratt, Edward T. Pratt, Jr. and William
D. Pratt as directors of GBCC and former directors of GBHC (collectively, the
"GBCC Parties"), which sought, among other things, to enjoin GBCC from using the
tax NOL's of GBHC. On September 2, 1998, the GBCC Parties reached a settlement
with GBHC which was approved by the Bankruptcy Court. The terms of the
settlement agreement provided, among other things, that GBHC be included in the
consolidated federal income tax return of GBCC for 1997 and 1998 enabling GBCC
to utilize GBHC's tax NOL's. The agreement also provided that on or before
December 31, 1998, GBCC would cause Holdings and its subsidiaries to be
deconsolidated from the GBCC federal income tax return by means of transferring
21% of the stock ownership of Holdings to an unconsolidated entity. Such
transfer was accomplished effective as of December 31, 1998.
YEAR 2000 COMPLIANCE
In the year 2000, 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.
27
<PAGE>
GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Management has initiated a program to prepare the Company's computer systems
and applications for the year 2000. Such program includes the use of both
internal and external resources to test and, if necessary, modify or replace
software applications. The costs of acquiring, testing and converting such
systems are expected to be minimal. Management expects its Year 2000 date
conversion projects to be completed on a timely basis. The Company has also
initiated formal communication with its significant suppliers to determine the
extent to which its information systems are vulnerable to those third parties'
failure to resolve their Year 2000 issues. While there can be no assurance that
the Company and its suppliers and customers will fully resolve the Year 2000
issues, neither the estimated cost nor the outcome of the Year 2000 problem is
expected to have a material impact on the Company's operations, liquidity or
financial position.
INFLATION
Management believes that in the near term, modest inflation, together with
competition for qualified and experienced personnel, will continue to cause
increases in operating expenses, particularly labor and employee benefits costs.
SEASONALITY AND OTHER FLUCTUATIONS
The Aurora Casino experiences some seasonality due to severe winter weather,
and, as a result, management fees earned by GBCC have fluctuated with such
seasonality. In addition, the Aurora Casino's operations may fluctuate due to a
number of factors, including chance. Such seasonality and fluctuations may
materially affect GBCC's results of operations.
28
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PART II: OTHER INFORMATION
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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. 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 remain in office, subject to
the jurisdiction of the Bankruptcy Court. On January 11, 1999 the Bankruptcy
Court terminated the debtors' exclusive right to file a plan of reorganization.
As of May 12, 1999, no reorganization plan has been formally presented by the
debtors or any other party.
As a result of the default and automatic acceleration under the indenture for
the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment. On April 28, 1999,
PCC, PRT Funding, NJMI, GBCC, HCC and the holders of substantially all of the
PRT Funding Notes entered into a voting agreement which provides for the
Restructuring of the PRT Funding Notes. The agreement provides for HCC to
acquire the stock of PCC, the parent of PRT Funding, from GBCC for nominal
consideration. When acquired by HCC, PCC's assets will consist of its limited
partnership interest in a management contract for the Aurora Casino and a
consulting contract for the Tunica Casino and its liabilities will consist of a
newly issued promissory note in the principal amount of $40,329,000 payable to
the Trustee for the PRT Funding noteholders. The voting agreement provides for
HCC to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by the various
gaming regulatory organizations.
GBCC licenses the "Sands" name under a license agreement dated as of May 19,
1987, which rights are sublicensed to GBHC. The license agreement has a term of
99 years and requires a royalty payment of the greater of 1.5% of gross room
charges, as defined in the agreement, payable monthly, or $100,000 per calendar
year. The license agreement may be terminated by either party in the event of a
material breach, bankruptcy, suspension of normal business operations or certain
other actions by the other party. GBCC intends to terminate the license
agreement as a result of the licensor's suspension of normal business operations
evidenced by the destruction of the Sands Hotel and Casino in Las Vegas in 1996.
Pursuant to the terms of the sublicense agreement, termination of the license
agreement results in automatic termination of the sublicense agreement. GBCC
filed a motion with the Bankruptcy Court to allow GBCC's termination of the
license agreement and the resulting termination of the sublicense agreement; the
Bankruptcy Court denied such motion. As a result, GBCC may not be able to
terminate the license agreement, although the Bankruptcy Court may, at some
future time, allow GBCC to do so. If unable to terminate the license agreement,
GBCC may remain liable for future royalty payments. GBCC filed an appeal to the
decision of the Bankruptcy Court on March 10, 1999.
On April 22, 1999, GBHC filed a motion with the Bankruptcy Court seeking to
disallow NJMI's pre-petition claims. The motion to disallow is scheduled to be
heard by the Bankruptcy Court on May 24, 1999.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As a result of the filings discussed in Item 1. above, $182,500,000
principal amount of 10 7/8% First Mortgage Notes issued by GB Property Funding
are in default. Principal payments of $2,500,000 each due on January 15 and July
15, 1998 and on January 15, 1999 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 10 7/8% First Mortgage Notes, must be
remitted to the Trustee for the 10 7/8% First Mortgage Notes as reductions to
the outstanding principal. As of May 12, 1999, $361,000 has been remitted to the
Trustee from the proceeds on the sale of equipment. The accrual of interest on
the 10 7/8% First Mortgage Notes for periods subsequent to the filings has been
suspended; such interest on a contractual basis amounts to approximately
$36,330,000 as of May 12, 1999.
