Lenard E. Schwartzer, Esq.
Nevada Bar No. 0399
Jeanette E. McPherson, Esq.
Nevada Bar No. 005423
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
Suite 800, Box 8
2300 West Sahara Avenue
Las Vegas, NV 89102
(702) 362-5118
Attorneys for Debtors and
Debtor-in-Possession
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
In re
DEBBIE REYNOLDS HOTEL & CASINO, INC., a Nevada corporation,
Debtor.
______________________________________/
In re
DEBBIE REYNOLDS MANAGEMENT COMPANY, INC., a Nevada corporation,
Debtor.
______________________________________/
In re
DEBBIE REYNOLDS RESORTS, INC., a Nevada corporation,
Debtor.
______________________________________/
JOINTLY ADMINISTERED
BK-S-97-25089 RCJ
Chapter 11
BK-S-97-25090 RCJ
Chapter 11
BK-S-97-25091 RCJ
Chapter 11
DATE: March 23, 1998
TIME: 10:00 A.M.
DEBTORS' JOINT AMENDED PLAN OF REORGANIZATION
DATED FEBRUARY 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME 2
1.1. Definitions. 2
1.1.1. Administrative Claim. 2
1.1.2. Administrative Claim Bar Date. 2
1.1.3 Allowed Claim. 2
1.1.4 Alternative Transaction Proposal. 3
1.1.5. Avoidance Actions. 3
1.1.6. Ballot. 3
1.1.7. Bankruptcy Code. 3
1.1.8. Bankruptcy Court. 3
1.1.9. Bankruptcy Rules. 3
1.1.10. Board of Directors. 3
1.1.11. Bar Date. 3
1.1.12. Capital Lease Claims. 3
1.1.13. CFI. 3
1.1.14. Chapter 11 Cases. 3
1.1.15. Claim. 3
1.1.16. Class. 4
1.1.17. Common Stock. 4
1.1.18. Confirmation. 4
1.1.19. Confirmation Date. 4
1.1.20. Confirmation Hearing. 4
1.1.21. Confirmation Order. 4
1.1.22. Contingent Claim. 4
1.1.23. Creditor. 4
1.1.24. Creditors' Committee. 4
1.1.25. Cure. 4
1.1.26. Debtors. 4
1.1.27. Deed of Trust Claims. 4
1.1.28. Disbursing Agent. 4
1.1.29. Disclosure Statement. 4
1.1.30. Disputed Claim. 5
1.1.31. Disputed Equity Interest. 5
1.1.32. Distribution Date. 5
1.1.33. Effective Date. 5
1.1.34. Equity Interest. 5
1.1.35. Equity Interest - Related Claim. 5
1.1.36. Escrow Company. 5
1.1.37. Estate. 5
1.1.38. Final Order. 5
1.1.39. Gaming Authorities. 6
1.1.40. General Unsecured Claim. 6
1.1.41. IRS. 6
1.1.42. New Common Stock. 6
1.1.43. Old or Existing Common Stock. 6
1.1.44. Petition Date. 6
1.1.45. Plan. 6
1.1.46. Preserved Ordinary Course Administrative Claim. 6
1.1.47. Priority Claim. 6
1.1.50. Professional Fee Bar Date. 6
1.1.51. Professional Fees. 6
1.1.52. Reinstated or Reinstatement. 6
1.1.53. Reorganized Debtors. 7
1.1.54. Reorganized DRHCI. 7
1.1.55. Reorganized DRHCI Articles. 7
1.1.56. Reorganized DRHCI By-Laws. 7
1.1.57. SEC. 7
1.1.58. Secured Claim. 7
1.1.59. Securities Act. 7
1.1.60. Statutory Committee. 7
1.1.61. Subordinated Claim. 7
1.1.62. Tax Claims. 7
1.1.63. TD. 7
1.1.64. Time Share Unit Owners. 7
1.1.65. Time Share Unit Owners Committee. 8
1.1.66. YESCO Claim. 8
1.2. Computation of Time. 8
1.3. Rules of Interpretation. 8
2. TREATMENT OF UNCLASSIFIED CLAIMS 8
2.1. General. 8
2.2. Treatment of Administrative Claims.8
2.2.1. Generally. 8
2.2.2. Requests for Payment. 8
2.3. Preserved Ordinary Course Administrative Claims. 8
2.4. CFI's Administrative Claims. 9
3. DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS 9
3.1. Summary of Classification.9
3.2 Specific Classification. 9
3.2.1. Class 1 - Priority Claims. 9
3.2.2. Class 2 - Tax Claims. 10
3.2.3. Class 3 - Miscellaneous Secured Claims. 10
3.2.4. Class 4 - Deed of Trust Claims. 10
3.2.5. Class 5 - Capital Lease Claims. 10
3.2.6. Class 6 - YESCO Claim. 10
3.2.7. Class 7 - General Unsecured Claims. 10
3.2.8. Class 8 - Time Share Unit Owners. 10
3.2.9. Class 9 - DRMC and DRRI Common Stock. 10
3.2.10. Class 10 - Equity Interests and Equity Interest
Related Claims. 10
4. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES
OF CLAIMS NOT IMPAIRED BY THIS PLAN10
4.1. Class 1 - Priority Claims. 10
4.2. Class 2 - Tax Claims. 10
4.3. Class 8 - Time Share Unit Owners. 11
4.4. Class 9 - DRMC and DRRI Common Stock. 11
5. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES
OF CLAIMS AND EQUITY INTERESTS IMPAIRED BY THIS PLAN 11
5.1. Class 3 - Miscellaneous Secured Claims. 11
5.2. Class 4 - Deed of Trust Claims. 11
5.2.1. Distributions. 11
5.2.2. Fees. 11
5.2.3. Section 363 (k) Right to Credit Bid. 11
5.2.4. Payment through Escrow. 11
5.3. Class 5 - Capital Lease Claims. 11
5.4. Class 6 - YESCO Claim. 12
5.5. Class 7 - General Unsecured Claims. 12
5.6. Class 10 - Equity Interests and Equity Interest
Related Claims. 12
5.6.1 Equity Interests. 12
5.6.2 Equity Interest Related Claims. 12
6. MEANS FOR IMPLEMENTATION OF PLAN 12
6.1. Central Florida Investments, Inc. ("CFI") Proposal
for Reorganization. 12
6.2. The $250,000 Bridge Loan. 13
6.2.1. Funding of Bridge Loan. 13
6.2.2. Terms of Bridge Loan. 13
6.3. The New First Deed of Trust Loan (New Loan). 14
6.3.1. Commitment for New Loan. 14
6.3.2. Use of New Loan. 14
6.3.3. Issuance of New Common Stock. 14
6.3.4. Settlement with Creditors by CFI.14
6.4. The Sale of Additional Stock to CFI. 15
6.5. Warrants. 15
6.5.1. The Issuance of Warrants to CFI. 15
6.5.2. The Issuance of Warrants to TD. 15
6.6. The Lease of a Portion of Premises to TD. 16
6.7. CFI's Participation in Casino. 18
6.8. Miscellaneous Provisions. 19
6.8.1. Increase in Authorized Shares. 19
6.8.2. Other Approvals and Actions. 19
6.8.3. Board Representation. 19
6.8.4. Ownership of Museum Assets. 19
6.8.5. Definitive Agreements. 19
6.9. New Certificate of Incorporation and Bylaws. 19
6.10. No Corporate Action Required. 19
6.11. Directors and Officers. 20
7. EXECUTORY CONTRACTS AND UNEXPIRED LEASES 20
7.1. Executory Contracts. 20
7.2. Unexpired Leases. 20
7.3. Approval of Assumption or Rejection. 20
7.4. Cure of Defaults. 20
7.5. Post-Petition Date Contracts and Leases. 20
7.6. Bar Date. 21
7.7. Indemnification Obligations. 21
8. PRESERVATION OF LITIGATION CLAIMS 21
8.1. 21
9. EFFECTIVE DATE TRANSACTIONS 21
10. CONDITIONS PRECEDENT 21
10.1. Conditions to Confirmation. 21
10.2. Conditions to Effectiveness. 21
11. TITLE TO PROPERTY; DISCHARGE; INJUNCTION 22
11.1. Revesting of Assets. 22
11.2. Discharge. 23
11.3. Injunction. 23
11.4. Exculpation. 23
12. RETENTION OF JURISDICTION 23
12.1. Jurisdiction. 23
13. MODIFICATION, AMENDMENT, AND WITHDRAWAL OF PLAN;
ALTERNATIVE TRANSACTIONS 25
13.1. Modification and Amendment. 25
13.2. Alternative Transactions. 25
13.3. Elimination of Old Common Stock. 25
14. MISCELLANEOUS 25
14.1. Filing of Objections to Claims. 25
14.2. Settlement of Objections After Effective Date. 26
14.3. Effectuating Documents; Further Transactions;
Timing. 26
14.4. Exemption from Transfer Taxes. 26
14.5. Revocation or Withdrawal of this Plan. 26
14.6. Binding Effect. 26
14.7. Governing Law. 26
14.8. Intercompany Claims. 25
14.9. Providing for Claims Payment. 26
14.10. Set Offs. 27
14.11. Notices. 27
14.12. Creditor's Committee. 28
14.13. Severability. 28
14.14. Withholding and Reporting Requirements. 28
14.15. Post Confirmation Reporting. 28
14.16. Disbursing Agent Compensation. 28
14.17. Disbursing Agent's Professionals. 28
14.18. Cramdown. 29
14.19. Consolidation of Estates. 29
14.20. Solicitation. 29
<PAGE>
Debbie Reynolds Hotel & Casino, Inc. ("DRHCI"), Debbie Reynolds Management
Company, Inc. ("DRMC") and Debbie Reynolds Resort, Inc. ("DRRI"), the debtors
and debtors-in-possession in the above-captioned Chapter 11 reorganization cases
(collectively, the "Debtors") jointly propose this Plan of Reorganization
("Plan") for the resolution of the Debtors' outstanding Claims and Equity
Interests (as these terms are defined herein). All creditors and other
parties-in-interest should refer to the Disclosure Statement (as this term is
defined herein) for a discussion of the Debtors' history, business, properties,
results of operations and financial projections for future operations and for a
summary and analysis of this Plan and certain related matters.
All holders of Claims against and Equity Interests in the Debtors are
encouraged to read this Plan, the Disclosure Statement and the related
solicitation materials in their entirety before voting to accept or reject this
Plan.
Subject to the restrictions on modifications set forth in Section 1127 of
the Bankruptcy Code and Bankruptcy Rule 3019, and those restrictions on
modifications set forth in Article 13 to this Plan, the Debtors expressly
reserve the right to alter, amend or modify this Plan, one or more times before
its substantial consummation.
1. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME
1.1. Definitions. For purposes of this Plan, except as expressly provided
or unless the context otherwise requires, all capitalized terms not otherwise
defined shall have the meanings ascribed to them in this Article 1. Any term
used in this Plan that is not defined herein, but is defined in the Bankruptcy
Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in
the Bankruptcy Code or the Bankruptcy Rules. Whenever the context requires, such
terms shall include the plural as well as the singular, the masculine gender
shall include the feminine, and the feminine gender shall include the masculine.
As used in this plan, the following terms shall have the meanings specified
below:
1.1.1. Administrative Claim. A Claim for any cost or expense of
administration of the Chapter 11 Cases allowed under Sections 503(b), 507(b) or
546(c)(2) of the Bankruptcy Code and entitled to priority under Section
507(a)(1) of the Bankruptcy Code, including, but not limited to: (i) fees
payable pursuant to Section 1930 of Title 28 of the United States Code; (ii) the
actual and necessary costs and expenses incurred after the Petition Date of
preserving the Estates, including wages, salaries, or commissions for services
rendered after the commencement of the Chapter 11 Cases; and (iii) all
Professional Fees approved by the Bankruptcy Court pursuant to interim and final
allowances. To the extend that a Claim is allowed as an Administrative Claim
pursuant to Section 365(d)(3) of the Bankruptcy Code, such Claim shall also be
deemed an "Administrative Claim" under this section.
1.1.2. Administrative Claim Bar Date. The date or dates established by the
Bankruptcy Court for the filing of Administrative Claims, excepting therefrom
Claims for Professional Fees and Preserved Ordinary Course Administrative
Claims.
1.1.3 Allowed Claim. Any Claim, or any portion thereof, against the
Debtors: (i) proof of which, requests for payment of which, or application for
allowance of which, was filed or deemed to be filed on or before the Bar Date,
Administrative Claim Bar Date or the Professional Fee Bar Date, as the case may
be, for filling proofs of Claim or requests for payment for Claims of such type
against the Debtors; (ii) if no proof of Claim is filed, which has been or
hereafter is listed by the Debtors in the Schedules as liquidated in amount and
not disputed or contingent; or (iii) that is allowed in any contract,
instrument, indenture or other agreement entered into in connection with this
Plan and, in any case, a Claim as to which no objection to the allowance thereof
has been interposed within the applicable period of limitation fixed by this
Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court. The
term "Allowed," when used to modify a reference in this Plan to any Claim or
Class of Claims, shall mean a Claim ((or any Claim in any such Class) that is so
allowed, e.g. an "Allowed Secured Claim" is a Claim that has been allowed to the
extent of the value, as determined by the Bankruptcy Court pursuant to Section
506(a) of the Bankruptcy Code, of any interest in property of the Estate of the
Debtors securing such Claim.
1.1.4 Alternative Transaction Proposal. A written restructuring proposal
that is received by the Debtors prior to the Confirmation Hearing as an
alternative to this Plan.
1.1.5. Avoidance Actions. This term refers to and means those actions
preserved for the Estates set forth in Sections 542, 543, 544, 545, 547, 548 and
549 of the Bankruptcy Code.
1.1.6. Ballot. The form of ballot or ballots that will be distributed with
the Disclosure Statement to holders of Claims entitled to vote under this Plan
in connection with solicitation of acceptance of this Plan.
1.1.7. Bankruptcy Code. The Bankruptcy Reform Act of 1978, Title 11, United
States Code, as applicable to the Chapter 11 Cases, as now in effect or
hereafter amended, 11 U.S.C. 101 et seq.
1.1.8. Bankruptcy Court. The Bankruptcy Court of the United States District
Court for the District of Nevada or such other court as may have jurisdiction
over the Chapter 11 Cases.
1.1.9. Bankruptcy Rules. Collectively, the Federal Rules of Bankruptcy
Procedure, the local rules of the Bankruptcy Court and the Federal Rules of
Civil Procedure, as applicable to the Chapter 11 Cases, as now in effect or
hereinafter amended.
1.1.10. Board of Directors. This term refers to and means the duly
constituted and acting directors of DRHCI.
1.1.11. Bar Date. The date or dates established by the Bankruptcy Court for
the filing of proofs of Claim for all Creditors, excepting therefrom,
Administrative Claims, Preserved Ordinary Course Administrative Claims, and
Claims for Professional Fees.
1.1.12. Capital Lease Claims. Any and all indebtedness of the Debtors to
any equipment lessor who have leased equipment to any of the Debtors which lease
provides the Debtors with an option to purchase the leased equipment or if the
lease is for the economic life of the leased equipment.
1.1.13. CFI. Central Florida Investments, Inc. and/or its assigns of the
Letter Agreement dated November 13, 1997.
1.1.14. Chapter 11 Cases. The Cases under Chapter 11 of the Bankruptcy Code
in which DRHCI, DRMC and DRRI are the debtors and debtors-in-possession pending
before the Bankruptcy Court, including all adversary proceedings pending in
connection therewith.
1.1.15. Claim. Any right to payment from the Debtors, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
arising at any time before the Effective Date or relating to any event that
occurred before the Effective Date; or any right to an equitable remedy for
breach of performance if such breach gives rise to a right of payment from the
Debtors, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
1.1.16. Class. A category of holders of Claims or Equity Interests as
classified in this Plan.
1.1.17. Common Stock. The Old Common Stock and the New Common Stock.
1.1.18. Confirmation. The entry by the Bankruptcy Court of the Confirmation
Order.
1.1.19. Confirmation Date. The date upon which the Bankruptcy Court enters
the Confirmation Order confirming this Plan.
1.1.20. Confirmation Hearing. The duly noticed hearing held by the
Bankruptcy Court on confirmation of this Plan pursuant to Section 1128 of the
Bankruptcy Code. The Confirmation Hearing may be adjourned by the Bankruptcy
Court from time to time without further notice other than the announcement of
the adjourned date at the Confirmation Hearing.
1.1.21. Confirmation Order. The order entered by the Bankruptcy Court
confirming this Plan.
1.1.22. Contingent Claim. A Claim which is either contingent or
unliquidated on or immediately before the Confirmation Date.
1.1.23. Creditor. Any holder of a Claim, whether or not such Claim is an
Allowed Claim, encompassed within the statutory definition set forth in Section
101(a) of the Bankruptcy Code.
1.1.24. Creditors' Committee. The Official Committee of General Unsecured
Creditors appointed by the United States Trustee in this Chapter 11 Case to
represent the Unsecured Creditors.
1.1.25. Cure. The distribution on the Effective Date or as soon thereafter
as practicable of Cash, or such other property as may be agreed upon by the
parties or ordered by the Bankruptcy Court, with respect to the assumption of an
executory contract or unexpired lease, pursuant to Section 365(b) of the
Bankruptcy Court, with respect to the assumption of an executory contract or
unexpired lease, pursuant to Section 365(b) of the Bankruptcy Code, in an amount
equal to all unpaid monetary obligations, without interest or penalties, or such
other amount as may be agreed upon by the parties, under such executory contract
or unexpired lease, to the extent such obligations are enforceable under the
Bankruptcy Code and applicable bankruptcy law.
1.1.26. Debtors. Collectively, DRHCI, DRMC and DRRI, as the
debtors-in-possession in the Chapter 11 Cases, pursuant to Section 1107 and 1108
of the Bankruptcy Code.
1.1.27. Deed of Trust Claims. Claims secured by recorded deeds of trust
which encumber the real estate of any of the Debtors.
1.1.28. Disbursing Agent. Such Person as may be retained by the Debtors and
approved by the Bankruptcy Court to hold and distribute certain consideration to
the holders of Unclassified Claims and Allowed claims in Classes 1, 2, 3, 5, 6
and 7 of this Plan.
1.1.29. Disclosure Statement. The written disclosure statement that relates
to this Plan, as approved by the Bankruptcy Court pursuant to Section 1125 of
the Bankruptcy Code and Bankruptcy Rule 3017, as such disclosure statement may
be amended, modified or supplemented from time to time.
modified or supplemented from time to time.
1.1.30. Disputed Claim. A Claim which is: (i) subject to timely objection
interposed by the Debtors or any party in interest entitled to file and
prosecute such objection in the Chapter 11 Cases, if at such time such objection
remains unresolved; (ii) a Claim that is listed by the Debtors as disputed,
unliquidated or contingent in the Schedules; or (iii) if no objection has been
timely filed, a Claim which has been asserted in a timely filed proof of Claim
in an amount greater than or in a Class different than that listed by the
Debtors in the Schedules as liquidated in amount and not disputed or contingent;
provided, however, that the Bankruptcy Court may estimate a Disputed Claim for
purposes of allowance pursuant to Section 502(c) of the Bankruptcy Code. The
term "Disputed", when used to modify a reference in this Plan to any Claim or
Class of Claims, shall mean a Claim (or any Claim in such Class) that is a
Disputed Claim as defined herein. In the event there is a dispute as to
classification or priority of a Claim, it shall be considered a Disputed Claim
in its entirety. Until such time as a Contingent Claim becomes fixed and
absolute, such Claim shall be treated as a Disputed Claim and not an Allowed
claim for purposes related to allocations and distributions under this Plan.
1.1.31. Disputed Equity Interest. An Equity Interest which is the subject
of a timely objection interposed by the Debtors, or any party in interest
entitled to file and prosecute any such objection in the Chapter 11 Cases, if at
such time such objection remains unresolved.
1.1.32. Distribution Date. The date, occurring as soon as practicable after
the Effective Date, upon which distributions are made to holders of General
Unsecured Claims under this Plan.
1.1.33. Effective Date. The last to occur of: (i) the first Business Day
that is at least eleven (11) days after the Confirmation Date and on which no
stay of the Confirmation Order is in effect and (ii) the Business Day on which
the New First Deed of Trust Loan is closed or the alternative.
1.1.34. Equity Interest. Any interest in DRHCI, including Old Common Stock,
represented by any class or series of common or preferred stock issued by DRHCI
prior to the Effective Date and any warrants, options or rights to purchase any
such common or preferred stock.
1.1.35. Equity Interest - Related Claim. Any Claim arising from the
rescission of a purchase or sale of an Equity Interest, or for damages arising
from the purchase or sale of an Equity Interest, or any Claim by any Person that
asserts equitable or contractual rights of reimbursement, contribution or
indemnification arising from such Claim.
1.1.36. Escrow Company. A licensed Nevada escrow company which will
disburse funds to holders of secured claims and equipment lessors and issue
title insurance insuring title to the Debtors' real property for a purchaser or
lender.
1.1.37. Estate. Collectively, the estates created for the Debtors in the
Chapter 11 Cases, pursuant to Section 541 of the Bankruptcy Code.
1.1.38. Final Order. An order or judgment which has not been reversed,
stayed, modified or amended and is no longer subject to appeal, certiorari
proceeding or other proceeding for review or rehearing, and as to which no
appeal, certiorari proceeding, or other proceeding fro review or rehearing shall
then be pending.
1.1.39. Gaming Authorities. Collectively, the Gaming Board, the Gaming
Commission, and any other regulatory agency having the authority to regulate the
gaming activities of the Debtors or on the Debtors' premises.
1.1.40. General Unsecured Claim. A Claim not secured by a charge against or
interest in property in which the Debtors' Estate has an interest which is not
entitled to priority under the Bankruptcy Code.
1.1.41. IRS. The Internal Revenue Service.
1.1.42. New Common Stock. The authorized shares of common stock of
Reorganized DRHCI.
1.1.43. Old or Existing Common Stock. The shares of common stock of DRHCI
issued and outstanding immediately prior to the Effective Date, and all options,
warrants and similar rights, whether contractual or otherwise, to acquire such
shares of common stock, and all shares or other securities convertible or
otherwise exchangeable into such shares of common stock.
1.1.44. Petition Date. The date (i.e., July 3, 1997) on which the Debtors
filed their voluntary petitions commencing the Chapter 11 Cases.
1.1.45. Plan. This Plan of Reorganization, either in its present form or as
it may be amended, supplemented or modified from time to time, including all
exhibits and schedules annexed hereto or referenced herein.
1.1.46. Preserved Ordinary Course Administrative Claim. Administrative
Claims that are based on liabilities incurred by the Debtors in the purchase,
lease or use of goods and services in the ordinary course of their business,
including, but not limited to, Administrative Claims due on account of services
provided to the Debtors after the Petition Date which are entitled to priority
in payment under Section 507(a)(1) of the Bankruptcy Code.
1.1.47. Priority Claim. Any Claim entitled to priority in payment under
Section 507(a)(3), (4), or (6) of the Bankruptcy Code and all claims based upon
medical benefits owed to employees and former employees and medical providers.
1.1.50. Professional Fee Bar Date. The date, as set by order of the
Bankruptcy Court, on or before which applications for compensation or expense
reimbursement, including Professional Fees receivable pursuant to Section
503(b), must be filed with the Bankruptcy Court.
1.1.51. Professional Fees. The Administrative Claims for compensation and
reimbursement submitted pursuant to Sections 330.331 or 503(b) of the Bankruptcy
Code of Persons: (i) employed pursuant to an order of the Bankruptcy Court under
Sections 327 or 1103 of the Bankruptcy Code; or (ii) for whom compensation and
reimbursement has been allowed by the Bankruptcy Court pursuant to Section
503(b) of the Bankruptcy Code, including, but not limited to, reasonable
professional fees and expenses incurred by the Indenture Trustee and counsel to
the Indenture Trustee, that are not otherwise satisfied in accordance with other
provisions of this Plan.
1.1.52. Reinstated or Reinstatement. These terms shall mean: (i) leaving
unaltered the legal, equitable and contractual rights of the holder of a Claim
so as to leave such Claim unimpaired in accordance with Section 1124 of the
Bankruptcy Code; or (ii) notwithstanding any contractual provision or applicable
law that entitles the holder of such Claim to demand or receive accelerated
payment of such Claim after the occurrence of a default: (a) Curing any such
default that occurred before or after the Petition Date, other than a default of
a kind specified in Section 365(b)(2) of the Bankruptcy Code; (b) reinstating
the maturity of such Claim as such maturity existed before such default; (c)
compensating the holder of such Claim for any damages incurred as a result of
any reasonable reliance by such holder on such contractual provision or such
applicable law; and (d) not otherwise altering the legal, equitable, or
contractual rights to which such Claim entitles the holder of such Claim;
provided, however, that any contractual right that does not pertain to the
payment when due of principal and interest on the obligation on which such Claim
is based, including, but not limited to, financial covenant ratios, negative
pledge covenants, covenants or restrictions on merger or consolidation, and
affirmative covenants regarding corporate existence prohibiting certain
transactions or action contemplated by this Plan, or conditioning such
transactions or actions on certain factors, shall not be required in order to
accomplish Reinstatement.
1.1.53. Reorganized Debtors. DRHCI, DRMC and DRRI, on and after the
Effective Date.
1.1.54. Reorganized DRHCI. DRHCI, a Nevada corporation, on and after the
Effective Date.
1.1.55. Reorganized DRHCI Articles. The Restated Certificate of
Incorporation of Reorganized DRHCI, which shall be substantially in the form
filed with the Bankruptcy Court before the Confirmation Hearing.
1.1.56. Reorganized DRHCI By-Laws. The Restated By-Laws of Reorganized
DRHCI, which shall be substantially in the form filed with the Bankruptcy Court
before the Confirmation Hearing.
1.1.57. SEC. The United States Securities and Exchange Commission.
1.1.58. Secured Claim. A Claim to the extend of the value of any interest
in property of the Estate securing such Claim or to the extent of the amount of
such Claim subject to set off in accordance with Section 553 of the Bankruptcy
Code, in either case as determined pursuant to Section 506(a) of the Bankruptcy
Code.
1.1.59. Securities Act. The Securities Act of 1933, as amended, and the
regulations promulgated thereunder.
1.1.60. Statutory Committee. Collectively, the Unsecured Creditors
Committee, and the Time Share Unit Owners Committee appointed pursuant to
Section 1102 of the Bankruptcy Code.
1.1.61. Subordinated Claim. Any Claim or Equity Interest subordinated, for
purposed of distribution or otherwise, pursuant to Section 510 of the Bankruptcy
Code.
1.1.62. Tax Claims. The Claim of any federal, state or local governmental
unit which, entitled to priority under the Bankruptcy Code or is secured by a
lien upon property owned by the Debtors by operation of applicable law,
including, but not limited to, every such Claim for unpaid real and personal
property taxes together with statutory interests.
1.1.63. TD. TD Entertainment, a corporation to be formed, which will be
owned by Todd Fisher and Debbie Reynolds or their designees.
1.1.64. Time Share Unit Owners. Owners of Time Share Units in the Debbie
Reynolds Hotel or claims based upon ownership of such time share units.
1.1.65. Time Share Unit Owners Committee. The Official Committee appointed
by the United States Trustee in this Chapter 11 Case to represent the Time Share
Unit Owners.
1.1.66. YESCO Claim. The Claim of Young Electronic Sign Company relating to
the lease of the signage used in conjunction with the Debtors' hotel.
1.2. Computation of Time. In computing any period of time prescribed or
allowed by this Plan, unless otherwise expressly provided, the provisions of
Bankruptcy Rule 9006(a) shall apply.
1.3. Rules of Interpretation. For purposes of this Plan and the Plan
Supplement only: (i) any reference in this plan or Plan Supplement to a
contract, instrument, release, indenture, or other agreement or document's being
in particular form or on particular terms and conditions means that such
document shall be substantially in such form or substantially on such terms and
conditions; (ii) any reference in this Plan or Plan Supplement to an existing
document or exhibit filed or to be filed means such document or exhibit as it
may have been or may be amended, modified, or supplemented; (iii) unless
otherwise specified, all references in this Plan or Plan Supplement to Sections,
Articles, Schedules and Exhibits are references to Sections, Articles, Schedules
and Exhibits of or to this Plan; (iv) the words "herein," "hereof," "hereto,"
and "hereunder" refer to this Plan in its entirety rather than to a particular
portion of this Plan; (v) captions and headings to Articles and Sections are
inserted for convenience of reference only and are not intended to be a part of
or to affect the interpretation of this Plan; and (vi) the rules of construction
set forth in Section 102 of the Bankruptcy Code and in the Bankruptcy Rules
shall apply unless otherwise expressly provided.
2. TREATMENT OF UNCLASSIFIED CLAIMS
2.1. General. The Claims against the Debtors set forth in this Article 2
are not designated as Classes pursuant to Section 1123(a)(1) of the Bankruptcy
Code. The holders of such Claims are not entitled to vote on this Plan. The
treatment of the Claims set forth below is consistent with the requirements of
Section 1129(a)(9)(A) of the Bankruptcy Code.
2.2. Treatment of Administrative Claims.
2.2.1. Generally. Each Allowed Administrative Claim, other than Preserved
Ordinary Course Administrative Claims, shall be paid in full in Cash (or
otherwise satisfied in accordance with its terms) upon the latest of: (i) the
Effective Date, or as soon thereafter as practicable; (ii) the tenth (10th)
Business Day after such Claim is Allowed, or as soon thereafter as practicable;
and (iii) such date as the holder of such Claim and Debtors, as the case may be,
have agreed or shall agree.
2.2.2. Requests for Payment. All requests for payment of Administrative
Claims (except for Professional Fees and Preserved Ordinary Course
Administrative Claims) must be filed by the Administrative Claims Bar Date or
the holders thereof shall be forever barred from asserting such Administrative
Claims against the Debtors, Reorganized DRHCI. All final applications for
allowance and disbursement of Professional Fees must be filed by the
Professional Fee Bar Date. All such applications must be in compliance with all
of the terms and provisions of any applicable order of the Bankruptcy Court,
including the Confirmation Order, and all other orders governing payment of
Professional Fees. Such applications may be later amended to include any fees
and costs incurred after the Confirmation Date.
2.3. Preserved Ordinary Course Administrative Claims. Each Allowed
Preserved Ordinary Course Administrative Claim shall be paid by the Disbursing
Agent, as the case may be, pursuant to the terms and conditions under which such
Claim arose. Such payments shall be made by the Disbursing Agent without further
action by the holder of such Claim.
2.4. CFI's Administrative Claim. The administrative claim of CFI for making
or arranging for the New Loan of $15,650,000 and for investing $3,000,000 in the
Debtors will be discharged by the issuance of New Common Stock and Warrants to
CFI.
3. DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS
Pursuant to this Plan and in accordance with Section 1123(a)(1) of the
Bankruptcy Code, all Claims of Creditors and the holders of Equity Interests and
the Gaming Corp. Common Stock (except Administrative Claims, Priority Tax
Claims, Reclamation Claims, and Preserved Ordinary Course Administrative Claims)
are placed in the Classes described below. A Claim, Equity Interest and the
Gaming Corp. Common Stock, is classified in a particular Class only to the
extent that the Claim or Equity Interest qualifies within the description of
that Class and is classified in other Classes only to the extent that any
remainder of the Claim or Equity Interest qualifies within the description of
such other Classes. A Claim is also classified in a particular Class only to the
extent that such Claim is an Allowed Claim in that Class and has not been paid,
released or otherwise satisfied prior to the Effective Date.
3.1. Summary of Classification.
Class 1: Priority Claims Unimpaired
- no solicitation required
Class 2: Tax Claims Unimpaired
- no solicitation required
Class 3: Miscellaneous Secured Impaired
Claims - entitled to vote
Class 4: Deed of Trust Claims Impaired
- entitled to vote
Class 5: Capital Lease Claims Impaired
- entitled to vote
Class 6: YESCO Claim Impaired
- entitled to vote
Class 7: General Unsecured Claims Impaired
- entitled to vote
Class 8: Time Share Unit Owners Unimpaired
- not entitled to vote
Class 9: DRMC and DRRI Common Unimpaired
Stock - not entitled to vote
Class 10: Equity Interests and Impaired
Equity Interests - Related - entitled to vote
Claims
3.2 Specific Classification.
3.2.1. Class 1 - Priority Claims. Class 1 consists of all Claims that are
entitled to priority under Section 507(a)(3), (4), or (6) of the Bankruptcy Code
and all medical benefits owed to employees and former employees and medical
providers.
3.2.2. Class 2 - Tax Claims. Class 2 consists of all Tax Claims. Each
holder of a Tax Claim shall be considered to be in its own separate subclass
within Class 2, and each such subclass shall be deemed to be a separate Class
for purposes of this Plan.
3.2.3. Class 3 - Miscellaneous Secured Claims. Class 3 consists of all
Secured Claims, other than Secured Claims in Class 4, Class 5, and Class 6. Each
holder of a Miscellaneous Secured Claim shall be considered to be in its own
separate subclass within Class 3, and each such subclass shall be deemed to be a
separate Class for purposes of this Plan.
3.2.4. Class 4 - Deed of Trust Claims. Class 4 consists of the Allowed
Secured Claims under the Deed of Trust. Each holder of a Deed of Trust may be
considered a separate subclass. The Deed of Trust claims are as follows:
Claimant Principal and Interest Accrued To Date of Petition
Resort Funding $2,480,700
Bennett Funding International $3,476,426
Galt Capital $1,168,300
Gregory Orman $ 624,025
Subtotal $7,749,441
3.2.5. Class 5 - Capital Lease Claims. Class 5 consists of Capital Lease
Claims. Each holder of a Capital Lease Claim may be considered a separate
subclass.
3.2.6. Class 6 - YESCO Claim. Class 6 consists of the YESCO Claim.
3.2.7. Class 7 - General Unsecured Claims. Class 7 consists of all General
Unsecured Claims, and the unsecured deficiency Claim of the holders of the
Original Deed of Trust Notes.
3.2.8. Class 8 - Time Share Unit Owners. Class 8 consists of all owners of
Time Share Units in the Debbie Reynolds Hotel.
3.2.9. Class 9 - DRMC and DRRI Common Stock. Class 9 consists of the DRMC
Common Stock held by DRMCI and the DRRI Common Stock held by DRMC.
3.2.10. Class 10 - Equity Interests and Equity Interest Related Claims.
Class 10 consists of all Equity Interests and all Equity Interest Related
Claims.
4. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS
NOT IMPAIRED BY THIS PLAN
4.1. Class 1 - Priority Claims. Each Allowed Priority Claim shall be paid
in full in Cash upon the latest of: (i) the Effective Date; (ii) the tenth
(10th) Business Day after such Claim is Allowed; or (iii) such date as the
holder of such Claim and Debtors have agreed or shall agree. Class 1 is
unimpaired under this Plan. Holders of Allowed Claims in Class 1 are not
entitled to vote on this Plan.
4.2. Class 2 - Tax Claims. Each Allowed Tax Claim shall be paid in full in
Cash upon the latest of: (i) the Effective Date; (ii) such date as may be fixed
by the Bankruptcy Court; (iii) the tenth (10th) Business Day after such Claim is
Allowed; (iv) the date on which such Tax Claim is scheduled to be paid in the
ordinary course of business under applicable law or regulation; or (v) such date
as the holder of such Claims and Debtors have agreed or shall agree. Class 2 is
unimpaired under this Plan. Holders of Allowed Claims in Class 2 are not
entitled to vote on this Plan. Tax Claims which are secured by assets of the
Debtors with a value in excess of such claims shall be paid with accrued
statutory interest.
4.3. Class 8 - Time Share Unit Owners. The contractual rights of each of
the Time Share Unit Owners shall be unaltered. Class 8 is unimpaired under this
Plan; Time Share Unit Owners are not entitled to vote on this Plan.
4.4. Class 9 - DRMC and DRRI Common Stock. On the Effective Date,
Reorganized DRHCI shall own all of DRMC Common Stock and Reorganized DRMC shall
continue as a wholly-owned subsidiary of Reorganized DRHCI. On the Effective
Date, Reorganized DRMC shall own all the DRRI Common Stock and Reorganized DRRI
shall continue as a wholly-owned subsidiary of Reorganized DRMC. Class 9 is
unimpaired under this Plan; the holder of the Class 9 DRMC Common Stock and DRRI
Common Stock is not entitled to vote on this Plan.
5. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF
CLAIMS AND EQUITY INTERESTS IMPAIRED BY THIS PLAN
5.1. Class 3 - Miscellaneous Secured Claims. On or within ten (10) days of
the Effective Date, the holder of any Allowed Secured Claim in Class 3 shall
receive cash equal to the amount of the Allowed Secured Claim without payment of
late charges, penalties or interest at default rates but including their
reasonable attorneys fees. Class 3 is impaired under this Plan. Holders of
Allowed Claims in Class 3 are entitled to vote on this Plan. Unless a party in
interest objects to its claim, the claim of Charter Equipment Leasing will be
allowed in the amount of $216,046 in this Class 3.
5.2. Class 4 - Deed of Trust Claims. The holders of Allowed Secured Claims
secured by Deeds of Trust shall receive the following treatment under this Plan.
5.2.1. Distributions. On the Effective Date, each holder of Deed of Trust
Claims as of the Effective Date shall be paid in full including accrued interest
and reasonable attorneys fees but excluding late payment fees, penalties and
interest at any default rate.
5.2.2. Fees. Attorneys fees shall either be agreed upon by the Debtor or
approved by the Bankruptcy Court.
5.2.3. Section 363 (k) Right to Credit Bid. In the event that an
Alternative Transaction Proposal is presented by Debtors or is considered by the
Bankruptcy Court at the Confirmation Hearing, the holder of each Deed of Trust
Claim shall have the right (if appropriate under the circumstances) pursuant to
Section 363(k) of the Bankruptcy Code to credit bid the Allowed Claim of such
holder in the event that an Alternative Transaction Proposal or any other sale
proposal is considered by the Bankruptcy Court at the Confirmation Hearing.