The default on the 10 7/8% First Mortgage Notes also resulted in a default
under the indenture for the $85,000,000 11 5/8% Unsecured Senior Notes issued by
PRT Funding Corp. and guaranteed by Pratt Casino Corporation. Accordingly, the
maturity of the PRT Funding Notes has accelerated. On October 22, 1998, PRT
Funding paid to the bondholders an amount equal to a single semiannual interest
payment ($4,941,000) while negotiations to restructure the notes continued. In
connection with the Restructuring, PRT Funding paid deferred interest amounting
to $6,768,000 to the bondholders on April 30, 1999. Interest due on such notes,
exclusive of compound interest on amounts in arrears, amounts to $5,682,000 as
of May 12, 1999.
ITEM 6.(A) - EXHIBITS
10.1 Voting Agreement dated as of April 28, 1999 among GBCC, PCC, PRT Funding
Corp., NJMI, HCC and the Consenting Holders of PRT Funding Notes.
ITEM 6.(B) - REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 1999. The Registrant filed its Annual Report on Form 10-K for
the year ended December 31, 1998 with the Securities and Exchange Commission on
March 31, 1999.
30
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SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREATE BAY CASINO CORPORATION
Date: May 12, 1999 By: /s/ John C. Hull
------------------- ------------------------------------
John C. Hull
Chief Executive Officer
31
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EXHIBIT 10.1
EXECUTION COPY
--------------
VOTING AGREEMENT
DATED AS OF APRIL 28, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Voting Agreement; Restriction on Transfer........................................ - 2 -
2. Conditions to Consummation of the Financial Restructuring........................ - 5 -
3. Financial Restructuring; The Joint Plan.......................................... - 6 -
4. Payments......................................................................... - 7 -
5. Representations of the Consenting Holders........................................ - 8 -
6. Representations of the GBCC Group and HCC........................................ - 9 -
7. Forbearance...................................................................... - 15 -
8. Termination of Agreement......................................................... - 15 -
9. Further Acquisition of Securities................................................ - 17 -
10. Amendments....................................................................... - 17 -
11. Governing Law; Jurisdiction...................................................... - 17 -
12. Headings......................................................................... - 17 -
13. Successors and Assigns........................................................... - 17 -
14. Prior Negotiations............................................................... - 17 -
15. Counterparts..................................................................... - 18 -
16. No Third-Party Beneficiaries..................................................... - 18 -
17. Consideration.................................................................... - 18 -
18. Notices.......................................................................... - 18 -
19. GBHC Payments.................................................................... - 18 -
20. Payments to Indenture Trustee for Existing PRT Notes Prior to Effective Date..... - 18 -
</TABLE>
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<TABLE>
<S> <C>
21. Refinancing...................................................................... - 19 -
22. Professional Fees................................................................ - 21 -
23. Cooperation in Sands Bankruptcy.................................................. - 21 -
24. Specific Performance............................................................. - 22 -
25. Survival and Assignment.......................................................... - 22 -
Exhibits and Schedules
- ----------------------
Exhibit A - Form of Joint Reorganization Plan
Exhibit B - Reorganization Budget
Schedule 6(b)(i) - Liens, Claims and Encumbrances and Liabilities of GBHC to HCC
Schedule 6(b)(iv) - Liabilities of PRT, PCC and NJMI
Schedule 6(b)(v) - Contracts of PRT, PCC and NJMI
Exhibit 21(b) - Term Sheet for New PCC Notes and Exchange Alternative
</TABLE>
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VOTING AGREEMENT
----------------
This Voting Agreement (the "Agreement") is entered into this 28th day of
April, 1999, among Greate Bay Casino Corporation ("GBCC"), Pratt Casino
Corporation ("PCC"), PRT Funding Corp. ("PRT"), New Jersey Management, Inc.
("NJMI," and together with GBCC, PCC and PRT, collectively the "GBCC Group"),
Hollywood Casino Corporation ("HCC") and the undersigned holders, severally and
neither jointly nor jointly and severally (collectively, and together with any
other persons who become signatories hereto, the "Consenting Holders").
R E C I T A L S
- - - - - - - -
A. PRT has issued and there remains outstanding $85 million principal amount
of 11-5/8% Senior Notes (the "Existing PRT Notes").
B. PCC has guaranteed the payment of the Existing PRT Notes (the "PCC
Guarantee").
C. The Consenting Holders hold approximately $82.823 million of the Existing
PRT Notes in the principal amounts, respectively, set forth on the signature
pages hereto.
D. The GBCC Group, HCC and the Consenting Holders desire to implement a
financial restructuring (the "Financial Restructuring") of the Existing PRT
Notes substantially on the terms and conditions set forth in the Joint
Reorganization Plan attached hereto as Exhibit A (the "Joint Plan"). The
principal component of the Financial Restructuring is the payment to the holders
of the Existing PRT Notes, by substantial consummation of a plan of
reorganization, of at least $40,329,375 on the terms provided in Section 6.2(Q)
of the Joint Plan (the "Cash Take-Out").
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E. In order to implement the Financial Restructuring, PCC, PRT and NJMI will
commence (the date of such commencement being the "Petition Date") proceedings
under Chapter 11 of the Bankruptcy Code (the "Chapter 11 Proceedings") and seek
to obtain court approval of the Joint Plan and a disclosure statement in respect
thereof (the "Disclosure Statement").