5.2.4. Payment through Escrow. Payment shall be made by the Escrow Company.
5.3. Class 5 - Capital Lease Claims. On the Effective Date, in exchange for
marketable title of any furniture, fixtures and equipment leased by the holders
of such claims to Debtors, holders of such claims will be paid the lesser of:
(a) the replace cost of the leased equipment (the cost the debtor would incur to
obtain like equipment for the same proposed use), or (b) the amount owed
including any accrued interest and reasonable attorney's fees but excluding late
payment fees, penalties and interest at any default rate. To the extent that the
amount owed exceeds the replacement costs of the leased equipment, the
difference shall be allowed as an unsecured claim in Class 7. However, such
unsecured claim will be further reduced by all post-petition interest and
attorney's fees.
Unless a party in interest objects before the Confirmation Hearing, the
Capital Lease Claims will be treated as follows:
Claimant Total Claim Replacement Value Balance
(Secured Claim) (Unsecured Claim)
Orix Leasing $ 20,000 $ 20,000 -0-
Charter Leasing $ 216,046 $145,000 $ 71,046
Balboa Capital $ 10,383 $ 10,383 -0-
Eaton/AT&T Fin. $ 6,695 $ 6,695 -0-
AT&T $ 13,151 $ 8,000 $ 5,151
Telerent $138,118 $ 60,000 $ 78,118
Phoenix Leasing $691,869 $200,000 $491,869
Total $1,096,262 $450,078 $646,184
If Charter Equipment Leasing is paid in full under Class 3, it will not be paid
under Class 5.
5.4. Class 6 - YESCO Claim. On the Effective Date, in full satisfaction and
settlement of the YESCO Claim and in exchange for marketable title to the
signage (whether it is considered personal property or fixtures) leased by YESCO
to Debtors, YESCO will receive $432,000.
5.5. Class 7 - General Unsecured Claims. Each holder of an Allowed Class 7
General Unsecured Claim shall receive the lesser of such holder's Allowed
General Unsecured Claim or such holder's Pro Rata share of the remaining funds
available for creditors offer the payment of all creditors in Classes 1 through
6, upon the latest of: (i) as soon as practicable after the Effective Date; (ii)
the tenth (10th) Business Day after such Claim is Allowed, or as soon thereafter
as practicable; and (iii) such date as the Disbursing Agent and the Bankruptcy
Court shall set (the "Distribution Date").
5.6. Class 10 - Equity Interests and Equity Interest Related Claims.
Holders of an Equity Interest and holders of Equity Interest-Related Claims
shall retain the Old Common Stock or be issued New Common Stock which shall be
15% of the equity in Reorganized DRHCI without further act or action.
5.6.1 Equity Interests. Holders of an Equity Interest shall retain their
Old Common Stock which shall become New Common Stock without further act or
action.
5.6.2 Equity Interest Related Claims. If the Court allows an Equity
Interest Related Claim, the Reorganized DRCHI shall issue to the holder of such
shares of New Common Stock as the Court determines is appropriate. In that
event, additional New Common Stock shall be issued to CFI to maintain its 85%
ownership of Reorganized DRCHI.
6. MEANS FOR IMPLEMENTATION OF PLAN
6.1. Central Florida Investments, Inc. ("CFI") Proposal for Reorganization.
The Letter agreement dated November 13, 1997 between DRHCI and CFI (the "Letter
Agreement") contemplates the following five separate and distinct, but
interdependent transactions as follows:
1. The making of a $250,000 loan by CFI to Debtors, as debtors in
possession, for use as pre-confirmation operating capital;
2. The making of or arranging for a $15,650,000 loan to Debtors (the "New
Loan") in consideration for the issuance of the New Common Stock which shall be
49% of Reorganized DRHCI's outstanding common stock ($14,000,000 of the loan
proceeds will be used to pay creditors);
3. The investment of $3,000,000 of equity in the Debtors in consideration
for the issuance to CFI of an additional New Common Stock which shall be 36% of
Reorganized DRHCI's outstanding common stock;
4. The issuance to CFI of stock purchase warrants to purchase 8,000,000
restricted shares of Reorganized DRHCI's common stock; and
5. The lease of certain premises, furniture, fixtures and equipment by
Reorganized DRHCI to TD Entertainment, Inc. ("TD"), a corporation which has the
right to utilize the name and likeness of Debbie Reynolds and to furnish the
services of Debbie Reynolds to the extent required by the Letter Agreement.
6.2. The $250,000 Bridge Loan.
6.2.1. Funding of Bridge Loan. CFI will loan $250,000 to Debtors, as
debtors in possession, (the "Bridge Loan") immediately upon approval of the
Bridge Loan and the Break-out Commitment Fee set forth in Section 6.2.3. herein
by the Bankruptcy Court. This Bridge Loan shall be made prior to confirmation of
proposed plan of reorganization (the "Plan") in consideration for a "super
priority" claim in Debtors' Chapter 11 reorganization proceeding pursuant to 11
U.S.C. 364(c) and all other applicable provisions of the Bankruptcy Code. The
Bridge Loan is being made to enable Debtors to use the funds for operating
capital during the pendency of its Chapter 11 reorganization proceeding. CFI's
obligation to loan such funds is contingent only upon the Debtors' receipt of
Bankruptcy Court approval for such Bridge Loan; and is not contingent upon the
confirmation of the Plan or the consummation of any of the other transactions
contemplated hereby.
6.2.2. Terms of Bridge Loan. The Bridge Loan shall bear interest at the
rate of 12% per annum from the date of the Bridge Loan until March 1, 1998. The
Debtors shall pay all costs and expenses in connection with the Bridge Loan such
as taxes or applicable filing fees in connection therewith. In the event the
Bridge Loan, together with all accrued interest thereon is not paid in full on
or before March 1, 1998, the Bridge Loan shall thereafter bear interest at the
rate of 18% per annum until paid. In connection with the Bridge Loan, the
Debtors shall execute a promissory note in customary form for transactions of
this nature. It is contemplated that the Bridge Loan shall be repaid with
interest after the Plan is confirmed by the United States Bankruptcy Court,
District of Nevada (the "Bankruptcy Court") from the proceeds of the loan
described in Section 6.3. below. It is agreed, however, that neither the
approval of the Plan, or the consummation of the transactions contemplated by
this Letter Agreement, shall be conditions precedent to the repayment of the
Bridge Loan, it being expressly understood that in the event this transaction
does not close for any reason whatsoever, the Bridge Loan shall be deemed a
"super priority claim" pursuant to the applicable provisions of 11 U.S.C.
364(c) Bankruptcy Code, and shall be paid at such time as the Bankruptcy Court
authorizes payment of other priority claims.
6.3. The New First Deed of Trust Loan (New Loan).
6.3.1. Commitment for New Loan. It is agreed that CFI shall, subject to the
terms and conditions and provisions of this Letter Agreement, cause to be made a
Loan to Debtors (hereinafter referred to as the "New Loan") in the sum of
$15,650,000. Subject to the terms set forth herein, a written loan commitment,
subject to the requirements and conditions of the lender, shall be provided to
the Debtors no later than November 25, 1997, which commitment shall set forth in
detail the salient portions of the New Loan transaction (the "Loan Commitment").
The New Loan shall provide for the payment of a rate of interest, commitment
fees, loan points, brokerage fees, closing costs, and other commercially
reasonable terms and conditions as are customary for loans secured by hotels in
Nevada by institutional lenders. The New Loan shall be secured by a first
priority deed of trust on Debbie Reynolds Hotel & Casino located at 305
Convention Center Drive, Las Vegas, Nevada 89109, with the exception of those
timeshare units which have previously been conveyed to third parties (the
"Property").
6.3.2. Use of New Loan. The New Loan must be approved by the Bankruptcy
Court in connection with its confirmation of the proposed Plan, which shall set
forth the terms and conditions of the New Loan. The Reorganized Debtors intend
to use the New Loan proceeds and the $3,000,000 proceeds from the sale of the
Sale Stock (defined below) as follows: (i) a total of up to $14,000,000 to pay
its secured and unsecured creditors, contingent liabilities and administrative
costs through a confirmed Plan; (ii) $1,200,000 to pay certain renovation and
other costs associated with the Leased Premises (as defined below); (iii)
$2,800,000 to make certain capital improvements to the Property and as operating
capital; and (iv) $650,000 as an interest reserve for the new Loan. In
connection with the renovation as set forth in section (ii) herein, such
renovations shall include the second floor and the relocation of the restaurant,
and shall also include certain renovations to the casino, specifically
excluding, however, any equipment or other expenditures which are prohibited
pursuant to applicable licensing requirements. At the time of closing the
Reorganized Debtors will be debt free subject only to the lien of the New Loan,
and that all other claims, debts, charges, fees and expenses will be satisfied
and released as part of the confirmation of the Plan.
6.3.3. Issuance of New Common Stock. In consideration for CFI providing or
causing the New Loan to be made, the Reorganized Debtors will issue to CFI
sufficient shares such that after such shares are issued, CFI will own 49% of
Reorganized DRHCI's issued and outstanding shares of common stock (the "Stock")
upon confirmation of the Plan by the Bankruptcy Court and issuance of the New
Loan proceeds to the Reorganized Debtors. Reorganized Debtors will be under no
obligation to issue such stock to CFI unless and until the Plan is confirmed and
the New Loan is, in fact, made, and there is compliance by CFI of applicable
securities laws. The Stock to be issued are restricted shares which will be
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended (the "1933 Act") and applicable
exemptions under state securities laws. The closing of the New Loan and the
other transactions contemplated hereby shall occur on or before March 1, 1998.
6.3.4. Settlement with Creditors by CFI. CFI may attempt to negotiate
settlements with the Debtors' secured and undisputed unsecured creditors. In
connection with such settlements, CFI may, but shall not be obligated to,
provide funds necessary to pay and/or purchase such undisputed creditor claims
prior to confirmation of the Plan. CFI shall further negotiate the terms
pursuant to which such undisputed claims are to be resolved. Any and all
negotiations shall be approved by the Debtors and the Bankruptcy Court. Any and
all savings received from the settlement of the undisputed claims which are
presently allocated to be satisfied from the proceeds of the New Loan described
in Section 6.3. and the sale of stock set forth in Section 6.4. shall inure
solely to the benefit of CFI. This benefit to CFI must be approved by the
Bankruptcy Court.
6.4. The Sale of Additional Stock to CFI. Reorganized DRHCI will, upon
confirmation of the Plan, the funding of the New Loan, and having obtained all
corporate resolutions required by law and/or the Reorganized Debtors' articles
of incorporation, issue CFI an additional 36% of Reorganized DRHCI's common
stock (the "Sale Stock") in exchange for the payment of $3,000,000 to Debtors.
CFI will be entitled to obtain the Sale Stock by payment of $3,000,000 to
Debtors pursuant to a Subscription Agreement. Reorganized DRHCI shall be under
no obligation to issue the Sale Stock unless all other transactions contemplated
by this Letter Agreement have been consummated, or are being consummated
contemporaneously with the issuance of the Sale Stock, and there is compliance
by CFI of applicable securities laws. The Sale Stock to be issued will be
restricted shares which will be issued in reliance upon the exemption from
registration provided by Section 4(2) 1933 Act and applicable exemptions under
state securities laws. After the issuance of the shares referenced in Sections
6.3.3. and 6.4. hereof, CFI will own in the aggregate 85% of the issued and
outstanding shares of Reorganized DRHCI. No other shares shall be issued without
CFI's consent.
6.5. Warrants.
6.5.1. The Issuance of Warrants to CFI. Reorganized DRHCI will, upon
confirmation of the Plan, the funding of the New Loan, CFI's payment for the
Sale Stock and having obtained all necessary corporate resolutions and approvals
required by law and/or the Reorganized Debtors' articles of incorporation, issue
written stock purchase warrants to you for the purchase of an additional
8,000,000 shares of Reorganized DRHCI's common stock (the "CFI Warrants"). The
CFI Warrants will have a term of 2 years from the date of issuance and the
shares will be exercised as follows:
Number of Shares Exercise Price
3,000,000 at $0.75
5,000,000 at $1.00
Notwithstanding anything contained herein to the contrary, the CFI Warrants
may be exercised in whole or in part. The issuance of the underlying shares of
the CFI Warrants are conditioned upon payment in full of the exercise price set
forth above to Reorganized DRHCI. The underlying shares are restricted shares
and are subject to "piggy-back" registration rights which will be issued in
reliance upon the exemption from registration provided by Section 4(2) of the
1933 Act and applicable exemptions under state securities laws.
6.5.2. The Issuance of Warrants to TD. Reorganized DRHCI shall, upon
confirmation of the Plan, the funding of the New Loan, the completion of the
stock sales, as well as the completion of all other transactions contemplated
hereby, issue to TD written stock purchase warrants for the purchase of an
additional 5,000,000 of Reorganized DRHCI's common stock subject to all
corporate resolutions and approvals required by law and/or Reorganized DRHCI's
common stock subject to all corporate resolutions and approvals required by law
and/or Reorganized DRHCI's Articles of Incorporation, which Warrants will have a
term of two (2) years from the date of issuance and shall be exercised as
follows:
Number of Shares Exercise Price
3,000,000 at $0.75
2,000,000 at $1.00
Notwithstanding anything contained herein to the contrary, the TD Warrants
may be exercised in whole or in part. The issuance of the underlying shares of
the TD Warrants are conditioned upon payment in full of the exercise price set
forth above to Reorganized DRHCI. The underlying shares are restricted shares
and are subject to "piggy-back" registration rights which will be issued in
reliance upon the exemption from registration provided by Section 4(2) of the
1933 Act and applicable exemptions under state securities laws. Notwithstanding
anything contained herein to the contrary the exercise of the Warrants by TD or
its assigns shall be contingent upon TD not being in default pursuant to the
lease and not otherwise electing to cancel the lease pursuant to Section
6.6.(t).
6.6. The Lease of a Portion of Premises to TD. Reorganized Debtors will,
upon confirmation of the Plan, funding of the New Loan, and CFI's payment for
the Sale Stock enter into a written lease agreement with TD (the "Lease") which
will provide the following essential terms:
(a) Reorganized Debtors, as Lessor, will lease to TD, as Lessee: (i) the
existing area where the casino is located; (ii) the existing area where the
showroom and its related areas are located; (iii) the gift shop area, subject,
however, to CFI's approval of its present location (in the event CFI desires to
relocate the gift shop facility, the gift shop facility shall be relocated to an
area mutually agreed upon by the parties); (iv) the existing bar facility; (v)
the existing executive offices and accounting offices presently located on the
first floor; (vi) the existing first floor restaurant and kitchen space; and
(vii) the existing Museum and related areas; and (viii) and shall allow access,
use, and ingress and egress to all common areas including parking, restroom
facilities, lobby, etc., provided, however, that such common areas, parking
facilities, restroom facilities and lobby shall not be deemed part of the Leased
Premises, (hereinafter referred to as the "Leased Premises"). Notwithstanding
the foregoing, the existing bar facility shall service only the casino and
showroom areas, and Reorganized Debtors shall have the exclusive right to all
other food and beverage activities.
(b) Reorganized Debtors, as Lessor, will lease to TD, as Lessee, all
furniture, fixtures and equipment located in or on the Leased Premises on the
date the Leases are executed by the parties (the "FF&E") (excluding all property
owned by Hollywood), and further excluding any furniture, fixtures or equipment
which TD does not intend to utilize as part of entertainment and casino
operation.
(c) TD will pay their own personal property taxes, insurance, utilities and
other expenses, including, but not limited to, all sales, use taxes paid or
payable in connection with the rental, use, occupation, or operation of the
Leased Premises, which shall be equitably determined. Lessee shall install
separate utility meters for the Lease Premises if requested by Lessor at
Lessee's sole cost and expense.
(d) The Lease shall provide for the sharing of certain expenses relating to
Leased Premises, the Museum Premises, and the common areas.
(e) The Lease will have a term of 10 years unless earlier terminated as and
upon the conditions set forth in the Lease. The Lease will include standard
terms relating to termination for breach, insolvency, etc.
(f) TD, as Lessee, will pay the sum of $50,000 per month ("Base Rent") to
Company, as Lessor, as and for the Leased Premises and the FF&E.
(g) The Company, as Lessor, will, upon execution of the Lease and at its
own expense (provided, however, that it will not expend in excess of the
$1,200,000 amount funded pursuant to the New Loan as set forth herein), promptly
undertake the renovation of the first floor casino space located on the Property
and the relocation of the restaurant to the second floor of the Property, in
accordance with the terms of the Lease and in accordance with a budget and
architectural plans approved by Debtors, CFI and TD. Lessee will be obligated to
maintain the Leased Premises, however, Lessor shall be obligated to maintain the
structural components of the building in which the Leased Premises are located.
(h) As a condition to TD's performance under its Lease, Reorganized Debtors
must be and remain in compliance with all laws, ordinances, rules and/or
regulations affecting the gaming licenses utilized on the premises, and
applications therefor including, but not limited to, all such laws, ordinances,
rules and/or regulations governing the minimum number of hotel rooms on the
Property.
(i) The Lease shall commence upon the later of (i) its execution, or (ii)
its approval by the Bankruptcy Court and, if necessary, the Nevada gaming
authorities.
(j) TD, as Lessee, shall have no obligation to pay Base Rent to the Company
for (i) six months from the confirmation of the Plan, the funding of the New
Loan, and the payment of the Sale Stock, whichever occurs last, or (ii) until 30
days after the Casino is fully licensed and operational, whichever occurs first.
(k) Except as otherwise set forth herein, with respect to cost of living
increases and upon expansion of the Leased Premises as set forth herein, the
Base Rent shall not be subject to increase for the term of the Lease. Commencing
with the first day of the 6th lease year, however, Base Rent shall be subject to
increase based upon the increases in the consumer price index, all urban wage
owners, or the most equivalent index (the "CPI") with the month preceding
execution of the Lease being the Base Index. The increase shall be calculated by
comparing the Base Index to the index for the month prior to the adjusted date
and the Base Rent shall be increased accordingly. The Lease shall thereafter be
subject to annual CPI increases.
(l) Neither the Lease, nor any interest therein, shall be assigned,
transferred or sublet by Lessee without the express written consent of Lessor,
which consent may be unreasonably withheld.
(m) As a condition of this Lease, during the period of the Lease, the
Lessee shall be obligated to operate the casino, the showroom, and the museum in
the same manner as its past operation, in a first class manner, and in this
regard shall be continuously obligated to operate the showroom on a nightly
basis (not including normal dark nights which are customary in the industry),
and shall at all times provide first class entertainment consistent with the
operation of a first class hotel and casino facility.
(n) CFI shall be entitled to full access to the Leased Premises for the
purpose of soliciting the sale of timeshare units. This right of solicitation of
timeshare shall continue during the Lease Term, and no other sales solicitation
of timeshare units shall be allowed by any other persons, firms or entities.
(o) Lessor and Lessee agree to a cross marketing program which will entitle
Lessor, its assigns and/or designees, to purchase a reasonable number of tickets
to the museum attraction and showroom, and Lessor shall provide a reasonable
number of discounted rooms, all at the most favored discounted rates which are
or may from time to time be provided to any third parties (the "Most Favored
Nation Rate").
(p) Subject to the terms, conditions and provisions of this Lease, Lessor
may, however, shall not be obligated to, elect to provide additional space to
Lessee for Lessee's casino operation (hereinafter referred to as the "Expansion
Space"). In the event Lessor elects to provide the Expansion Space, Lessee shall
be obligated to lease the Expansion Space. All of the same terms, conditions and
provisions of the Lease shall apply to the Expansion Space, provided, however,
that the Base Rent shall be subject to increase for the Expansion Space, which
increase shall be equal to the fair market value per square foot (hereinafter
referred to as the "Fair Market Rent") for the number of square feet provided as
part of the Expansion Space. The Fair Market Rent shall be determined by an MAI
appraiser who shall be qualified to provide an opinion as to reasonable rental
rates for casino space in Las Vegas, Nevada. The appraiser shall be subject to
the mutual selection of the parties, and the Fair Market Rent shall be
determined as of the time Lessor elects to provide the expansion space. In
connection with the Expansion Space, Lessor shall only be obligated to provide a
basic shell consisting of painted drywall, electrical outlets, overhead drop
ceiling and carpeting (the "Vanilla Shell").
(q) Lessee shall cause Debbie Reynolds to appear and perform at the
showroom no less than a minimum of 12 weeks per year for the duration of the
lease subject to death or disability.
(r) The Lease shall contain such other terms, conditions and provisions
which are customary in lease transactions of this nature.
(s) While it is recognized that CFI shall have the right to use the name
Debbie Reynolds ("Reynolds"), as well as her likeness, in connection with
marketing activities for the Property, this right to use is specifically
identified by a letter agreement between CFI and TD.
(t) In the event that TD, after making a good faith effort, has been unable
to obtain a Nevada gaming license TD shall have the option to terminate the
lease without further liability.
6.7. CFI's Participation in Casino. In the event CFI, or its principal,
David A. Siegel ("Siegel"), elects to obtain a gaming license, CFI or Siegel, as
the case may be, shall be entitled to purchase a 50% interest in Lessee's casino
operation in consideration of providing the Vanilla Shell in the Expansion
Space, provided further that the total number of occupancy rooms on the Property
are doubled from the existing number of rooms, and provided further, that the
minimum number of feet in the Expansion Space equals the same number of square
feet presently contemplated to encompass Lessee's casino space. It is agreed
that each owner in the casino shall be obligated to equally provide the capital
necessary to provide for the furniture, fixtures, equipment, and other leasehold
improvements necessary for the expanded casino operation in the Expansion Space.
Such participation in the casino by Siegel shall be subject to Siegel obtaining
all required gaming licenses. In this regard, it is contemplated that TD shall
form a company to be known as TD Gaming, Inc., to operate the casino portion of
the Leased Premises and pay said rent. Siegel will, subject to this Section,
acquire a 50% interests in TD Gaming, Inc. In connection with Siegel's ownership
interest in TD Gaming, Inc., the parties shall execute a shareholders agreement
providing for, among other things, provisions granting each party a right of
first refusal of stock transfers. Upon obtaining a 50% interest in TD Gaming,
Inc., Siegel shall also be entitled to elect 50% of the directors to the board
of TD Gaming, Inc.
6.8. Miscellaneous Provisions.
6.8.1. Increase in Authorized Shares. Upon confirmation of the Plan, the
number of authorized shares of common stock of Reorganized DRHCI will increase
from 25,000,000 to 200,000,000 shares of common stock.
6.8.2. Other Approvals and Actions. Debtors shall, in connection with the
closing of this transaction, authorize and issue such additional shares of stock
as may be necessary to complete this transaction, and shall prepare all filings
as may be necessary pursuant to all local, state and federal laws, including all
applicable rules, regulations and requirements of the Securities Exchange
Commission ("SEC"), and shall also obtain all board resolutions and shareholder
approvals, if any, as may be required to close this transaction. At the time of
closing, the Debtors shall furnish CFI with an opinion of Debtors' counsel that
all required corporate resolutions and approvals have been obtained.
6.8.3. Board Representation. In connection with the issuance of Stock and
Sale Stock to CFI as contemplated hereby, CFI shall also be entitled to
designate four (4) directors which shall represent control of the board of
directors of Reorganized DRHCI. CFI agrees to elect and retain one director to
the board of Reorganized DRHCI designated by TD. In the event that CFI increases
the board of directors to more than five, additional board seats for TD will be
discussed and subject to further mutual agreement.
6.8.4. Ownership of Museum Assets. Nothing in this letter shall give CFI
any ownership interest in the assets of Hollywood Motion Picture and Television
Museum, a California non-profit corporation, nor shall this letter be construed
to imply that the Debtors have any interest in the assets of the Museum.
6.8.5. Definitive Agreements. Any and all definitive agreements referred to
herein will contain the customary representations, warranties and covenants. The
parties have agreed to exercise their best efforts to negotiate and execute
these definitive agreements in a timely manner.
6.9. New Certificate of Incorporation and Bylaws. As of the Effective Date,
the certificates of incorporation and bylaws of DRHCI shall be amended and
restated substantially in the forms of the Reorganized DRHCI Articles and
Reorganized DRHCI By-Laws, which provide for, among other things, the
authorization of any and all acts necessary to effectuate this Plan including,
without limitation, the issuance of the New Common Stock. Such restated
certificates of incorporation and by-laws shall also provide, pursuant to
Section 1123(a) and (b) of the Bankruptcy Code, for the board of directors of
Reorganized DRHCI to be comprised of five (5) directors, each to be nominated by
intended holder of a majority in face amount of the New Common Stock no later
than five (5) days prior to the commencement of the Confirmation Hearing, and if
not so nominated, by DRHCI prior to the commencement of the Confirmation
Hearing. The initial members of the board of directors of Reorganized DRHCI
shall serve until such director, or their successors are elected at a properly
noticed and constituted stockholders' meetings of Reorganized DRHCI. In
addition, the Reorganized DRHCI Articles will prohibit the issuance of
non-voting equity securities.
6.10. No Corporate Action Required. As of the Effective Date: (i) the
adoption of Reorganized DRHCI Articles, Reorganized DRHCI By-Laws, or similar
constituent documents for Reorganized DRHCI; (ii) the selection of directors and
officers for Reorganized DRHCI; (iii) the adoption, execution, delivery and
implementation of all contracts, leases, instruments, releases and other
agreements related to or contemplated by this Plan; and (iv) the other matters
provided for under or in furtherance of this Plan involving corporate action to
be taken by or required of the Debtors or Reorganized DRHCI, shall be deemed to
have occurred and be effective as provided herein, and shall be authorized and
approved in all respects without further order of the Bankruptcy Court or any
requirement of further action by the stockholders or directors of the Debtors or
Reorganized DRHCI. As of the Effective Date, the term of each of the officers
and directors of the Debtors not continuing in office, if any, shall terminate
pursuant to the Confirmation Order without any further action by the
stockholders or directors of the Debtors or Reorganized DRHCI.
6.11. Directors and Officers. On the Effective Date, the operation of
Reorganized DRHCI and its subsidiaries, shall become the general responsibility
of their respective boards of directors, who shall thereafter have
responsibility for the management, control and operation or Reorganized DRHCI
and its subsidiaries. The names of the initial members of the board of directors
and the executive officers of Reorganized DRHCI shall be disclosed at or prior
to the commencement of the Confirmation Hearing. The new directors of
Reorganized DRHCI shall elect the directors of Reorganized DRMC. The new
directors of Reorganized DRMC shall elect the new directors of Reorganized DRRI.
All such directors and executive officers of Reorganized DRHCI shall be deemed
to have been elected or appointed, as the case may be, pursuant to the
Confirmation Order, but shall not take office until the Effective Date. Those
directors and officers not continuing in office after the Effective Date, if
any, shall b deemed removed therefrom without cause as of the Effective Date
pursuant to the Confirmation Order and shall be indemnified to the extent
permitted by law by the Estate for all actions taken by such directors and
officers while acting as directors and officers for Debtors from the Petition
Date and such indemnification shall be treated as an administrative expense. The
existing directors of DRHCI, DRMC and DRRI, should they choose to do so, will
continue to serve as directors of DRHCI and its subsidiaries from and after the
Confirmation Date until the Effective Date. During the period from the
Confirmation Date until the Effective Date, but no beyond the Effective Date,
all the existing directors of DRHCI will not be compensated for acting as
directors.
7. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.1. Executory Contracts. All executory contracts that exist between the
Debtors and any person shall be deemed rejected, as of the Effective Date,
except for any executory contract: (i) that has been assumed pursuant to an
order of the Bankruptcy Court entered prior to the Confirmation Date; or (ii) as
to which a motion for approval of the assumption of such executory contract, if
applicable, has been filed with the Bankruptcy Court prior to the Confirmation
Date.
7.2. Unexpired Leases. All unexpired leases that exist between the Debtors
and any Person shall be deemed rejected as of the Effective Date, except for any
unexpired lease: (i) that has been assumed pursuant to an order of the
Bankruptcy Court entered prior to the Confirmation Date; or (ii) as to which a
motion for approval of the assumption of such unexpired lease, if applicable,
has been filed with the Bankruptcy Court prior to the Confirmation Date.
7.3. Approval of Assumption or Rejection. Entry of the Confirmation Order
shall constitute the approval, pursuant to Section 365(a) of the Bankruptcy
Code, of the rejection of the executory contracts and unexpired leases rejected
pursuant to this Plan or otherwise during the Chapter 11 Cases.
7.4. Cure of Defaults. On the Effective Date or as soon thereafter as is
practicable, Reorganized DRHCI shall Cure any defaults under any executory
contract or unexpired lease assumed pursuant to this Plan in accordance with
Section 365(b)(1) of the Bankruptcy Code.
7.5. Post-Petition Date Contracts and Leases. Executory contracts and
unexpired leases entered into and other obligations incurred after the Petition
Date by the Debtors shall be performed by the Debtors or Reorganized DRHCI, as
applicable, in the ordinary course of their business.
7.6. Bar Date. All proofs of Claims with respect to Claims arising from the
rejection of any executory contract or unexpired lease shall be filed with the
Bankruptcy Court no later than thirty (30) days after the Confirmation Date. Any
Claim not filed within such time shall be forever barred.
7.7. Indemnification Obligations. Any obligations of the Debtors to
indemnify any officer, directory or employee serving as a fiduciary of any
employee benefit plan or program of the Debtors, pursuant to charter, by-laws,
contract or applicable state law shall be deemed to be, and shall be treated as,
an executory contract and assumed by Reorganized DRHCI on the Effective Date.
Any obligation of the Debtors to indemnify, reimburse, or limit the liability of
any officer, director, employee, agent, professional, financial advisor, or
underwriter of any securities issued by the Debtors that arose prior to the
Petition Date shall: (i) be rejected, canceled, and discharged pursuant to this
Plan as of the Effective Date; and (ii) be subordinated pursuant to Section 510
of the Bankruptcy Code, provided however, that the board of directors of
Reorganized DRHCI is authorized to assume such obligation on or after the
Effective Date. Any obligations of the Debtors to indemnify, reimburse, or limit
the liability of any officer, director, employee, agent, professional, financial
advisor, or underwriter of any securities issued by the Debtors that arose by
reason of this Plan shall be deemed to be, and shall be treated as, an executory
contract and assumed by the Reorganized DRHCI on the Effective Date.
8. PRESERVATION OF LITIGATION CLAIMS
8.1. In accordance with Section 1123(b)(3) of the Bankruptcy Code, and
except as otherwise expressly provided herein, the Disbursing Agent shall retain
and may, in its sole discretion, enforce, sue on, settle or compromise (or
decline to do any of the following) all claims, rights or causes of action,
suits, and proceedings, whether in law or in equity, whether known or unknown,
that the Debtors or the Estate may hold against any Person, including, but not
limited to, those listed on Exhibit "1" to this Plan. The Disbursing Agent may
pursue such retained litigation claims in the Bankruptcy Court for the benefit
of creditors of the Debtors.
9. EFFECTIVE DATE TRANSACTIONS
Effective Date transactions, in addition to other matters as set forth in
this Plan, include the following: a notice of effectiveness of this Plan to be
filed with the Bankruptcy Court and served on all creditors, interest holders,
and parties in interest by the Disbursing Agent.
10. CONDITIONS PRECEDENT
10.1. Conditions to Confirmation. The following are conditions precedent to
confirmation of this Plan:
a) The Bankruptcy Court shall have entered an order approving the
Disclosure Statement with respect to this Plan in form and substance reasonably
acceptable to the Debtors; and b) The Confirmation Order shall be in form and
substance reasonably acceptable to the Debtors.
10.2. Conditions to Effectiveness. The following are conditions precedent
to the occurrence of the Effective Date:
a) The Confirmation Date shall have occurred and the Confirmation Order
shall, among other things, provide that:
i) The provisions of the Confirmation Order are nonseverable and mutually
dependent;
ii) All executory contracts or unexpired leases assumed by Reorganized
DRHCI during the Chapter 11 Cases or under this Plan shall remain in full force
and effect for the benefit of Reorganized DRHCI and its subsidiaries
notwithstanding any provision in such contract or lease (including those
described in Sections 365(b)(2) and (f) of the Bankruptcy Code) that prohibits
such assignment or transfer or that enables, permits or requires termination of
such contract or lease;
iii) Except as expressly provided in this Plan, the Debtors are discharged
effective upon the Effective Date from any "debt" (as that term is define din
Section 101(12) of the Bankruptcy Code), and the Debtors' liability in respect
thereof is extinguished completely, whether reduced to judgment or not,
liquidated or unliquidated, contingent or noncontingent, asserted or unasserted,
fixed or unfixed, matured or unmatured, disputed or undisputed, legal or
equitable, or known or unknown, or that arose from any agreement of the Debtors
that has either been assumed or rejected in the Chapter 11 Cases or pursuant to
this Plan, or obligation of the Debtors incurred before the Confirmation Date,
or from any conduct of the Debtors prior to the Confirmation Date, or that
otherwise arose before the Confirmation Date, including, without limitation, all
interest, if any, on any such debts, whether such interest accrued before or
after the Petition Date; and
iv) This Plan does not provide for the liquidation of all or substantially
all of the property of the Debtors and its confirmation is not likely to be
followed by the liquidation of Reorganized DRHCI or its subsidiaries, or the
need for further financial reorganization;
b) The Confirmation Order shall be a Final Order, except that Debtors
reserve the right to cause the Effective Date to occur notwithstanding the
pendency of an appeal of the Confirmation Order, under circumstances that would
moot such appeal;
c) No request for revocation of the Confirmation Order under Section 1144
of the Bankruptcy Code shall have been made, or, if made, shall remain pending;
d) The Bankruptcy Court in the Confirmation Order shall have approved the
retention of jurisdiction provisions in Article 12 of this Plan;
e) All documents necessary to implement the transactions contemplated by
this Plan shall be in form and substance reasonably acceptable to the Debtors;
11. TITLE TO PROPERTY; DISCHARGE; INJUNCTION
11.1. Revesting of Assets. Subject to the provisions of this Plan, the
property of the Estate shall revest in Reorganized DRHCI and its subsidiaries on
the Effective Date. As of the Effective Date, all such property of the Debtors
shall be free and clear of all liens except as otherwise provided herein. From
and after the Effective Date, Reorganized DRHCI and its subsidiaries may operate
their business, and may use, acquire and dispose of their property free of any
restrictions of the Bankruptcy Code, including the employment of and payment to
professionals.
11.2. Discharge. Except as provided in this Plan or the Confirmation Order,
the rights afforded under this Plan and the treatment of Claims and Equity
Interests under this Plan shall be in exchange for and in complete satisfaction,
discharge and release of all Claims, including any interest accrued on Claims
from the Petition Date. Except as provided in this Plan or the Confirmation
Order, Confirmation shall discharge the Debtors, Reorganized DRHCI and its
subsidiaries from all Claims or other debtors that arose before the Confirmation
Date, and all debts of the kind specified in Sections 502(g), 502(h) or 501(i)
of the Bankruptcy Code, whether or not: (a) a proof of Claim based on such debt
is filed or deemed filed pursuant to Section 501 of the Bankruptcy Code; (b) a
Claim based on such debt is allowed pursuant to Section 502 of the Bankruptcy
Code; or (c) the holder of a Claim based on such debt has accepted this Plan.
11.3. Injunction. Except as provided in this Plan or the Confirmation
Order, as of the Confirmation Date, all entities that have held, currently hold
or may hold a Claim or other debt or liability that is discharged or an Equity
Interest or other right of an equity security holder that is affected pursuant
to the terms of this Plan are permanently enjoined from taking any of the
following actions on account of any such discharged Claims, debts or liabilities
or terminated Equity Interests or rights: (i) commencing or continuing in any
manner any action or other proceeding against the Debtors, Reorganized DRHCI,
its subsidiaries or their respective property; (ii) enforcing, attaching,
collecting or recovering in any manner any judgment, award, decree or order
against the Debtors. Reorganized DRHCI, its subsidiaries or their respective
property; (iii) creating, perfecting or enforcing any lien or encumbrance
against the Debtors, Reorganized DRHCI, its subsidiaries or their respective
property; (iv) asserting a set off, right of subrogation or recoupment of any
kind against any debt, liability or obligation due to the Debtors, Reorganized
DRHCI, its subsidiaries or their respective property; and (v) commencing or
continuing any action, in any manner or any place, that does not comply with or
is inconsistent with the provisions of this Plan or the Bankruptcy Code.
11.4. Exculpation. Neither Debtors, Reorganized DRHCI, its subsidiaries nor
the Creditor's Committee, nor any of their respective present or former members,
directors, officers, employees, advisors, attorneys or agents, shall have or
incur any liability to any holder of a Claim or Equity Interest, or any other
party in interest, or any of their respective agents, employees,
representatives, financial advisors, attorneys or Affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Cases, the pursuit of confirmation of this
Plan, the consummation of this Plan, except for their willful misconduct, and in
all respects shall be entitled to reasonably rely upon the advice of counsel
with respect to their duties and responsibilities under this Plan or in the
context of the Chapter 11 Cases. No holder of a Claim or Equity Interest, or any
other party in interest, including their respective agents, employees,
representatives, financial advisors or attorneys, shall have any right of action
against Debtors, Reorganized DRHCI, its subsidiaries, Creditor's Committee or
any of their respective present or former members, officers, directors,
employees, advisors, attorneys or agents, for any act or omission in connection
with, relating to, or arising out of, the Chapter 11 Cases, the pursuit of
confirmation of this Plan, the consummation of this Plan or the administration
of this Plan, except for their willful misconduct.