F. This Agreement is being entered into in order to facilitate the
implementation of the Financial Restructuring, by the Consenting Holders in
consideration of PCC's, PRT's and NJMI's agreement to commence the Chapter 11
Proceedings and to file and seek confirmation of the Joint Plan and of GBCC's
and HCC's agreement to participate in the Financial Restructuring, and by the
GBCC Group and HCC in consideration of the Consenting Holders' agreement to vote
their claims to accept the Joint Plan and otherwise agree to the terms of the
Financial Restructuring as set forth below.
A G R E E M E N T
- - - - - - - - -
Now, therefore, in consideration of the premises and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Voting Agreement; Restriction on Transfer.
(a) Each Consenting Holder, severally and neither jointly nor jointly and
severally, hereby agrees that it shall:
(i) Subject to its receipt of appropriate disclosure and solicitation
materials meeting the requirements of the Bankruptcy Code, timely
vote its claims (or claims otherwise subject to such Consenting
Holder's right to vote or
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<PAGE>
direct the disposition thereof) in respect of the Existing PRT
Notes owned on the date hereof or hereafter acquired to accept
the Joint Plan (and not revoke or withdraw such vote);
(ii) Refrain from the sale, transfer, pledge or any other assignment
of any of the Existing PRT Notes, or any voting interest therein
to any person unless such person is a "qualified institutional
buyer" within the meaning of Rule 144A promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and
such person agrees in writing to become a party to, and be bound
by the terms and conditions of, this Agreement (it being
expressly acknowledged for the avoidance of doubt that any
Consenting Holder may disclose the terms of this Agreement and
any other information relating to the parties hereto to any
transferee or prospective transferee of the PRT Notes);
(iii) Not take any position in the Chapter 11 Proceedings that
conflicts with its obligations hereunder;
(iv) Vote its Existing PRT Notes and any other claims it might have
or acquire to reject any bankruptcy plan of reorganization for
PCC, PRT or NJMI other than the Joint Plan; and
(v) Take such other and further actions as the GBCC Group and HCC
shall reasonably request to effectuate the Financial
Restructuring, including waiving the requirement of New Jersey
Casino Control Commission approval of the Newco Warrants (as
defined in the Joint Plan) if GBCC
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requests such waiver because it reasonably concludes that such
approval will materially delay the closing of the Financial
Restructuring.
Notwithstanding the foregoing, nothing in this Agreement shall require a
Consenting Holder to take any action which is prohibited by the Bankruptcy Code
or by other applicable law or regulation or by any order or direction of any
court or any federal or state governmental authority.
(b) The obligations of the Consenting Holders under subsection (a) of this
Section 1 shall be at all times subject to the continuing conditions that:
(i) the plan of reorganization being considered in the Chapter 11
Proceedings is substantially in the form of the Joint Plan;
(ii) an Agreement Termination Event (as defined in Section 8 below)
shall not have occurred; and
(iii) HCC shall either (A) be actively pursuing the HCC Refinancing
(defined in Section 21(a) below), on a schedule and with an
intention to close not later than June 30, 1999 or (B) have
consummated the HCC Refinancing and the escrow established in
connection therewith shall still have funds available to fund
the Cash Take-Out.
(c) If GBCC receives a waiver from the Consenting Holders of New Jersey
Casino Control Commission approval of the Newco Warrants and there is
a closing of the Financial Restructuring, GBCC shall cause PPI
Corporation to cause Newco (as defined in the Joint Plan) to use its
reasonable best efforts to obtain such
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approval until such time as a plan is confirmed in the Sands
Bankruptcy (as defined in Section 2 hereof).
2. Conditions to Consummation of the Financial Restructuring.
Consummation of the Financial Restructuring will be subject to the
following closing conditions:
(i) Receipt of all required government approvals, consents and
authorizations;
(ii) The absence of any pending or threatened action, suit, or
proceeding before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction
that is reasonably likely to result in an unfavorable
injunction, judgment, order, decree, ruling, or charge that
would (A) prevent the Cash Take-Out or (B) permit any or all of
the payments made in the Cash Take-Out to be rescinded;
(iii) The execution and delivery of all documentation relating to the
liquidating trust contemplated by the Joint Plan (but not the
assets to be delivered into such trust), in form and substance
reasonably satisfactory to the Consenting Holders and consistent
with the terms of the Joint Plan;
(iv) The entry of orders of the Bankruptcy Court, which orders shall
be reasonably satisfactory in form and substance to the
Consenting Holders and, unless finality is waived by the
Consenting Holders, shall have become final and non-appealable:
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(a) confirming the Joint Plan and, among other things, allowing
the claims in respect of the Existing PRT Notes as the only
allowed general unsecured claims in Class 1 under the Joint
Plan;
(b) disallowing any and all general unsecured claims in Class 8
in the Joint Plan (except for (1) any reasonable unpaid fees
and expenses of the Indenture Trustee for the Existing PRT
Notes (the "Indenture Trustee"), (2) any claims fully
covered by liability insurance and (3) up to $50,000 payable
in connection with claims insurable but subject to NJMI's
deductible under existing insurance policies), including,
without limitation, all claims asserted by the debtors or
any other party acting on behalf of the debtors' estates in
the jointly administered Chapter 11 cases (the "Sands
Bankruptcy") of Greate Bay Hotel and Casino, Inc. ("GBHC"),
GB Holdings, Inc. ("GBH") and GB Property Funding Corp. ("GB
Funding"), Case Nos. 98-10001, 98-10002, 98-10003 (JW) in
the United States Bankruptcy Court for the District of New
Jersey, including estate representatives, examiners or
official committees of creditors; and
(c) allowing or estimating claims of the IRS in an amount not to
exceed $250,000.