12. RETENTION OF JURISDICTION
12.1. Jurisdiction. Notwithstanding the entry of the Confirmation Order and
the occurrence of the Effective Date, the Bankruptcy Court shall retain such
jurisdiction over the Chapter 11 Cases after the Effective Date as is legally
permissible, including jurisdiction to:
a) Allow, disallow, determine, liquidate, classify, estimate or establish
the priority or secured or unsecured status f any Claim, including the
resolution of any request for payment of any Administrative Claim and the
resolution of any and all objections to the allowance or priority of Claims;
b) Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or this
Plan;
c) Resolve any matters related to the assumption, assignment or rejection
of any executory contract or unexpired lease to which the Debtors are a party
and to hear, determine and, if necessary, liquidate, any Claims arising
therefrom or cure amounts related thereto;
d) Ensure that distributions to holders of Allowed Claims are accomplished
pursuant to the provisions of this Plan;
e) Decide or resolve any motions, adversary proceedings (including the
Standby Equity Commitment), contested or litigated matters and any other matters
and grant or deny any applications or motions involving the Debtors that may be
pending on the Effective Date;
f) Enter such orders as may be necessary or appropriate to implement or
consummate the provisions of this Plan and all contracts, instruments, releases
and other agreements or documents created in connection with this Plan or the
Disclosure Statement, except as otherwise provided herein;
g) Resolve any cases, controversies, suits or disputes that may arise in
connection with the consummation, interpretation or enforcement of this Plan or
any Person's obligations incurred in connection with this Plan;
h) Modify this Plan before or after the Effective Date pursuant to Section
1127 of the Bankruptcy Code or modify the Disclosure Statement or any contract,
instrument, release or other agreement or document created in connection with
this Plan or the Disclosure Statement; or remedy any defect or omission or
reconcile any inconsistency in any Bankruptcy Court order, this Plan, the
Disclosure Statement or any contract, instrument, release or other agreement or
document created in connection with this Plan or the Disclosure Statement, in
such manner as may be necessary or appropriate to consummate this Plan, to the
extent authorized by the Bankruptcy Code;
i) Issue injunctions, enter and implement other orders to take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation or enforcement of this Plan, except as otherwise
provided herein;
j) Enter and implement such orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked or
vacated;
k) Determine any other matters that may arise in connection with or relate
to this Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release or other agreement or document created in connection with
this Plan or the Disclosure Statement, except as otherwise provided herein;
l) Enter an order closing the Chapter 11 Cases; and
m) Initiate and prosecute Avoidance Actions and continue to prosecute
pending Avoidance Actions and any other claim or cause of action of Debtors or
the Disbursing Agent for the benefit of creditors of the Debtors.
13. MODIFICATION, AMENDMENT, AND WITHDRAWAL OF PLAN; ALTERNATIVE
TRANSACTIONS
13.1. Modification and Amendment. Prior to Confirmation, DRHCI, DRMC and
DRRI may alter, amend or modify this Plan or any Exhibits thereto under Section
1127(a) of the Bankruptcy Code at any time. After the Confirmation Date and
prior to substantial consummation of this Plan as defined in Section 1101(2) of
the Bankruptcy Code, DRHCI and DRRI may, under Section 1127(b), (c) and (d) of
the Bankruptcy Code, institute proceedings in the Bankruptcy Court to remedy any
defect or omission or reconcile any inconsistencies in this Plan, the Disclosure
Statement or the Confirmation Order, to make appropriate adjustments and
modifications to this Plan or the Confirmation Order as a result of comments or
actions of the SEC or Gaming Authorities, and such matters as may be necessary
to carry out the purposes and effects of this Plan so long as such proceedings
do not materially adversely affect the treatment of holders of Claims or
Interests under this Plan.
13.2. Alternative Transactions. During the period commencing upon the
filing of this Plan with the Bankruptcy Court and up until the commencement of
the Confirmation Hearing, DRHCI, DRMC and DRRI, will, upon the execution of
appropriate confidentiality agreements, respond to inquiries from, engage in
discussions with and provide information to any Person interested in the final
restructuring of the Debtors in lieu of the transaction contained in this Plan.
At the Confirmation Hearing Debtors shall disclose to the Bankruptcy Court
information concerning all Alternative Transactions Proposals received. The
Bankruptcy Court may in its discretion consider such Alternative Transaction
Proposal. In the event that prior to the Confirmation Hearing an Alternative
Transaction Proposal is received, DRHCI shall notify the CFI and the Creditor's
Committee of such Alternative Transaction Proposal, which notice shall identify
the parties to such Alternative Transaction Proposal and set forth in reasonable
detail the terms and conditions of such Alternative Transaction Proposal.
Debtors reserve the right to submit such Alternative Transaction Proposal to the
Bankruptcy Court for determination as to such Alternative Transaction Proposal
containing economic terms and conditions more favorable to the Debtors and
Creditors than the transaction proposed by this Plan. Debtors reserve the right
to alter, amend or modify this Plan as provided for above in Section 13.1 prior
to Confirmation or during the Confirmation Hearing to reflect such Alternative
Transaction Proposal, if such Alternative Transaction Proposal will provide for
the payment of more than $14,150,000 to Creditors, even if such proposal
provides that holders of Equity Interests and Equity Interest-Related Claims
retain and receive nothing. An Alternative Transaction Proposal by a party who
has not previously proved its ability to fund the purchase price must be
accompanied by a $1,000,000 cashier's check which will become a non-refundable
deposit of said party's offer as accepted.
13.3. Elimination of Old Common Stock. In the event an impaired class of
creditors votes to reject this Plan and the Bankruptcy Court informs the Debtors
that the Plan is not confirmable if existing Equity Interests and Equity
Interest-Related Claims retain any property, then the Debtors shall amend the
Plan to eliminate the provisions in this Plan which provide that Equity Interest
and Equity Interest-Related Claims retain any property or any interest in
Reorganized DRHCI.
14. MISCELLANEOUS
14.1. Filing of Objections to Claims. After the Effective Date, objections
to Claims shall be made and objections to Claims made previous thereto shall be
pursued by the Disbursing Agent or the Creditor's Committee, as the case may be,
or any other party property entitled to do so after notice to the Disbursing
Agent and approval by the Bankruptcy Court. Any objections made after the
Effective Date shall be filed and served not later than forty-five (45) days
after the Effective Date; provided, however, that such period may be extended by
order of the Bankruptcy Court for good cause shown.
14.2. Settlement of Objections After Effective Date. From and after the
Effective Date, the Disbursing Agent or the Creditor's Committee, as the case
may be, may litigate to judgment, propose settlement of, or withdraw objections
to all pending or filed Disputed Claims, and the Disbursing Agent, the
Reorganized DRHCI or the Creditor's Committee, as applicable, may settle or
compromise any Disputed Claim with notice to the Disbursing Agent or the
Creditor's Committee and a hearing and with approval of the Bankruptcy Court.
14.3. Effectuating Documents; Further Transactions; Timing. Each of the
officers of the Debtors, Reorganized DRHCI and its subsidiaries, is authorized
and directed under the resolutions of the boards of directors of the Debtors,
Reorganized DRHCI or its subsidiaries, as the case may be, to execute, deliver,
file or record such contracts, instruments, releases and other agreements or
documents and to take such actions as may be necessary or appropriate to
effectuate and further evidence the terms and conditions of this Plan and any
securities issued pursuant to this Plan. All transactions that are required to
occur on the Effective Date under the terms of this Plan shall be deemed to have
occurred simultaneously. The Debtors, Reorganized DRHCI and its subsidiaries are
authorized and directed to do such acts and execute such documents as are
necessary to implement this Plan.
14.4. Exemption from Transfer Taxes. Pursuant to Section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of equity securities or
other Estate property under this Plan shall not be subject to any stamp, real
estate, transfer, mortgage, recording or other similar tax.
14.5. Revocation or Withdrawal of this Plan. If this Plan is withdrawn or
revoked, then this Plan shall be deemed null and void and nothing contained
herein shall be deemed to constitute a waiver of any Claims by or against the
Debtors or any other Person nor shall the withdrawal or revocation of this Plan
prejudice in any manner the rights of the Debtors or any Person in any further
proceedings involving the Debtors. In the event this Plan is withdrawn or
revoked, nothing set forth herein shall be deemed an admission of any sort and
this Plan and any transaction contemplated thereby shall not be admitted into
evidence in any proceeding.
14.6. Binding Effect. This Plan shall be binding upon, and shall inure to
the benefit of, the Debtors, and the holders of all Claims and Equity Interests
and their respective successors and assigns.
14.7. Governing Law. Except to the extent that the Bankruptcy Code or other
federal law is applicable or as provided in any document contained in the Plan
Supplement or in any document which remains unaltered by this Plan, the rights,
duties and obligations of the Debtors and any other Person arising under this
Plan shall be governed by, and construed and enforced in accordance with, the
internal laws of the State of Nevada without giving effect to Nevada's choice of
law provisions.
14.8. Intercompany Claims. Any intercompany Claims between or against
DRHCI, DRMC and DRRI, as the case may be, shall be canceled by this Plan, and
such intercompany Claims shall not be paid.
14.9. Providing for Claims Payment. Distributions to holders of Allowed
Claims in Class 1, 2, 3, and 7 shall be made by the Disbursing Agent: (i) at the
addresses set forth on the proofs of Claim filed by such holders (or at the last
known addresses of such holders if no proof of Claim is filed or if the Debtor
has been notified of a change of address); (ii) at the addresses set forth in
any written notices of address changes delivered to the Disbursing Agent after
the date of any related proof of Claim; or (iii) at the addresses reflected in
the Schedules if no proof of Claim has been filed and the Disbursing Agent has
not received a written notice of a change of address. If any holder's
distribution is returned as undeliverable, no further distributions to such
holder shall be made unless and until the Disbursing Agent is notified of such
holder's then current address, at which time all missed distributions shall be
made to such holder without interest. Amounts in respect of undeliverable
distributions made through the Disbursing Agent shall be held by the Disbursing
Agent until such distributions are claimed. All claims for undeliverable
distributions shall be made on or before the second anniversary of the Effective
Date. After such date, all unclaimed property shall revert to Hollywood Motion
Picture and Television Museum, a California non-profit corporation, and the
Claim of any holder or successor to such holder with respect to such property
shall be discharged and forever barred notwithstanding any federal or state
escheat laws to the contrary.
14.10. Set Offs. The Debtors may, but shall not be required to, set off or
recoup against any Claim or Equity Interest and the payments or other
distributions to be made pursuant to this Plan in respect of such Claim, claims
of any nature whatsoever that arose prior to the Petition Date which the Debtors
may have against the holder of such Claim or Equity Interest to the extent such
Claims may be set off or recouped under applicable law, but neither the failure
to do so nor the allowance of any Claim or Equity Interest hereunder shall
constitute a waiver or release by the Debtors of any such claim that it may have
against such holder.
14.11. Notices. Any notice required or permitted to be provided under this
Plan shall be in writing and served by either: (a) certified mail, return
receipt requested, postage prepaid; (b) hand delivery; or (c) reputable
overnight courier service, freight prepaid, to be addressed as follows:
If to the Debtors: DEBBIE REYNOLDS HOTEL & CASINO, INC. Attention: Todd
Fisher 305 Convention Center Drive Las Vegas, Nevada 89109 Tel: (702) 734-0711
Fax: (702) 734-2954
With a copy to: HALE, LANE, PEEK, DENNISON, HOWARD, ANDERSON AND PEARL
Attention: Lenard E. Schwartzer, Esq. 2300 W. Sahara Avenue, 8th Floor Las
Vegas, Nevada 89102 Tel: (702) 362-5118 Fax: (702) 365-6940
If to the Creditor's YOUNG ELECTRIC SIGN CO.
Committee: Attention: Randall Clark, Chairman
5119 S. Cameron Street
Las Vegas, Nevada 89118
Tel: (702) 876-8080
Fax: (702) 876-6854
With a copy to: CORY & ASSOCIATES
Timothy S. Cory, Esq.
520 S. Fourth Street, #220
Las Vegas, Nevada 89101
Tel: (702) 388-1996
Fax: (702) 382-7903
If to CFI: Central Florida Investments, Inc.
Attention: David A. Siegel
5601 Windhover Drive
Orlando, Florida 32819
Tel: (407) 351-3354
Fax: (407) 352-8935
With a copy to: Greenspoon, Marder, Hirschfield, Rafkin,
Ross & Berger
Attention: Michael E. Marder, Esq.
135 West Central Boulevard, Suite 1100
Orlando, Florida 32801
Tel: (407) 425-6559
Fax: (407) 422-6583
If to the Time Stephens & Bywater, P.C.
Share Unit Owners Attention: Gordon E. Bywater, Esq.
Committee: 3611 S. Lindell Road, #201A
Las Vegas, Nevada 89103
Tel: (702) 873-2448
Fax: (702) 873-2454
14.12. Creditor's Committee. The Creditor's Committee appointed in the
Chapter 11 Cases shall not terminate on the Effective Date and shall thereafter
have further responsibilities in respect of the Chapter 11 Cases, including with
respect to preparation of filing of applications for compensation and
reimbursement of expenses and including any objection to insider claims with the
permission of the Bankruptcy Court. The Creditors Committee may only be given
permission to litigate issues which the Disbursing Agent is unwilling to
litigate.
14.13. Severability. If any provision of this Plan is found by the
Bankruptcy Court to be invalid, illegal or unenforceable, then, at the option of
Debtors, such provision shall not affect the validity or legality of any other
provision of this Plan which shall remain effective.
14.14. Withholding and Reporting Requirements. In connection with this Plan
and all instruments and securities issued in connection therewith and
distributions thereon, Escrow Company and the Disbursing Agent, as the case may
be, shall comply with all withholding and reporting requirements imposed by any
federal, state, local, or foreign taxing authority, and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
14.15. Post Confirmation Reporting. Until the entry of the final decree
closing the Chapter 11 Cases the Disbursing Agent shall file with the Clerk of
the Bankruptcy Court, not later than four (4) months after the entry of the
Confirmation Order and every six (6) months thereafter, a report of the action
taken by the Disbursing Agent, Reorganized DRHCI and its subsidiaries and the
progress made toward consummation of the confirmed Plan.
14.16. Disbursing Agent's Compensation. The Disbursing Agent shall be
compensated for distributing funds to creditors no more than the maximum
compensation permitted for trustees pursuant to 11 U.S.C. 326(a). The fees of
the Disbursing Agent shall be subject to review and approval by the Bankruptcy
Court.
14.17. Disbursing Agent's Professionals. The Disbursing Agent may employ
professionals as the Disbursing Agent, in its discretion, believes necessary.
The Disbursing Agent may employ Debtors' counsel. The fees of the professionals
employed by the Disbursing Agent shall be subject to review and approval by the
Bankruptcy Court.
14.18. Cramdown. In the event that any impaired Class is determined to have
rejected this Plan in accordance with Section 1126 of the Bankruptcy Code, the
Debtors will invoke the provisions of Section 1129(b) of the Bankruptcy Code to
satisfy the requirements for confirmation of this Plan.
14.19. Consolidation of Estates. Upon the Effective Date, the bankruptcy
estates of the three Debtors shall be deemed consolidated.
14.20. Solicitation. Pursuant to 11 U.S.C. 1125(e); A person that solicits
acceptance or rejection of a plan, in good faith and in compliance with the
applicable provisions of this title, or that participates, in good faith and in
compliance with the applicable provisions of this title, in the offer, issuance,
sale, or purchase of a security, offered or sold under the plan, of the debtor,
of an affiliate participating in a joint plan with the debtor, or of a newly
organized successor to the debtor under the plan, is not liable, on account of
such solicitation or participation, for violation of any applicable law, rule,
or regulation governing solicitation of acceptance or rejection of a plan or the
offer, issuance, sale, or purchase of securities.
DATED this _____ day of February, 1998.
Respectfully submitted,
DEBBIE REYNOLDS HOTEL & CASINO, INC.
By:/s/Todd Fisher
Todd Fisher, President
DEBBIE REYNOLDS MANAGEMENT
COMPANY, INC.
By:/s/Todd Fisher
Todd Fisher, President
DEBBIE REYNOLDS RESORTS, INC.
By:/s/Todd Fisher
Todd Fisher, President
Prepared By:
HALE, LANE, PEEK, DENNISON,
HOWARD, ANDERSON AND PEARL
By______________________________
Lenard E. Schwartzer, Esq.
Jeanette E. McPherson, Esq.
2300 West Sahara Avenue, 8th Floor
Las Vegas, Nevada 89102
(702) 362-5118
Attorneys for Debtors in Possession
EXHIBIT "1"
DISPUTED CLAIMS
Maxim Financial 1,215,383
Stocknes 12,471
Eversole 1,819
Meyers 11,736
Pittillo 2,192
Capital Mgmt. Consulting 1,642
Edward Coleman 1,350,000
Edward Coleman 1,782,000
American Interval Marketing 60,000
Ron Nitzberg 1,670,000
Ron Nitzberg 200,000
Linda McGregor 300,000
Randall Straff 40,000
Whiteheads 75,876
Sorrells 12,000,000
Lauraleigh Hunt 150,000
VAGI 46,605
Jackpot Enterprises 1,103,178
Bennett Funding International 2,246,721
Linda Young 34,000
Ross Athletics 76,000
Grand Nevada Hotels 2,700,138
Joey Singer 16,500
All Shareholder Claims
All Timeshare Unit Holder Claims
Lenard E. Schwartzer, Esq.
Nevada Bar No. 0399
Jeanette E. McPherson, Esq.
Nevada Bar No. 005423
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
Suite 800, Box 8
2300 West Sahara Avenue
Las Vegas, NV 89102
(702) 362-5118
Attorneys for Debtors and
Debtor-in-Possession
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
In re
DEBBIE REYNOLDS HOTEL & CASINO, INC., a Nevada corporation,
Debtor.
___________________________________/
In re
DEBBIE REYNOLDS MANAGEMENT COMPANY, INC., a Nevada corporation,
Debtor.
___________________________________/
In re
DEBBIE REYNOLDS RESORTS, INC., a Nevada corporation,
Debtor.
___________________________________/
JOINTLY ADMINISTERED
BK-S-97-25089 RCJ
Chapter 11
BK-S-97-25090 RCJ
Chapter 11
BK-S-97-25091 RCJ
Chapter 11
DATE: March 23, 1998
TIME: 10:00 a.m.