3. Financial Restructuring; The Joint Plan. Each member of the GBCC Group
agrees to commence, forthwith after the closing of the HCC Refinancing, the
Chapter 11 Proceedings.
-6-
<PAGE>
Each member of the GBCC Group and HCC agrees (i) to take all such steps as shall
be reasonably necessary and desirable to consummate the Financial Restructuring,
including obtaining confirmation of the Joint Plan, as promptly as practicable
and (ii) to submit this Agreement and the Joint Plan to the appropriate
regulatory authorities for their approval. In the event that it becomes
impractical to pursue the Joint Plan and still consummate the Cash Take-Out by
January 31, 2000, each member of the GBCC Group agrees that it shall use its
reasonable best efforts to cause the Cash Take-Out to be consummated on terms
and conditions as near as possible to those set forth in the Joint Plan; and
will not take any steps that are inconsistent with such terms and conditions
without first consulting with and obtaining the approval of the Consenting
Holders. In the event that it becomes impractical to pursue the Joint Plan and
still consummate the Cash Take-Out by January 31, 2000, HCC agrees that it will
maintain the escrow established in the HCC Refinancing (defined below), for the
purposes of effecting the Cash Take-Out, until the earlier of January 31, 2000
and an Agreement Termination Event.
4. Payments. The Consenting Holders acknowledge and agree (i) that PCC, PRT
or NJMI shall make the payments described in Exhibit "B" (subject to Bankruptcy
Court approval, as necessary) and (ii) that the dollar amounts for the payments
described in Exhibit "B" as restructuring costs and ordinary course corporate
expenses are estimates and may vary from the actual payments that are made.
PCC, PRT and NJMI represent that the dollar amounts set forth in Exhibit "B" for
restructuring costs and ordinary course corporate expenses represent their good
faith estimate of such payments through August 31, 1999 (the assumed date of
consummation of the Financial Restructuring), it being acknowledged that PCC,
PRT
-7-
<PAGE>
and NJMI have relied on the Consenting Holders' estimates of such Consenting
Holders' professional fees and expenses in making such estimate.
5. Representations of the Consenting Holders. Each Consenting Holder,
severally and neither jointly nor jointly and severally, represents and warrants
to the GBCC Group and HCC that each of the following statements is true, correct
and complete:
(a) Corporate Power and Authority. It has all requisite corporate or
trust power and authority to enter into this Agreement and to carry
out the transactions contemplated by, and to perform its respective
obligations under, this Agreement;
(b) Authorization. The execution and delivery of this Agreement and the
performance of its obligations hereunder have been duly authorized by
all necessary corporate or trust action;
(c) No Conflicts. The execution, delivery and performance of this
Agreement do not and shall not (i) subject to receipt of all necessary
governmental approvals, consents or authorizations, violate any
provision of law, rule or regulation applicable to it, or its
certificate of incorporation or its bylaws, or its agreement and
declaration of trust, or (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under
any of its material contractual obligations;
(d) Binding Obligation. This Agreement has been duly executed and
delivered and is a legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency,
-8-
<PAGE>
reorganization, moratorium or other similar laws relating to or
limiting creditors' rights generally or by equitable principles
relating to enforceability; and
(e) Ownership of Existing PRT Notes. It is the beneficial owner of,
and/or the investment adviser or manager for the beneficial owners of
(with the power to vote and dispose on behalf of such beneficial
owners), the principal amount of Existing PRT Notes set forth opposite
its signature hereto.
6. Representations of the GBCC Group and HCC.
(a) Each member of the GBCC Group and HCC represents and warrants to each
Consenting Holder that each of the following statements is true,
correct and complete with respect to it:
(i) Corporate Power and Authority. It has all requisite corporate
power and authority to enter into this Agreement and to carry
out the transactions contemplated by, and to perform its
respective obligations under, this Agreement;
(ii) Authorization. The execution and delivery of this Agreement and
the performance of its obligations hereunder have been duly
authorized by all necessary corporate action;
(iii) No Conflicts. The execution, delivery and performance of this
Agreement do not and shall not (i) subject to receipt of
required government approvals, consents and authorizations,
violate any provision of law, rule or regulation applicable to
it or any of its subsidiaries or its
-9-
<PAGE>
certificate of incorporation or bylaws, or (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of
time or both) a default under any of its material contractual
obligations or those of any of its subsidiaries;
(iv) Binding Obligation. This Agreement has been duly executed and
delivered and is the legal, valid and binding obligation of each
member of the GBCC Group and HCC, enforceable against each in
accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability;
(v) Agreements. Each of (i) the Agreement dated as of September 2,
1998 among GBHC, GBH, GB Funding, certain entities in the GBCC
Group, HCC and certain individual affiliates thereof (the
"Settlement Agreement"), and (ii) the Agreement dated June 27,
--------------------
1998 among GBHC, Advanced Casino Systems International, Inc.,
certain members of the GBCC Group, PCC, PRT, NJMI and HCC (the
"Interim Settlement Agreement") is legal, valid, binding,
----------------------------
enforceable, and in full force and effect. There is no existing
breach or default of either the Interim Settlement Agreement or
the Settlement Agreement. To its knowledge, no regulatory
actions are pending or threatened that would affect the
-10-
<PAGE>
legality, validity or enforceability of either the Interim
Settlement Agreement or the Settlement Agreement;
(vi) Management Contract Payments. The Management Services Agreement
dated as of June 21, 1991 among Aurora Riverboats, Inc. and
Greate Bay Casino Corporation (as amended and in effect, the
"Aurora Management Contract") gives rise to payments each
calendar quarter to Pratt Management, L.P. ("PMLP") and
corresponding distributions in respect of the limited
partnership interest in PMLP owned by PCC under the terms of the
Limited Partnership Agreement of PMLP dated as of February 17,
1994. Those agreements provide that such payments and
corresponding distributions are made not later than the twenty-
fifth day following the end of each calendar quarter. PMLP has
received all such amounts due to it for the first quarter of
1999, and has made all corresponding distributions to PCC, such
that as of April 28, 1999 PMLP has cash not in excess of $330;
(vii) There is no pending or threatened action, suit, or proceeding
before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction that is
reasonably likely to result in an unfavorable injunction,
judgment, order, decree, ruling, or charge that would (A)
prevent the Cash Take-Out or (B) permit any or all of the cash
payments made in the Cash Take-Out to be rescinded; and
-11-
<PAGE>
(viii) Disclosure. The representations and warranties contained in
this Section 6 by or with respect to it do not contain any
untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and
information contained in this Section not misleading.
(b) Each member of the GBCC Group represents and warrants to each
Consenting Holder that each of the following statements is true,
correct and complete:
(i) Notes. (A) PRT is the sole legal and beneficial owner, with
marketable title, of a $10 million principal amount
subordinated note dated February 17, 1994, together with
accrued interest as of January 5, 1998 in the approximate
amount of $2,754,375, due from GBHC to PRT; and (B) PCC is the
sole legal and beneficial owner, with marketable title, of a $5
million principal amount subordinated note dated January 14,
1997, together with accrued interest as of January 5, 1998 in
the approximate amount of $728,000, due from GBHC to PCC (the
two notes, collectively, the "Notes"). Except as disclosed on
Schedule 6(b)(i), the Notes are free and clear of all liens,
security interests, or other charges or encumbrances (except
for the subordination provisions of the Notes), or any other
type of preferential arrangement having the practical effect of
constituting a security interest; the Notes are not subject to
any defense, counterclaim or set-off other than those that may
arise solely on account of the Sands Bankruptcy; other than the
Notes, there is no other indebtedness of GBHC owed to any
member of the GBCC Group or any
-12-
<PAGE>
of their affiliates other than indebtedness incurred in the
ordinary course of business or that may arise solely on account
of the Sands Bankruptcy, the "Deferred Fee" provided under the
Interim Settlement Agreement, and the "Confirmation Payment"
provided under the Settlement Agreement;
(ii) Ownership of NJMI. PCC is the sole record and beneficial owner
of, and has good and marketable title to, all of the stock of
NJMI, free and clear of any and all liens, charges,
encumbrances, options and other adverse claims or rights
whatsoever;
(iii) Financial Statements. (A) The audited balance sheets and
statements of operations, changes in stockholders' equity, and
cash flow (collectively, the "Financial Statements") as of and
for the fiscal years ended December 31, 1998 and December 31,
1997 contained in Forms 10-K filed by PCC and PRT with the
Securities and Exchange Commission (the "SEC Reports") have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
covered thereby (except as noted therein), are correct and
complete in all material respects and present fairly the
consolidated financial condition of PCC and the financial
condition of PRT as of such dates and the consolidated results
of operations of PCC and the results of operation of PRT for
such periods and are consistent in all material respects with
the books and records of PCC, PRT and NJMI, and (B) the
-13-
<PAGE>
unaudited balance sheet, statement of operations and cash flow as
of and for the fiscal quarter ended March 31, 1999 for PCC on a
consolidated basis, when filed with the SEC, will have been
prepared in accordance with GAAP applied on a consistent basis
throughout the period covered thereby (except as noted therein),
will be correct and complete in all material respects, and will
present fairly the consolidated financial condition of PCC, and
the consolidated results of operations of PCC for such period,
and will be consistent in all material respects with the books
and records of PCC;
(iv) Undisclosed Liability. Except as set forth in Schedule 6(b)(iv),
none of PCC, PRT or NJMI has any liability, except for (i)
liabilities set forth on the face of the most recent balance
sheets included in the Financial Statements and (ii) liabilities
which have arisen after the date of the most recent balance
sheets included in the Financial Statements in the ordinary
course of business (none of which liabilities results from,
arises out of, related to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement,
or violation of law); and
(v) Contracts. Schedule 6(b)(v) lists all contracts and other
agreements to which any of PCC, PRT or NJMI is a party, including
any tax sharing agreements.
(c) Indebtedness. Except as set forth in Schedule 6(b)(i), HCC represents
and warrants to each Consenting Holder that there is no indebtedness
of GBHC,
-14-
<PAGE>
GBH or GB Funding owed to it or any of its affiliates other than
indebtedness incurred in the ordinary course of business or that may
arise solely on account of the Sands Bankruptcy.