DISCLOSURE STATEMENT TO ACCOMPANY DEBTORS' JOINT
AMENDED PLAN OF REORGANIZATION DATED FEBRUARY 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION 2
II. INFORMATION REGARDING THE PLAN AND DISCLOSURE STATEMENT 2
III. REPRESENTATIONS 3
IV. SUMMARY OF VOTING PROCESS 4
A. Who May Vote to Accept or Reject the Plan 4
B. Summary of Voting Requirements 4
V. GENERAL OVERVIEW OF THE PLAN 5
A. New Capital Structure 6
B. Administrative Claims 6
C. Priority Claims. 7
D. Tax Claims. 7
E. Miscellaneous Secured Claims 8
F. Holders of the Deed of Trust Notes 8
G. Capital Lease Claims 9
H. YESCO Claim 10
I. Allowed General Unsecured Claims 10
J. Time Share Unit Owners 12
K. DRMC and DRRI Common Stock12
L. Equity Interest and Equity Interest-Related Claims 12
M. Executory Contracts 14
VI. DESCRIPTION OF THE DEBTORS14
A. Pre-Bankruptcy History 14
1. Corporate History. 14
2. Business History.17
a. Background. 17
b. Hotel. 17
c. Showroom. 17
d. Museum. 17
e. Restaurant and Bar. 18
f. Gift Shop. 19
g. Timeshare. 19
h. Casino. 20
i. Description of Properties. 20
j. Legal Proceedings. 21
k. History of Financings. 24
B. Insider Transactions 30
1. Agreement with Raymax Production, Ltd. 30
2. Exclusive License Agreement. 31
3. Exclusive License Agreement 31
4. Potential Actions Against Insiders 32
VII. OFFICERS AND DIRECTORS OF THE DEBTORS AND REORGANIZED DRHCI AND
ITS SUBSIDIARIES 32
A. Officers and Directors of Debtors 32
1. Todd Fisher. 32
2. Debbie Reynolds. 33
3. Henry Ricci. 33
4. Donald Granatstein. 33
5. Michael Wiener. 33
6. Ed Preddy. 34
B. Officers and Directors of the Reorganized Debtors 34
C. Pending Postpetition Litigation Matters 34
1. The Securities Litigation 34
2. Other Actions 35
D. Debtor's Pre-Bankruptcy Financial Results 35
E. Post-Petition 35
F. Bankruptcy Filing35
VIII. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES 35
A. Adequate Protection Orders37
1. Adequate Protection Payments. 37
IX. FURTHER DESCRIPTION OF THE PLAN 37
A. Means for Implementation of the Plan 37
1. New Capital Structure 37
a. Issuance of Stock to CFI. 37
b. Issuance of Warrants. 38
c. Lease to TD. 38
2. Alternative Transaction Proposal 39
B. Conditions to Confirmation and Effectiveness of the
Plan 40
C. Consolidation 40
X. RISK FACTORS 41
A. Risk of Non-Payment 41
B. Risk of Non-Confirmation of the Plan 41
XI. POST CONFIRMATION DATE OPERATIONS AND PROJECTIONS 41
A. Summary of Title to Property and Dischargeability 42
1. Revesting of Assets 42
2. Discharge 42
3. Injunction 42
4. Exculpation 42
B. Summary of Certain Material Documents of the Plan 43
1. Projections 43
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES 43
A. Scope and Limitations 43
B. Tax Consequences to Reorganized DRHCI 44
1. Discharge of Indebtedness Income 44
2. Limitation on Net Operating Losses 46
C. Tax Consequences to Debtor Shareholders 47
D. Tax Consequences to Creditors 48
XIII. SECURITIES LAW CONSIDERATION 48
A. Issuance of Securities 48
B. Resale Consideration 48
XIV. GAMING REGULATION AND LICENSING 49
XV. CONFIRMATION OF THE PLAN 50
A. Confirmation Hearing 50
B. Objections to Confirmation of the Plan 51
1. Best Interests of Creditors and
Liquidation Analysis 51
2. Feasibility 55
3. Accepting Impaired Class 55
4. Confirmation over Dissenting Class
("Cram Down") 56
5. Allowed Claims 56
6. Impaired Claims and Equity
Interests 57
7. Voting Procedures 57
a. Submission of Ballots 57
b. Incomplete Ballots 58
c. Withdrawal of Ballots 58
d. Questions and lost or damaged
Ballots 58
XVI. ALTERNATIVES TO THE PLAN 58
A. Alternative Plans of Reorganization58
B. Liquidation Under Chapter 7 59
XVII. RECOMMENDATION AND CONCLUSION 59
<PAGE>
I. INTRODUCTION
On July 3, 1997 (the "Petition Date"), Debbie Reynolds Hotel & Casino,
Inc., a Nevada corporation ("DRHCI" or "Hotel"), its wholly owned subsidiary
Debbie Reynolds Management Company, Inc., a Nevada corporation ("DRMC" or
"Management"), and its wholly owned subsidiary Debbie Reynolds Resorts, Inc., a
Nevada corporation ("DRRI" or "Resorts") (collectively the "Debtors"), filed
petitions for relief (the "Petitions") under Title 11, Chapter 11 of the United
States Code (the "Bankruptcy Code").
The Debtors have prepared this Disclosure Statement ("Disclosure
Statement") in connection with the solicitation of votes on the Debtors' Joint
Amended Plan of Reorganization dated February 1, 1998 (the "Plan") proposed by
the Debtors to treat the Claims of Creditors of Debtors and the Persons holding
Equity Interests in Debtors. Capitalized terms not otherwise defined herein will
have the same meanings as are ascribed to such terms in the Plan. The various
exhibits to this Disclosure Statement included in the Appendix are incorporated
into and are a part of this Disclosure Statement. The Plan is included as
Exhibit "A" in the Appendix. Any interested party desiring further information
should contact:
Lenard E. Schwartzer, Esq.
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
2300 W. Sahara Ave., 8th Floor
Las Vegas, Nevada 89102
Tel: (702) 362-5118
Fax: (702) 365-6940
II. INFORMATION REGARDING THE PLAN AND DISCLOSURE STATEMENT
The objective of Chapter 11 case is the confirmation (i.e., approval by the
bankruptcy court) of a plan of reorganization. A plan describes in detail (and
in language appropriate for a legal contract) the means for satisfying the
claims against, and equity interests in, a debtor. After a plan has been filed,
the holders of such claims and equity interests which are impaired (as defined
in Bankruptcy Code Section 1124) are permitted to vote to accept or reject the
plan. Before a debtor or other plan proponent can solicit acceptances of a plan,
Bankruptcy code Section 1125 requires the debtor or other plan proponent to
prepare a disclosure statement containing adequate information of a kind, and in
sufficient detail, to enable those parties entitled to vote on the plan to make
an informed judgment about the plan and whether they should accept or reject the
plan.
The purpose of this Disclosure Statement is to provide sufficient
information about the Debtors and the Plan to enable Creditors to make an
informed decision in exercising their rights to accept or reject the Plan. This
Disclosure Statement will be used to solicit acceptances of the Plan only after
the Bankruptcy Court has found that this Disclosure Statement provides adequate
information in accordance with Bankruptcy Code Section 1125 and has entered an
order approving this Disclosure Statement. Approval by the Bankruptcy Court is
not an opinion or ruling on the merits of this Disclosure Statement and it does
not mean that the Plan itself has been or will be approved by the Bankruptcy
Court.
After this Disclosure Statement has been approved by the Bankruptcy Court
and the appropriate Persons have voted on whether to accept or reject the Plan,
there will be a hearing on the Plan to determine whether it should be confirmed.
At the Confirmation Hearing, the Bankruptcy Court will consider whether the Plan
satisfies the various requirements of the Bankruptcy Code. The Bankruptcy Court
will also receive and consider a Ballot summary which will present a tally of
the votes of Classes accepting or rejecting the Plan cast by those entitled to
vote. Once confirmed, the Plan will be treated essentially as a contract binding
on all Creditors, holders of Equity Interests and other parties in interest in
the Chapter 11 Cases.
THIS DISCLOSURE STATEMENT IS NOT THE PLAN. FOR THE CONVENIENCE OF CREDITORS
AND HOLDERS OF EQUITY INTERESTS, THE PLAN IS SUMMARIZED IN THIS DISCLOSURE
STATEMENT. ALL SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THE PLAN ITSELF. IN
THE EVENT OF ANY INCONSISTENCY BETWEEN THIS DISCLOSURE STATEMENT AND THE PLAN,
THE PLAN WILL CONTROL.
III. REPRESENTATIONS
The information in this Disclosure Statement has not been subject to audit.
Instead, this Disclosure Statement was prepared from the information compiled
from records maintained in the ordinary course of the Debtors business. The
Debtors have attempted to be accurate in the preparation of this Disclosure
Statement.
Other than as stated in this Disclosure Statement, the Debtors have not
authorized any representations or assurances concerning the Debtors and their
operations or the value of their respective assets. Therefore, in deciding
whether to accept or reject the Plan, you should not rely on any information
relating to the Debtors or the Plan other than that contained in this Disclosure
Statement or in the Plan itself.
IV. SUMMARY OF VOTING PROCESS
A. Who May Vote to Accept or Reject the Plan
Generally, holders of allowed claims or equity interests that are
"impaired" under a plan are permitted to vote on a second plan. A claim is
defined by the Bankruptcy Code to include a right to payment from the Debtors;
an equity interest represents an ownership stake in the Debtors. In order to
vote, a Creditor must first have an Allowed Claim. The solicitation of votes on
the Plan will be sought only from those holders of Allowed Claims and Equity
Interests whose Claims are impaired and which will receive property or rights
under the Plan. As explained more fully below, to be entitled to vote, a Claim
must be both "Allowed" and "Impaired." THE RIGHTS OF OWNERS OF TIME SHARE UNITS
ARE NOT AFFECTED OR IMPAIRED BY THE PLAN. AS SUCH, ALL TIME SHARE UNIT OWNERS
ARE DEEMED TO HAVE ACCEPTED THE PLAN AND DEBTORS WILL NOT SOLICIT THEIR VOTES.
B. Summary of Voting Requirements
In order for the Plan to be confirmed, the Plan must be accepted by at
least one non-insider, impaired Class of Claims. A class of claims is deemed to
have accepted a plan when allowed votes representing at least two-thirds (2/3)
in amount and a majority in number of the claims of the class actually voting
cast votes in favor of the Plan. A class of equity interests has accepted a plan
when votes representing at least two-thirds (2/3) in amount of the outstanding
equity interests of the class actually voting cast votes in favor of a plan. The
Debtors are soliciting votes from holders of Allowed Claims and Equity Interests
in the following Classes which are impaired under the Plan:
Class Description
Class 3 Miscellaneous Secured Claims
Class 4 Deed of Trust Claims
Class 5 Capital Lease Claims
Class 6 YESCO Claim
Class 7 General Unsecured Claims
Class 10 Equity Interests and Equity Interest-Related
Claims
The Debtors will have the right to supplement this Disclosure Statement as
to additional impaired Classes, if any. The treatment of each Class is described
in the Plan and is summarized generally in Article V of this Disclosure
Statement and with additional detail in Article IX of this Disclosure Statement.
A VOTE FOR ACCEPTANCE OF THE PLAN BY THOSE HOLDERS OF CLAIMS WHO ARE
ENTITLED TO VOTE IS MOST IMPORTANT. THE DEBTORS ASSERT THAT THE TREATMENT OF
CREDITORS AND EQUITY INTERESTS UNDER THE PLAN IS THE BEST ALTERNATIVE FOR
CREDITORS AND EQUITY INTERESTS AND THE DEBTORS RECOMMEND THAT THE HOLDERS OF
ALLOWED CLAIMS AND EQUITY INTERESTS VOTE IN FAVOR OF THE PLAN.
V. GENERAL OVERVIEW OF THE PLAN
The following is a general overview of the provisions of the Plan. This
overview is qualified in its entirety by reference to the provisions of the
Plan. For a more detailed description of the terms and the provisions of the
Plan, see the Plan.
The Plan provides for the reorganization of the Debtors based upon the
proposed $15,650,000 loan arranged by Central Florida Investments, Inc. ("CFI")
pursuant to the terms of a letter agreement between the Debtors and David A.
Siegel dated November 13, 1997, a copy of which is included as Exhibit "B" the
Appendix.
The Debtors believe that the Plan provides the greatest possible return to
Creditors while permitting the Debtors to reorganize successfully. However,
recognizing that there may be third parties willing to pay more for the assets
of the Debtors than CFI (and thus potentially providing a greater return to
Creditors), the Plan specifically provides for the Debtors' solicitation and
acceptance of competitive proposals (an "Alternative Transaction Proposal") from
third parties up and until the Confirmation Hearing of the Plan. If any such
Alternative Transaction Proposal is more advantageous to Creditors and Debtors'
estates, the Debtors reserve the right to modify the Plan and proceed to
confirmation with such Alternative Transaction Proposal or to submit such
Alternative Transaction Proposal to the Bankruptcy Court for a determination by
the Court as to whether or not such Alternative Transaction Proposal contains
economic terms and conditions more favorable to Debtors and Creditors than the
transaction proposed by the Plan. The Debtors will support an Alternative
Transaction if it provides more than $14,150,000 for distribution to Creditors
even if it provides for no property to be retained by or distributed to Equity
Interests and Equity Interest-Related Claims. The solicitation procedures for
Alternative Transaction Proposals are detailed more fully below in Article IX.
For ease of review, the following chart summarizes which Claims have been placed
in which Classes:
- ------------------ ------------------------------------------------------------
Class 1: Priority Claims Unimpaired
- no solicitation required
Class 2: Tax Claims Unimpaired
- no solicitation required
Class 3: Miscellaneous Secured Claims Impaired
- entitled to vote
Class 4: Deed of Trust Claims Impaired
- entitled to vote
Class 5: Capital Lease Claims Impaired
- entitled to vote
- ------ ------------------------------------------------------------
Class 6: YESCO Claim Impaired
- entitled to vote
- -------------- ------------------------------------------------------------
Class 7: General Unsecured Claims Impaired
- entitled to vote
- ------------- ------------------------------------------------------------
Class 8: Time Share Unit Owners Unimpaired
- no solicitation required
- -------------- ------------------------------------------------------------
Class 9: DRMC and DRRI Common Stock Unimpaired
- no solicitation required
- ------------ ------------------------------------------------------------
Class 10: Equity Interests and Equity Interests- Impaired
Related Claims - entitled to vote
<PAGE>
Nothing in the Plan requires Charter Equipment Leasing to waive its
security interest in the leased personal property until it is paid in full and
nothing in the Plan requires Charter Equipment Leasing to concede that its
equipment Lease is not a "true lease."
There are disputed unsecured claims in excess of $25,000,000. See List of
Claims included as Exhibit "C" in the Appendix.
A. New Capital Structure
Upon confirmation of the Plan, DRHCI will increase its authorized number of
shares of common stock to 200,000,000. DRHCI, as reorganized ("Reorganized
DRHCI") will issue shares of New Common Stock which will represent eighty-five
percent (85%) of the equity ownership and voting power of Reorganized DRHCI to
CFI in exchange for CFI making or arranging a loan of $15,650,000 to the Debtors
and investing an additional $3,000,000 in the Debtors.
B. Administrative Claims
In general, all Administrative Claims will be paid in full in Cash upon the
latest of: (i) the Effective Date or as soon thereafter as practicable; (ii)
such date as may be fixed by the Bankruptcy Court; (iii) the tenth (10th)
Business Day after such Administrative Claim is allowed; or (iv) such date as
the holder of such Claim and the Debtors, as applicable, may agree.
Administrative Claims shall be paid by the Disbursing Agent as soon as
practical, but usually not more than 30 days from the Effective Date. The holder
of all other Administrative Claims must file a proof of claim or a motion for
payment of Administrative Claim no later than the Administrative Claim Bar Date
set by the Bankruptcy Court. Administrative Claims will consist of professional
fees for the Debtors' counsel, the Unsecured Creditors' Committee's counsel, the
Time Share Unit Owners' Committee's counsel and the real estate broker employed
by the Debtors. The Debtors estimate that "ordinary course" Administrative
Claims will be approximately $50,000. The Debtors estimate that the legal fees
on the Effective Date shall be approximately $200,000 to $300,000 and that the
real estate brokers commission (owed, at least, in part to David Atwell and Rudy
Berti of Resort Properties, Inc.) will be approximately $700,000, depending upon
the actual sales price. By the Effective Date, the Debtors will owe Maxray
Productions, Inc. approximately $570,000 for the postpetition performances by
Debbie Reynolds. In addition, $250,000 will have to be credited to or repaid by
CFI. The total Administrative Claims may be approximately $2,000,000.
C. Priority Claims.
Class 1 consists of all Claims that are entitled to priority under Section
507(a)(3), (4) and (6) of the Bankruptcy Code and unpaid medical benefits owed
to employers and medical providers. Debtors believe Priority Claims in the
amount of $438,841 exist. These claims consist mostly of employee medical
benefits. In addition, Clark County Sanitation District has filed a claim of
$54,494.21 which is either a priority claim or claim secured by the real
property of the Debtors, or, partly, an administrative claim. The holder of any
Allowed Priority Claim, including the Clark County Sanitation District claim,
shall be paid in full on the Effective Date or within 10 days after such Claim
is Allowed by the Bankruptcy Court.
D. Tax Claims.
Class 2 consists of all Priority and Secured Tax Claims which are defined
in the Plan as being the Claim of any federal, state or local government unit
which is entitled to priority under the Bankruptcy Code or is secured by a lien
upon property owned by the Debtors by operation applicable law, including, but
not limited to, every such Claim for unpaid real and personal property taxes.
Each holder of a Tax Claim will be considered to be in its own separate subclass
within Class 2, and each such subclass will be deemed to be a separate Class for
purposes of the Plan. Based upon the Debtors records, Debtors have determined
that as of the Effective Date, Tax Claims will be $2,110,000. Proofs of Claim
for taxes have been filed as follows:
State of Nevada Department of Taxation $39,639
Clark County Treasurer 177,817
Internal Revenue Service $1,554,562
Total $1,762,018
The holder of an Allowed Tax Claim shall be paid in full on the Effective
Date or within 10 days after such Claim is Allowed by the Bankruptcy Court. If a
Tax Claim is secured by assets of the Debtors in excess of the amount of tax,
the claim shall be paid together with accrued statutory interest.
E. Miscellaneous Secured Claims
Class 3 consists of all Secured Claims, other than Secured Claims in other
Classes. Each holder of a Miscellaneous Secured Claim shall be considered to be
in its own separate subclass within Class 5, and each such subclass shall be
deemed to be a separate Class for purposes of the Plan. Charter Equipment
Leasing has a secured claim which fits into this class in the amount of
$216,046.1 The holder of any Allowed Secured Claim in Class 3 shall receive in
full on the Effective Date or within 10 days after the Claim is Allowed by the
Bankruptcy Court.
F. Holders of the Deed of Trust Notes
Class 4 consists of all Allowed Secured Claims of the holders of notes
secured by deed of trust encumbering any of the Debtors' Real Property. Based
upon the Debtors records, Debtors believe these claims total approximately
$8,300,000, including accrued interest as of November 30, 1997. Class 4 consists
of the following claims:
Claimant Principal and Interest Accrued
To Date of Petition
Resort Funding $2,480,700
Bennett Funding International $3,476,426
Galt Capital $1,168,300
Gregory Orman $ 624,025
Subtotal $7,749,441
Postpetition Accrued Interest to 2/28/98 $ 720,000
Total $8,469,441
Each holder of the Deed of Trust Notes ("Class 4 Claimants") will receive
full payment of their debt, including accrued interest, excluding late charges,
default rate interest charges or penalties but including their reasonable
attorneys fees. If any holder of a Deed of Trust Notes votes to reject the Plan,
each holder of a deed of Trust Note shall be considered a separate subclass of
Class 4.
G. Capital Lease Claims
Class 5 consists of the Capital Lease Claims. Debtors believe these claims
total approximately $1,100,000 of which a substantial portion is unsecured.
Under the Plan, on the Effective Date, holders of Capital Lease Claims shall be
paid 100% of their secured claim in exchange for market title (free and clear of
all claims and encumbrances) of the furniture, fixtures or equipment leased.
Each secured claim will be the lesser of the balance owed to the lessors of
furniture, fixtures and equipment leased under a capital lease or a loan secured
by personal property, or (b) the replacement cost of the leased equipment (the
cost the debtor would incur to obtain like equipment for the same proposed use).
To the extent that the balance owed to the lessor exceeds the replacement cost
of the leased equipment, the difference shall be allowed as an unsecured claim
in Class 7. However, such unsecured claim will not include post-petition
interest and attorney's fees. The Debtors' best estimate of the total amount of
each claim, the replacement value of the leased equipment (the amount of the
secured claim) and the balance (the amount of the unsecured claim) are as
follows:
Claimant Total Claim Replacement Value Balance
(Secured Claim) (Unsecured Claim)
Orix Leasing $ 20,000 $ 20,000 -0-
Balboa Capital $ 10,383 $ 10,383 -0-
Eaton/AT&T Fin. $ 6,695 $ 6,695 -0-
AT&T $ 13,151 $ 8,000 $ 5,151
Telerent $138,118 $ 60,000 $ 78,118
Phoenix Leasing $691,869 $200,000 $491,869
Total $ 880,216 $305,078 $575,138
"Replacement cost" is used to determine the secured portion of the Capital
Lease Claims because the Supreme Court, in the case of Associates Commercial
Corp. v. Rash, 117 S.Ct. 1879, 1886, 138 L.Ed.2d 148 (1997), held that "under
506(a) the value of property retained. is the cost the debtor would incur
to obtain a like asset for the same proposed. use This rule would apply
in Chapter 11 cramdown cases. See In re Mulvana, 214 B.R. 1 (9th Cir. B.A.P.
1997). The "replacement value" would not include the cost of certain items which
the debtor normally would receive if it purchased replacement equipment -
warranties and reconditioning. See footnote 6 to opinion in Rash. If any holder
of a Capital Lease Claim votes to reject the Plan, each holder of a Capital
Lease Claim shall be considered a separate subclass of Class 5.
H. YESCO Claim
Class 6 consists of the YESCO Claim. This Claim is approximately $743,000.
Under the Plan, on the Effective Date, YESCO will be paid $432,000 in exchange
for marketable title (free and clear of all claims and encumbrances) to the
signage (whether it is personalty or fixtures) leased by YESCO to the Debtors.
YESCO'S claim is separately classified from the claims of General Unsecured
Claims because YESCO owns the Debtors' signage and under the Plan, it is selling
the signage to the Debtors. The Debtor has not, as of the date of this
Disclosure Statement, reached an agreement with YESCO setting the price for the
sale of the signage. If YESCO refuses to sell the signage to the Reorganized
Debtors the Plan would have to be modified. However, the Debtors have every
expectation of reaching an agreement with YESCO.
I. Allowed General Unsecured Claims
Class 7 consists of all General Unsecured Claims. The total amount of
claims in this class is $30,000,000. Debtors estimate that there will be not
less than Five Million Dollars ($5,000,000) in Allowed General Unsecured Claims.
Each holder of an Allowed General Unsecured Claim shall receive the lesser of
such holder's Allowed General Unsecured Claim or such holder's Pro Rata share of
funds available for creditors after the payment of all other Allowed Claims upon
the latest of: (i) the Effective Date, or as soon thereafter as practicable;
(ii) the tenth (10th) Business Day after such Claim is Allowed, or as soon
thereafter as practicable; and (iii) such date as the Bankruptcy Court shall
set. Debtors estimate that holders of Allowed Claims with priority over the
General Unsecured Claims will be approximately Twelve Million Dollars
($12,000,000). In all likelihood, Allowed General Unsecured Claims will total no
less than Five Million Dollars ($5,000,000)2. Under the Plan, General Unsecured
Creditors (Class 7) are paid after Classes 1 through 6 are paid in full. The
Debtor estimates the payments as follows:
Proceeds available to Creditors $14,000,000
Less:
Administrative Claims $ 2,000,000
(Including closing costs of sale)
Class 1 Priority Claims $ 500,000
Class 2 Tax Claims $ 1,500,000
Class 3 Secured Claims $ 216,000
Class 4 Deed of Trust Notes $ 8,300,000
Class 5 Capital Lease $ 305,000
Class 6 YESCO $ 432,000
Subtotal $13,253,000
Proceeds to General Unsecured Creditors $ 747,000
If the Plan is confirmed with the reorganization providing $14,000,000 for
all creditors, each holder of an Allowed General Unsecured Claim will receive
approximately fifteen percent (15%) recovery under this Plan. If an Alternative
Transaction Proposal is made and approved, there would be additional funds
available for General Unsecured Creditors. Because General Unsecured Creditors
are to be paid pro rata, payment may be delayed until the Bankruptcy Court has
determined the validity of a number of substantial disputed claims.
Included among the claims in this class are claims of Raymax Productions (a
production owned by Debbie Reynolds which provided the Debbie Reynolds' show in
the showroom prepetition), Debbie Reynolds and the Hollywood Motion Picture and
Television Museum (a California non-profit corporation, which was founded by
Debbie Reynolds to preserve and display Hollywood memorabilia and whose board
includes Todd Fisher). The Debtors believe these claims to be valid and entitled
to priority equal to other unsecured claims.3 The Disbursing Agent will be
authorized to review and contest these claims as well as those of all other
unsecured claims.
For the reason that the amount of money to be distributed to Class 7 is
unknown at this time, the Debtors have not incurred the expense of objecting to
claims in this class. The lack of an objection should not be deemed the waiver
of the right of any party to file an objection after confirmation.
J. Time Share Unit Owners
Class 8 consists of existing Time Share Unit Owners. Under the Plan, Time
Share Unit Owners are not affected. All Time Share Unit Owners will retain their
existing contractual rights. The Debtors are unaware of any defaults by the
Debtors under these contracts and believe that no payment of damages is required
to be made to Time Share Unit Owners.
K. DRMC and DRRI Common Stock
Class 9 consists of the DRMC Common Stock held by DRHCI and the DRRI Common
Stock held by DRMC. The Plan provides for Reorganized DRHCI continuing to own
the Reorganized DRMC Common Stock and for Reorganized DRMC continuing to own the
Reorganized DRRI Common Stock.
L. Equity Interest and Equity Interest-Related Claims
Class 10 consists of current owners of Existing Common Stock of DRHCI and
those persons holding claims based upon their current or past ownership of
common stock, warrants, and stock rights of DRHCI. Under the Plan, the existing
Equity Interest holders will retain 15% of the equity in Reorganized DRHCI. If
an Alternative Transaction Proposal is made and accepted Equity Interests may
retain no property (including no stock in Reorganized DRHCI). The Plan will
subordinate the Equity Interest-Related Claims to the General Unsecured Claims
pursuant to Section 510(b) of the Bankruptcy Code which requires the
subordination of claims for damages arising out of the sale or purchase of a
security. An Equity Interest-Related Claim is any Claim arising from the
rescission of a purchase or sale of an Equity interest, or for damages arising
from the purchase or sale of an Equity Interest, or any Claim by any Person that
asserts equitable or contractual rights of reimbursement, contribution or
indemnification arising from such Claim. Because the Equity Interest-Related
Claims arose out of the sale or purchase of an Equity Interest, the holders of
Equity Interest-Related Claims will be treated in the same Class as the holders
of Equity Interests.
The Sorrells claim and all other securities litigation-based claims fall
into this category. Pursuant to Bankruptcy Code 510(b), all claims for
rescission or for damages arising from the purchase or sale of a security of the
debtor are subordinated to all claims which are senior to or equal to the claim
or interest represented by such security. Claims based upon the purchase or sale
of common stock have the same priority as common stock. Therefore, if the
Sorrells claim, or a similar claim, is allowed it will be limited to share in
the 15% of the common stock retained by existing common stockholders and nothing
further. In the event that an Alternative Transaction is proposed and accepted,
such claimants will receive nothing.
It is also possible that the Bankruptcy Court will determine that the
retention of any common stock by the existing common stock by the existing
company stockholders violates the "absolute priority" rule pursuant to 11 U.S.C.
1129(b)(2)(B). This rule would apply in the event that any impaired class votes
to reject the Plan. In that event, the Debtors may seek to confirm the Plan
pursuant to 11 U.S.C. 1129(b). In the event that the unsecured creditors, vote
to reject the Plan, the Debtors could not obtain confirmation under this section
if Equity Interest and Equity Interest Related (Class 10) Claims retain anything
or receive anything under the Plan. Therefore, in the event the unsecured
creditors vote to reject the Plan it would be the Debtors intention to amend the
Plan to eliminate the retention of common stock or the distribution of common
stock to holders of Equity Interest and Equity Interest Related Claims and ask
CFI to complete the reorganization with CFI receiving 100% of the outstanding
common stock of Reorganized DRHCI and there being no public market for the
common stock of Reorganized DRHCI. There is no assurance that CFI will agree to
complete the transaction if the stock of Reorganized DRHCI is not publicly
traded.
For the reason that the retention of stock by claimants in Class 10 is
speculative at this time, the Debtors have not incurred the expense of objecting
to claims in this class.
Based upon the offers received so far for the Debtors' Property, the "as
is" market value of the Debbie Reynolds Hotel & Casino is no more than Fourteen
Million Dollars ($14,000,000). When combined with Debtors' other assets, there
is not enough value in Debtors' estates to pay all Creditors in full. Pursuant
to the Bankruptcy Code and as discussed more fully in Section XV(B) below,
unless Creditors are paid in full, Equity Interest and Equity Interest-Related
Claims may not receive any distributions under the Plan absent consent of the
impaired Creditors classes.
All executory contracts or unexpired leases of any of the Debtors which
have not been assumed by the Debtors shall be deemed rejected. The other party
to such contracts or leases may file a proof of claim for a General Unsecured
Claim (Class 7) which shall be subject to review and objection by the Debtors
and the Disbursing Agent.
VI. DESCRIPTION OF THE DEBTORS
A. Pre-Bankruptcy History
Effective March 22, 1994, the Company acquired Maxim Properties Company
("Maxim"), a privately held Colorado corporation, and Debbie Reynolds Management
Company, Inc., formerly Debbie Reynolds Hotel & Casino, Inc. ("DRHC") and
Hamlett Production, Ltd. ("HPL"), both privately held Nevada corporations.
Pursuant to several mergers, HPL Acquisition Corporation, a wholly-owned
subsidiary of the Company, merged with and into DRHC, formerly HPL, the
surviving corporation (the "DRHC Merger"). In addition, MPC Acquisition
Corporation, another wholly-owned subsidiary of the Company, merged with and
into Maxim, the surviving corporation (the "Maxim Merger".) In addition, MPC
Acquisition Corporation, another wholly-owned subsidiary of the Company, merged
with and into Maxim, the surviving corporation (the "Maxim Merger".) The DRHC
Merger and the Maxim Merger are referred to herein collectively as the
"DRHC/Maxim Mergers." Pursuant to the DRHC/Maxim Mergers, the Company acquired
all of the outstanding securities of DRHC and Maxim in exchange for the issuance
of 2,850,833 shares of the Company's Common Stock to the Maxim shareholders and
2,350,833 shares to the DRHC shareholder. In connection with the DRHC/Maxim
Mergers the Company also issued 565,000 shares to others. Prior to the closing
of the mergers, DRHC merged with and into HPL, and HPL changed its name to
Debbie Reynolds Hotel & Casino, Inc.
In connection with the DRHC/Maxim Mergers, the Company divested its
wholly-owned subsidiary, SWTV Production Services, Inc., to the Company's former
President, Lawrence E. Meyers, exchange for the 2,126,540 shares of Common Stock
of the Company owned by Mr. Meyers which have been canceled by the Company.
In November 1994, the Company reincorporated in the State of Nevada and
changed its name from Halter Venture Corporation to Debbie Reynolds Hotel &
Casino, Inc. In connection with the reincorporation, the Company's wholly-owned
subsidiary, Debbie Reynolds Hotel & Casino, Inc. Changed its name to Debbie
Reynolds Management Company, Inc. ("DRMC").
The Company's operations consist primarily of the hotel operations of DRMC
and the timeshare operations of Debbie Reynolds Resorts, Inc. ("DRRI"), a
wholly-owned subsidiary of DRMC. DRMC owns and operates the Debbie Reynolds
Hotel & Casino (the "Hotel"), a gift shop, a restaurant and bar and a showroom
located on Convention Center Drive in Las Vegas, Nevada. In addition, DRMC
operates (but does not own the contents of) the Hollywood Motion Picture Museum
of the Hotel. As an accommodation to DRMC, Celebrity Restaurant, Inc., a company
wholly-owned by Ms. Reynolds, leased the restaurant from DRMC until August 1,
1996 at which time DRMC was granted a liquor license from Clark County and
commenced operating the bar and the restaurant. The Company's operations,
through DRRI, also consist of the sale of timeshare units in the Debbie Reynolds
Hotel. DRRI obtained a permanent timeshare license on June 28, 1994. The Company
is not currently selling timeshare units. In addition, DRMC and its management
have pending applications filed for a gaming license from the Nevada Gaming
Authorities; however, there can be no assurance that such license will be
granted. Due to the Company's poor capital structure and acting on the advice of
counsel, the Company requested the Nevada Gaming Authorities to place a hold on
processing its pending gaming applications until its capital structure
substantially improves. Prior to March 31, 1996, the Company leased space to a
third party for the operation of a casino. The Company served the operator with
a termination notice in February 1996, pursuant to the terms of the lease
agreement. Under the lease agreement the Company was losing money on a monthly
basis. The Company requested the operator to cease operations as of June 30,
1996. On March 31, 1996 the operator discontinued its gaming operations on the
property, removed all of its gaming equipment and subsequently filed a lawsuit
against DRHC. The Company believes that the operator committed material breaches
of the lease agreement. [See Item 3 - Legal Proceedings].
On October 30, 1996 the Company entered into an Agreement for Purchase and
Sale with ILX Incorporated ("ILX") under which ILX would purchase the Debbie
Reynolds Hotel & Casino (the "Hotel"), including all of the Hotel's real and
personal property and the Hotel's timeshare operations (the "ILX Agreement").
ILX is a publicly-held corporation based in Phoenix, Arizona which principally
owns, operates and markets resort properties in Arizona, Florida, Indiana and
Mexico. On May 15, 1997 ILX elected to cancel and terminate this Agreement.
The Company's recurring losses from operations, its working capital
deficiency, its shareholders equity deficiency, its significant debt service
obligations and its default with respect to various agreements raise substantial
doubt about the Company's ability to continue as a going concern. The ability of
the Company to continue as a going concern is dependent on its ability to obtain
additional financing to finance its working capital deficit until such time as
cash flows from operations are sufficient to finance the Company's operations,
including the Company's proposed casino operations. The Company needed to seek
protection under the Federal bankruptcy laws in order to remain open and
operating while seeking new capital or a buyer.
2. Business History.
a. Background. The Hotel began gaming operations in 1957, under the trade
names "The Royal" and later "The Paddle Wheel Hotel & Casino." Debbie Reynolds
purchased the Paddle Wheel at auction in 1992 and renamed it the "Debbie
Reynolds Hotel & Casino." The Debbie Reynolds Hotel & Casino is located on a
6.13-acre site just off of Las Vegas Boulevard and is located close to the Las
Vegas Convention Center. Las Vegas Boulevard, more commonly known as "The
Strip," is currently the center of gaming activity in Las Vegas.
b. Hotel. The Debbie Reynolds Hotel includes 193 hotel rooms (of which 43
are being converted into timeshare units), approximately 6,000 square feet of
vacant casino space which is currently filled with 25 slot machines, Hollywood
memorabilia, the Hollywood Movie Museum, a 500 seat showroom, a full-service
restaurant, a cocktail lounge and bar, one swimming pool and several hundred
parking spaces. The Company offers its hotel rooms at modest prices (as of
December 15, 1997, the average room rate was approximately $50). The Hotel's
average occupancy rates were approximately 82%, 74% and 58% for the 1994, 1995
and 1996 fiscal years, respectively.
c. Showroom. Ms. Reynolds' performances in the Company's 500-seat showroom
are the primary draw for the Company's facilities. Through the Company's
approximately $1,000,000 renovation, the showroom has state-of-the-art sound,
staging and lighting. When Ms. Reynolds performs, she performs Monday through
Friday in the early evenings. Generally, the Kenny Kerr Show performs Monday
through Saturday after Ms. Reynolds' show. For the year ended December 31,1996
the showroom averaged 82% occupancy for Ms. Reynolds' show with a ticket price
of $39.95. When Ms. Reynolds does not perform, the showroom averages 30% to 50%
occupancy at ticket prices ranging from $12.95 to $29.95.
d. Museum. The Debbie Reynolds Hollywood Movie Museum is unique in that it
houses two world class collections of authentic Hollywood movie memorabilia
owned separately by the Hollywood Motion Picture and Television Museum, a
non-profit organization, (the "Museum"). There are also few items owned by other
persons which are on loan to the Museum. The Museum is a highly technical
multimedia presentation which combines the charm of a historical museum and the
drama of a modern Hollywood screening room. The Museum has five stages,
including three revolving stages, in a surrounding similar to a Hollywood
screening room. The Museum has a walk-through portion where guests are able to
see up close many pieces from Hollywood classics, such as Marilyn Monroe's dress
from the "Seven Year Itch," among many others. Both collections are so extensive
that the Museum is only able to display approximately 10% of the collections at
any one time. The Company acquired the exclusive licenses to display both
extensive collections of movie memorabilia pursuant to license agreements;
however, both Ms. Reynolds License Agreement and Hollywood's License Agreement
have been terminated for default (see below). Both continue on an "at will"
basis terminable at any time. Under Hollywood's License Agreement the Company
also licensed the rights to over 200 film clips from classic Hollywood films,
most of which have received an Academy Award in some category. The Museum has a
seating capacity of 79 people and normally runs 14 shows a day at an average
ticket price of $7.95. The total costs to complete the Museum were approximately
$2,700,000. AT NO TIME HAS THE COMPANY PURCHASED OR PAID FOR ANY OF THE ITEMS IN
THE MUSEUM'S OR MS. REYNOLD'S COLLECTION. THERE IS NO BASIS TO ALLEGE THAT ANY
OF THE ITEMS BELONG TO THE DEBTORS OR THEIR ESTATES.
e. Restaurant and Bar. The restaurant and bar located in the Hotel were
previously operated by Celebrity Restaurants, Inc. ("Celebrity"), a company
wholly-owned by Ms. Reynolds, pursuant to an oral lease agreement which
commenced in August 1994. This lease was undertaken by Celebrity as an
accommodation to the Company because Celebrity held a liquor license and the
Company did not. Under the lease agreement, Celebrity was required to pay the
Company 8% of the net income for the lease of the restaurant and bar and DRMC
was obligated to cover the operating cash shortfalls of Celebrity's operations.