7. Forbearance. So long as no Agreement Termination Event shall have
occurred, each of the Consenting Holders hereby agrees, severally and neither
jointly nor jointly and severally, to forbear from enforcing the PRT Notes or
the PCC Guarantee.
8. Termination of Agreement. Except for obligations pursuant to Section 21(b)
and 21(c), all obligations hereunder shall terminate automatically upon the
occurrence of any Agreement Termination Event, unless the occurrence of such
Agreement Termination Event is waived in writing by all of the parties hereto.
If any Agreement Termination Event occurs (and has not been waived) at a time
when court permission shall be required for a Consenting Holder to change or
withdraw (or cause to be changed or withdrawn) its vote in favor of the Joint
Plan, the members of the GBCC Group shall not oppose any attempt by such
Consenting Holder to change or withdraw (or cause to be changed or withdrawn)
such vote.
An "Agreement Termination Event" shall mean any of the following:
(a) HCC shall not have consummated the HCC Refinancing by June 30, 1999;
(b) The Chapter 11 Proceedings shall not have been commenced or the Joint
Plan and Disclosure Statement shall not have been filed by July 2,
1999;
(c) The order of the Bankruptcy Court confirming the Joint Plan shall not
have been entered and the effective date of the Joint Plan shall not
have occurred by January 31, 2000;
-15-
<PAGE>
(d) There shall not have been final approval of the Financial
Restructuring by New Jersey Casino Control Commission by January 31,
2000 (for purposes of this subsection, final approval means that any
applicable appeal period shall have passed, no appeal of such approval
shall be pending, and the approval of the Commission shall not have
been overturned on appeal;)
(e) PCC, PRT or NJMI shall file or support confirmation or fail to
actively oppose confirmation of a plan of reorganization embodying
terms materially different from those contemplated by the Joint Plan;
(f) The Joint Plan shall not have been substantially consummated pursuant
to section 1101(2) of the Bankruptcy Code by January 31, 2000;
(g) The Bankruptcy Court shall have entered an order pursuant to Section
1104 of the Bankruptcy Code appointing a trustee or examiner with
respect to any of PCC, PRT or NJMI;
(h) The Bankruptcy Court shall have entered an order dismissing any of the
Chapter 11 Proceedings or an order pursuant to Section 1112 of the
Bankruptcy Code converting any of the Chapter 11 Proceedings to cases
under Chapter 7 of the Bankruptcy Code;
(i) PRT, PCC and/or NJMI shall not have paid the Accumulated Cash (as
defined in Section 20 below) to the Indenture Trustee as required by
Section 20(a);
(j) PRT, PCC and/or NJMI shall not have paid any Excess Cash (as defined
in Section 20 below) to the Indenture Trustee as required by Section
20(b);
-16-
<PAGE>
(k) An injunction, judgment, order, decree, ruling or charge shall have
been entered which prevents consummation of the Cash Take-Out.
(l) Any breach of this Agreement by the Consenting Bondholders.
9. Further Acquisition of Securities. This Agreement shall in no way be
construed to preclude the Consenting Holders from acquiring additional Existing
PRT Notes.
10. Amendments. This Agreement may not be modified, amended or supplemented
except in writing signed by all of the parties hereto.
11. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to any conflicts of law provision which would require the application of
the law of any other jurisdiction.
12. Headings. The Headings of the Sections, paragraphs and subsections of this
Agreement are inserted for convenience only and shall not affect the
interpretation hereof.
13. Successors and Assigns. This Agreement is intended to bind and inure to
the benefit of the parties and their respective successors, assigns, heirs,
executors, administrators and representatives. The agreements, representations
and obligations of the Consenting Holders under this Agreement are several and
neither joint nor joint and several in all respects. Except as set forth herein,
no party may assign any of its rights or obligations hereunder without the prior
consent of all other parties.
14. Prior Negotiations. This Agreement supersedes all prior negotiations,
understandings and agreements with respect to the subject matter hereof.
-17-
<PAGE>
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which shall constitute one
and the same Agreement.
16. No Third-Party Beneficiaries. Unless expressly stated herein, this
Agreement shall be solely for the benefit of the parties hereto and no other
person or entity shall be a third-party beneficiary hereof.
17. Consideration. It is hereby acknowledged by the parties that no
consideration shall be due or paid to the Consenting Holders for their agreement
to vote to accept the Joint Plan and to reject any other plan in accordance with
the terms and conditions of this Agreement other than the GBCC Group's agreement
to commence the Chapter 11 Proceedings and to file and seek confirmation of the
Joint Plan.
18. Notices. All notices and communications in connection with this Agreement
shall be in writing and shall be delivered by hand, overnight courier, certified
mail, return receipt requested, or facsimile transmission, at the addresses set
forth in the signature pages hereto.
19. GBHC Payments. Within two days of execution of this Agreement, NJMI shall
pay amounts owing to GBHC as indicated on the proof of claim of NJMI filed in
the Sands Bankruptcy and miscellaneous postpetition amounts owing, not to exceed
$42,000 in the aggregate.
20. Payments to Indenture Trustee for Existing PRT Notes Prior to Effective
Date.
(a) Within two days of execution of this Agreement, PRT shall pay to the
Indenture Trustee all of the cash held by PCC, PRT and NJMI (the
"Accumulated Cash") after deducting (collectively the "Payables
Reserve") (i) the amounts set forth in
-18-
<PAGE>
Exhibit B, (ii) $250,000 to be delivered to the liquidating trust
contemplated by the Joint Plan, (iii) an additional $50,000 to be held
in reserve exclusively for the payment of any deductible on NJMI's
applicable policies of insurance and (iv) an amount necessary to pay
any ordinary course liabilities of PCC, PRT and NJMI accrued and
outstanding at the time of execution of this Agreement. Such payment
shall be made to the Indenture Trustee for application to outstanding
amounts owed to the holders of the Existing PRT Notes.
(b) Prior to the Effective Date of the Joint Plan, and for so long as no
Agreement Termination Event has occurred, and subject to Bankruptcy
Court approval following the Petition Date, PRT, PCC and NJMI shall
pay to the Indenture Trustee, within 30 days after the end of each
calendar quarter, any cash held by PCC, PRT and/or NJMI ("Excess
Cash") after deducting the Payables Reserve. Such payments shall be
made to the Indenture Trustee for application to outstanding amounts
owed to the holders of the Existing PRT Notes.
21. Refinancing.
(a) Pending Refinancing. HCC hereby confirms and represents that it is
actively pursuing a refinancing (the "HCC Refinancing") of the HCC
Notes (defined below) in an amount sufficient to deposit, and with the
intention of depositing, cash in escrow in the amount of $40,329,375,
which is to be paid to the holders of Class 1 claims in the Chapter 11
Cases pursuant to Sections 4.1(A) and 6.2(Q) of the Joint Plan.
-19-
<PAGE>
(b) Exchange Alternative. The parties to this Agreement hereby agree that
if the HCC Refinancing is no longer being actively pursued or if it is
not consummated by June 30, 1999, then each of them will enter into an
exchange and voting agreement contemplating the issuance of new notes
by PCC (the "New PCC Notes") to the holders of Existing PRT Notes on
the terms set forth in Exhibit 21(b) through a plan of reorganization
substantially similar to the Joint Plan, subject to the recognition by
such parties that certain issues arising under the Investment Company
Act of 1940 shall be resolved on a mutually agreeable basis.
(c) General Agreement. In the event that the parties are obligated to
pursue the transaction contemplated by Section 21(b), HCC hereby
agrees, to the extent permitted by the Indenture relating to its
existing 12 3/4% Senior Secured Notes due 2003 (the "HCC Notes"), that
---------
in the event that it refinances the HCC Notes in full (including
transactions in which 90% or more of the HCC Notes are refinanced with
covenant-stripping amendments to the indenture or defeasance of the
remaining HCC Notes), and in the event that such refinancing occurs
more than 5 1/2 months prior to maturity of the HCC Notes, it will
also refinance the New PCC Notes as part of such refinancing. It is
HCC's intention to refinance the HCC Notes, and to refinance the New
PCC Notes concurrently therewith, as soon as market conditions permit.
In the event of a refinancing of the HCC Notes and the New PCC Notes
by HCC, the holders of the New PCC Notes will have the right to
receive and the obligation to take, in exchange for
-20-
<PAGE>
the New PCC Notes, (i) cash and/or (ii) new notes issued pursuant to
the same indenture as those notes by HCC to the HCC Noteholders ("New
---
Notes"), in an aggregate amount (for these purposes, counting the New
-----
Notes at their issue price), equal to 102.75% of the principal amount
of the New PCC Notes and in the same proportion that holders of the
HCC Notes receive cash and New Notes in the HCC refinancing. If two or
more tranches of New Notes are issued in connection with such
refinancing, the holders of PCC Notes will have the right to a pro
rata participation in each tranche.
22. Professional Fees. PCC, PRT and NJMI jointly and severally agree to pay,
subject to Bankruptcy Court approval if necessary, the reasonable fees and
expenses of Ropes & Gray as counsel for the Consenting Holders, incurred through
the earlier of the effective date of the Joint Plan or the date of an Agreement
Termination Event. PCC, PRT and NJMI also agree to actively support, including
joining in, a motion of the Consenting Holders for payment of such fees as a
substantial contribution to the case pursuant to Bankruptcy Code Section
503(b)(3)(D).
23. Cooperation in Sands Bankruptcy.
(a) Each member of the GBCC Group shall take all actions reasonably
requested by any of PRT, PCC, NJMI and the Consenting Holders, in assisting in
the prosecution of the claims of PCC, PRT and NJMI against the Sands. Except for
reimbursement of actual out of pocket expenses (and not including time), such
assistance shall be provided at no additional cost to PRT, PCC, NJMI or the
Consenting Holders. The GBCC Group shall not be required to have any of their
personnel devote more time to the prosecution of such claims than a reasonable
non-affiliated party would if prosecuting such claims for itself.
-21-
<PAGE>
(b) Without limiting the foregoing, the GBCC Group shall consult with the
Consenting Holders regarding developments in the Sands Bankruptcy and will take
such actions in the Sands Bankruptcy as may reasonably be requested by the
Consenting Holders that do not conflict with fiduciary duties owed to other
creditors or shareholders, applicable laws or regulations, the Interim
Settlement Agreement or the Settlement Agreement.
(c) HCC and NJMI agree that the Services Agreement between them dated as
of January 1, 1994 has been terminated and that HCC hereby releases any claim
for damages, against PCC, PRT or NJMI arising therefrom or related thereto.
24. Specific Performance. It is understood and agreed by each of the parties
hereto that money damages would not be a sufficient remedy for any breach of
this Agreement by any party and each non-breaching party shall be entitled to
specific performance and injunctive or other equitable relief as a remedy of any
such breach.
25. Survival and Assignment. The agreements and covenants contained in
Sections 10, 11, 12, 13, 14, 15, 16, 18, 22, 23 and 24 shall survive substantial
consummation of the Joint Plan. The representation and warranties of HCC and the
GBCC Group contained in Section 6(a)(i)-(v) and the representations and
warranties of the GBCC Group contained in Section 6(b)(i) shall survive
substantial consummation of the Joint Plan. The covenants of HCC, the GBCC Group
and the Consenting Holders contained in Sections 21(b) and 21(c) shall survive
the Agreement Termination Date.
-22-
<PAGE>
SIGNED this 28th day of April, 1999.
GREATE BAY CASINO CORPORATION
Two Galleria Tower, Suite 2200
13455 Noel Road
Dallas, Texas 75240
By: /s/ John C. Hull
-----------------------------------
Its: Chairman
------------------------------
PRATT CASINO CORPORATION
Two Galleria Tower, Suite 2200
13455 Noel Road
Dallas, Texas 75240
By: /s/ John C. Hull
-----------------------------------
Its: Chairman
------------------------------
PRT FUNDING CORP.
Two Galleria Tower, Suite 2200
13455 Noel Road
Dallas, Texas 75240
By: /s/ John C. Hull
-----------------------------------
Its: Chairman
------------------------------
NEW JERSEY MANAGEMENT, INC.
Indiana Avenue and Brighton Park
Atlantic City, NJ 08401
By: /s/ John C. Hull
-----------------------------------
Its: Chairman
------------------------------
HOLLYWOOD CASINO CORPORATION
Two Galleria Tower, Suite 2200
13455 Noel Road
Dallas, Texas 75240
By: /s/ Jack E. Pratt
-----------------------------------
Its: Chairman
------------------------------
-23-
<PAGE>
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
By: /s/ Howard Shams Existing PRT Notes $ 20,143,000.00
---------------------- --------------------
Its: Vice President
----------------------
SUNAMERICA INC.
One Sun America Center
38th Floor - Century City
Los Angeles, California 90067
By: /s/ Peter McMillan Existing PRT Notes $ 26,090,000
---------------------- -------------------
Its: Authorized Agent
----------------------
THE PUTNAM ADVISORY COMPANY, INC.
as investment adviser of:
Ameritech Pension Trust
Putnam Offshore Funds (Cayman) Ltd. - Putnam Diversified Income Fund
Strategic Global Fund - High Yield Fixed Income (Putnam) Fund
By: /s/ John R. Verani Existing PRT Notes $350,000
---------------------- ------------------
Its: Senior Vice President
----------------------
PUTNAM FIDUCIARY TRUST COMPANY
as investment adviser of:
Putnam High Yield Managed Trust
Putnam High Yield Fixed Income Fund, LLC
By: /s/ John R. Verani Existing PRT Notes $1,295,000.00
---------------------- --------------------
Its: Senior Vice President
----------------------
-24-
<PAGE>
PUTNAM INVESTMENT MANAGEMENT, INC.
as investment adviser of:
Putnam Variable Trust - Putnam VT High Yield Fund
Putnam Asset Allocation Funds - Balanced Portfolio
Putnam High Yield Trust
Putnam Asset Allocation Funds - Conservative Portfolio
Putnam High Yield Advantage Fund
Putnam High Income Convertible and Bond Fund
Putnam Asset Allocation Funds - Growth Portfolio
Putnam Managed High Yield Trust
The George Putnam Fund of Boston
Putnam Convertible Opportunities and Income Trust
Putnam Master Income Trust
Putnam Premier Income Trust
Putnam Master Intermediate Income Trust
Putnam Diversified Income Trust
Putnam Variable Trust - Putnam VT Diversified Income Fund
Putnam Balanced Retirement Fund
Travelers Series Fund, Inc. - Putnam Diversified Income Portfolio
Lincoln National Global Asset Allocation Fund, Inc.
Putnam Variable Trust - Putnam VT Global Asset Allocation Fund
Putnam Strategic Income Fund
Putnam Funds Trust - Putnam High Yield Total Return Fund
By: /s/ John R. Verani Existing PRT Notes $34,945,000.00
---------------------- --------------------
Its: Senior Vice President
----------------------
-25-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GREATE BAY CASINO CORPORTION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000030117
<NAME> GREATE BAY CASINO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,590
<SECURITIES> 0
<RECEIVABLES> 248
<ALLOWANCES> 0
<INVENTORY> 441
<CURRENT-ASSETS> 14,717
<PP&E> 890
<DEPRECIATION> 454
<TOTAL-ASSETS> 20,808
<CURRENT-LIABILITIES> 105,152
<BONDS> 36,318
0
0
<COMMON> 519
<OTHER-SE> (121,181)
<TOTAL-LIABILITY-AND-EQUITY> 20,808
<SALES> 0
<TOTAL-REVENUES> 2,203
<CGS> 0
<TOTAL-COSTS> 1,016
<OTHER-EXPENSES> (578)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,768
<INCOME-PRETAX> (2,003)
<INCOME-TAX> (33)
<INCOME-CONTINUING> (2,036)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,036)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