On August 1, 1996 DRMC received a liquor license from Clark County and
terminated the oral lease agreement. The restaurant and bar are currently
operated by DRMC. The restaurant seats 150 people and is open for breakfast,
lunch and dinner. As with its hotel accommodations, the food and beverage
services provided by the restaurant and bar are moderately priced. The
restaurant operations are not intended to be a profit center for the Company but
the restaurant services are intended to be an attraction for the timeshare
sales, the showroom and the museum and as a convenience for the hotel guests.
f. Gift Shop. Hollywood-themed souvenirs, collectibles and logoed
merchandise are currently available in the gift shop. The gift shop occupies
approximately 640 square feet of space on the property.
g. Timeshare. The Company's timeshare operations are conducted through
Debbie Reynolds Resorts, Inc. ("DRRI"), a subsidiary of DRMC. The operations of
DRRI consist of the sale of timeshare units in the Debbie Reynolds Hotel. DRRI
obtained a permanent timeshare license on June 28, 1994 and since then has
aggressively pursued timeshare sales and the conversion of the timeshare units.
Timeshares are sold in units of one week and entitle the purchaser thereof to
use the hotel room for the period of time purchased each year. Each timeshare
room in the hotel has 52 units, representing each week of the year. As of
December 31, 1996, approximately 1,186 (53%) timeshare units have been sold.
Unit prices have ranged from $6,000 to $10,000 depending upon the size and
location of the hotel room. A minimum of 10% of the unit purchase price must be
paid in cash, and the Company will arrange financing for qualified purchasers.
The rooms that are not converted to timeshare units will continue to be used as
hotel rooms. The Company is in the process of restructuring its timeshare
division and currently is not actively selling timeshare units.
The Company's timeshare units are listed with Interval International, an
internationally-known timeshare network. The Company has a five-star red-room
rating that it has been given by Interval International. The timeshare
renovations include extending the balconies and enclosing them in glass. The
rooms are decorated with new furniture and new color schemes. The cost of
timeshare conversion is approximately $18,500 per room. The Company was
marketing its timeshare units through on-site tours, telemarketing and an off
premises preview center.
h. Casino. Until March 31, 1996 the gaming operations of the casino were
owned and operated by Jackpot Enterprises, Inc. ("Jackpot"), pursuant to a lease
agreement. Under the lease, Jackpot paid a fixed monthly rent to the Company
based on the number of slot and video poker machines and blackjack tables
located in the casino. Prior to March 31, 1996 the casino consisted of 183 such
machines located in the casino and two blackjack tables. Under the lease the
Company had the option to buy-out the remaining term of the lease based on the
value of the machines and other considerations. The Company served the operator
with a termination notice in February 1996, pursuant to the terms of the lease
agreement. Under the lease agreement the Company was losing money on a monthly
basis. The Company requested the operator to cease operations as of June 30,
1996. On March 31, 1996, Jackpot discontinued its gaming operations on the
property, removed all of its gaming equipment and subsequently filed a lawsuit
against DRHC. The Company believes that the operator committed material breaches
of the lease agreement.
The Company and its management have pending applications for a gaming
license filed with the Nevada Gaming Authorities; however, there can be no
assurance that such license will be granted. Due to the Company's poor capital
structure and acting on the advice of counsel, the Company requested the Nevada
Gaming Authorities to place a hold on processing its pending gaming applications
until its capital structure substantially improves.
Effective September 30, 1997, the Debtors entered into a space lease
agreement with Capado Gaming Corporation ("Capado"). Capado installed 25 slot
machines in the casino area. Capado pays rent to the Debtors of $3,750 per
month.
i. Description of Properties. The Debbie Reynolds Hotel & Casino is
situated on a 6.13-acre site just off of the Las Vegas Strip between the
Stardust Hotel and the Las Vegas Convention Center. It includes 193 hotel rooms
(43 of which are licensed for timeshare sale), approximately 6,000 square feet
of casino space, a 500-seat showroom, a 79-seat museum, a full-service
restaurant, a cocktail lounge and bar, one swimming pool and several hundred
parking spaces. These facilities total approximately 210,380 square feet.
j. Legal Proceedings. In January 1994, Edward Stambro, an unaffiliated
individual, filed a lawsuit against one of the Company's subsidiaries and others
in the District Court of Clark County, Nevada, alleging breach of brokers
agreement. The Company's subsidiary filed an answer to the allegations on
February 28, 1994. Management and legal counsel for the Company are of the
opinion that the plaintiff's claim is without merit and the Company will prevail
in defending the suit.
On April 28, 1995, Ronald D. Nitzberg and Ron Nitzberg Associates, Inc., an
unaffiliated corporation, filed a lawsuit against the Company and others in the
District Court of Clark County, Nevada, alleging breach of contract, slander and
other claims, relating to his employment with the Company. The plaintiffs seek
damages in the amount of approximately $245,000 and an unspecified amount of
money damages. The Company has filed a counterclaim against the plaintiff
alleging breach of fiduciary duty and breach of contract asking for declaratory
relief from consulting and stock agreements. Mr. Nitzberg's counsel describes
the action as follows:
This action commenced on April 29, 1995, in Clark County District Court.
The third amended complaint sets forth fourteen claims for relief. Debbie
Reynolds Resorts, Inc. (DRRI), is sued for breach of written contract in the
first claim for relief, in addition to tort allegations arising out of the
performance of that agreement by both The fact that a claim is held by an
insider does not, in itself, provide grounds for objection, In re Banco Latino
International, 187 BR 393, 394 (Bankr. SD Fla. 1995), or subordination, In re
LMJ, Inc., 159 BR 926, 930 (D. Nev. 1993).
DRRI and Debbie Reynolds Hotel and Casino (DRHC), which are described in
the second, third and fourth claims for relief. The most important aspect of the
Nitzberg litigation which has not been disclosed deals with the breach of an
agreement entitled "AGREEMENT FOR EXCHANGE OF CAPITAL STOCK OF DEBBIE REYNOLDS
RESORTS, INC.", dated March 16, 1994, between Nitzberg individually and Debbie
Reynolds Resorts, Inc. ("DRRI"), which was signed by Debbie Reynolds in her
capacity as president, as well as in her individual capacity. By the terms of
that agreement, Nitzberg exchanged his five percent stockholder interest in DRRI
for payment in the sum of $120 for each timeshare sale made by DRRI, or any
successor entity. (A true copy of that agreement is attached to this memorandum
as Exhibit "A".) Nitzberg has been damaged not only in an amount equal to the
payments he has yet to receive from sales already consummated, but in addition
has been deprived of the benefit of this bargain which would entitle him to
receive $120 form the sale of each timeshare contract which results from future
sales. Apparently, a material inducement to the purchaser for the acquisition of
the debtors' assets is the ability to generate substantial revenues from
restarting the time-share sales program and ultimately completing the
development program. Should this occur, there are a total of 9,650 potential
unit sales which will be sold once the program resumes, which would entitle
Nitzberg to a total of $1,158,000.4 Nitzberg is entitled to have this contract
reinstated and these obligations assumed by the purchaser, as this is not an
obligation which arises from an executory contract and accordingly cannot be
rejected as such to deprive Nitzberg of the benefit of his bargain.
On April 14, 1995, Edward S. Coleman filed a lawsuit against the Company
and others in the District Court of Clark County, Nevada, alleging breach of
covenant of good faith and fair dealing based on certain services. The plaintiff
seeks unspecified money damages in excess of $10,000. Mr. Coleman's counsel
describes the action as follows:
Edward S. Coleman, (Coleman), is entitled to the identical relief in
accordance with the agreement for exchange of capital stock of Debbie Reynolds
Resorts, Inc. described above with respect to Nitzberg, in that he executed an
identical agreement with the same parties on March 16, 1994. Coleman's right to
receive the sum of $120 per each sale of a timeshare interval entitles Coleman
to the same recovery under the agreement as Nitzberg. The only difference
between the amounts due these parties on their respective agreements is
represented by slight differences in payments received for sales occurring
subsequent to the inception of the contracts, prior to the commencement of the
state court litigation. The remedies which Coleman is entitled to are identical
to those of Nitzberg and the legal effect of the Coleman agreement must likewise
be disclosed.
On January 26, 1995, American Interval Marketing, Inc., filed a lawsuit in
the District Court of Clark County, Nevada, against the Company and others,
alleging breach of contract and reasonable value of services. The plaintiff
seeks damages of approximately $45,000.
On July 14, 1995, Grand Nevada Hotel Corp., filed a lawsuit in the District
Court of Clark County, Nevada, against the Company, alleging breach of contract
and breach of implied duty of good faith. The plaintiff seeks damages in excess
of $10,000.
On July 27, 1995, Norman Eugene Watson, filed a lawsuit against the Company
and others in the District Court of Clark County, Nevada, alleging breach of
contract, fraud and misrepresentation and other claims. The plaintiff seeks
damage in excess of $10,000.
On August 10, 1995, Fiduciary Trust Company International, as Trustee of
the Taylor-Made Ltd. Defined Benefit Pension Plan, filed a lawsuit in the
District Court of Clark County, Nevada, against the Company and others, alleging
breach of contract and unjust enrichment. The plaintiff seeks damage sin excess
of $10,000. The Company is negotiating a settlement with respect to this
lawsuit.
On September 1, 1995, Young Electric Sign Company, filed a lawsuit in the
District Court of Clark County, Nevada, against the Company and others, alleging
breach of contract. The plaintiff obtained a judgment for $743,000 which
includes unaccrued interest.
On April 11, 1996, Jackpot Enterprises, Inc., filed a lawsuit in the
District Court of Clark County, Nevada, against the Company and others, alleging
breach of contract, specific judgment, unjust enrichment and breach of the
implied covenant of good faith and fair dealing. The plaintiff is seeking
damages in excess of $10,000.
On April 21, 1997, Maxim Financial Profit Sharing Plan, filed a lawsuit in
the United States District Court, District of Colorado, against the Company and
others, alleging breach of contract, intentional fraud, securities law
violations and for recision. The plaintiff is seeking damages in excess of
$75,000.
In addition to the above-mentioned lawsuits, there are numerous other
lawsuits filed against the Company by certain of its vendors and other
creditors.
k. History of Financings. In March 1994, the Company obtained a $2,500,000
loan from Bennett Management & Development Corp. ("Bennett"), the proceeds of
which were used to replace an existing mortgage on the Debbie Reynolds Hotel &
Casino of $2,090,000 and the balance of $410,000 was used for working capital.
The loan bears interest at 13% per annum and is due on March 15, 1997. The loan
requires monthly payments of interest and payments of $1,200 per timeshare unit
sold to be applied to accrued interest and principal. In consideration of the
loan the Company issued to Bennett 25,000 shares of its Common Stock. Ms
Reynolds executed a personal guarantee with respect to the loan. As of December
31, 1996 the principal amount outstanding was reduced to approximately
$2,249,000. This loan has matured and is in default.
In June 1994, the Company and its subsidiaries obtained a $1,000,000 loan
from TPM Holdings, Inc. ("TPM"), and Source Capital Corporation ("Source"), both
unaffiliated with the Company. The loan bore interest at 13% per annum and was
due on June 7, 1996. The loan required monthly payments of interest and payment
so f$1,000 per timeshare unit sold to be applied to accrued interest and
principal. The loan was secured by the Company's real and personal property,
including the Debbie Reynolds Hotel & Casino. As of December 31, 1995 the
principal amount outstanding was reduced to approximately $151,000 and the loan
was paid off in July 1996.
In December 1994, TPM Holdings, Inc. And Source Capital Corporation loaned
the Company an additional $1,000,000. The loan bears interest at a rate equal to
the greater of four percent over the prime rate or 12%, and was due on November
15, 1996. The loan requires monthly payments of interest and payments of between
$100 and $1,500 per timeshare unit sold, depending on the actual number of units
sold, to be applied to accrued interest and principal. The loan is secured by
the Company's real and personal property, including the Debbie Reynolds Hotel &
Casino. The principal amount outstanding on the loan as of December 31, 1996 was
approximately $511,000. This loan was paid off in February 1997.
The Company allows purchasers to finance a significant portion of its
timeshare sales. To facilitate the sale of timeshares the Company obtained a
$25,000,000 (increased to $35,000,000 at March 31, 1995) commitment from Bennett
Funding International, Ltd. ("Bennett") whereby Bennett purchases timeshare
paper from the Company with recourse, subject to its credit criteria, and
advances the Company 85% of the amount financed. Generally, the Company receives
at least a 10% down payment from the purchaser and finances the remaining 90%
with Bennett. On December 31, 1996 the Company had utilized and was contingently
liable for approximately $2,824,000 of this commitment.
In January 1995, World Venture Trust, an unaffiliated company, loaned the
Company $250,000. The loan bore interest at 10% and was due April 26, 1995 with
a principal balance of $275,000. The loan was secured by the Company's real and
personal property. The loan was convertible, at the option of the holder, after
maturity, into 200,000 shares of the Company's common stock. The Company paid
off this loan in September of 1995 with $275,000 in cash and issued the holder
15,745 restricted shares of the Company's common stock.
In January 1995, Realecon, a California Corporation, loaned the Company
$125,000 and advanced an additional $75,000 in March 1995. The Loan bore
interest at 12% and was due July 16, 1995. The amount due at maturity was
$235,000. The loan was secured against certain receivables of the Company and
required principal and interest payments equal to $1,000 per timeshare interval
sold. In consideration of the loan the Company issued Realecon 10,000 restricted
shares of the Company's common stock. The Company paid off this loan in June of
1995.
In February 1995, the Company obtained a $525,000 loan from Bennett, the
proceeds of which were principally used in the construction of the museum and
for general corporate purposes. The loan bears interest at 13% and was
originally due and payable March 22, 1997. The loan is secured by the Company's
real and personal property.
In March 1995, the Company obtained a $245,000 loan from an independent
third party, the proceeds of which were principally used in the construction of
the museum. The loan bore interest at 6% and was due March 31, 1996. The loan
was convertible, at the holder's option, into the Company's restricted common
stock at a rate of $1.00 per share. In August 1995 the holder converted the
indebtedness into 245,000 shares.
In April 1995, the Company obtained a $500,000 loan from TPM
Financial/Source Capital, the proceeds of which were principally used in the
construction of the museum and for general corporate purposes. The loan bore
interest at 13% and was due June 25, 1996. This loan was issued as an addition
to the lender's second mortgage. The Company paid off this loan in November of
1995.
In May 1995, the Company obtained a $340,000 loan from Bennett, the
proceeds of which were principally used for general corporate purposes. The loan
bears interest at 13% and was originally due and payable March 22, 1997. The
loan is secured by the Company's real and personal property.
In August 1995, the Company obtained a $2,865,000 loan from Bennett Funding
International, LTD., the proceeds of which were principally used to pay off
existing debt and for general corporate purposes, which included the $340,000
advanced to the Company in May of 1995 and $525,000 advanced in February of
1995. The loan bears interest at 14% and is due August 23, 1999. The loan is
secured by the Company's real and personal property. This loan is personally
guaranteed by Ms. Reynolds.
In October 1995, the Company raised additional financing through a
Regulation S offering under the Securities Act of 1933 (the "Act"). The Company
sold 300,000 shares of the Company's common stock totaling net proceeds of
approximately $225,000. The offering of the shares was directed solely to
persons who were not residents of the United States. The Company offered a
maximum of 2,666,666 shares at $.75 per share. The shares were not registered
under the Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration. In addition the
shares were subject to a minimum six month restriction on transfer.
In December 1995, the Company commenced a Regulation D offering under the
Securities Act of 1933 (the "Act"). The Company sold 200,000 units, at $1.00 per
unit, consisting of 200,000 shares of the Company's common stock and 200,000
warrants to purchase one share of common stock at $1.00, totaling net proceeds
of approximately $182,000. The offering of shares was directed solely to persons
who met the definition of "Accredited Investor" set forth in rule 501(A) of
Regulation D promulgated under the Act. The Company offered a maximum of
3,000,000 Units, (the "Unit"), each unit consisting of one share of Common Stock
and one warrant to purchase one share of common stock at $1.00 per share.
In August 1995, the Company offered all holders of the Company's units
issued pursuant to the Company's private placement memoranda dated March 25,
1994 and November 17, 1994 the opportunity to convert the Series AA Preferred
Stock and Debentures constituting part of the units into restricted shares of
the Company's common stock. Each Series AA Preferred Stock and Debenture
converted into one share of the Company' common stock at the reduced conversion
prices of $2.00 and $2.25 per share, respectively. The total dollar amount
converted from Series AA Preferred Stock and Debentures was $2,954,500 which
converted into 1,392,240 shares of the Company's common stock. As additional
consideration, the Company also offered the unit holders the right to exercise
each Class A Warrant to purchase two shares of Common Stock (instead of one) at
an exercise price of $1.00 per share (instead of $5.50) for 60 days from the
date of the offer. Pursuant to the Warrant offer, the Company received $93,120
from the exercise of warrants to purchase 93,120 shares of Common Stock. As
additional consideration to the Company, the unit holders waived the delinquent
interest and dividend payments owed.
In May 1996, the Company offered all holders of the Company's units issued
pursuant to the Company's private placement memorandum dated March 25, 1994 the
opportunity to convert the Series AA Preferred Stock and Debentures constituting
part of the units into restricted shares of the Company's common stock. Each
Series AA Preferred Stock and Debenture converted into one share of the
Company's common stock at the reduced conversion prices of $1.10 per share. The
total dollar amount converted from Series AA Preferred Stock and Debentures was
$884,000 which converted into 803,637 shares of the Company's common stock. As
additional consideration, the Company reduced the conversion price for each
Series AA Preferred Stock and Debenture issued pursuant to the Private Placement
Memorandum dated November 17, 1994 to $2.25. As additional consideration to the
Company, the unit holders waived the delinquent interest and dividend payments
owed.
In August 1996, the Company obtained a $500,000 loan from Gregory Orman, a
third party, the proceeds of which were principally used to reduce past due tax
obligations, reduce trade payable debt and also allowed the Company to engage
its auditors. The loan bears interest at 12% and has $550,000 principal balance
due November 1, 1996. This loan is secured with a fourth mortgage on the
Company's property and with certain of the Company's receivables. In connection
with the financing the Company granted Orman warrants to acquire 260,000 shares
of the Company's common stock at an exercise price of $.70 per share. On October
18, 1996, Orman agreed to extend the maturity date to February 1, 1997. In
consideration for the extension the Company reduced Orman's exercise price on
the warrants to acquire 260,000 shares of the Company's common stock from $.70
per share to $.22 per share. This loan is personally guaranteed by Ms. Reynolds
and Todd Fisher.
In February 1997, the Company obtained a $1,000,000 loan from Galt Capital,
an affiliate of Gregory Orman, an independent third party, the process of which
were principally used to pay off the TPM/Source second mortgage that was in
default, reduce past due tax obligations, reduce trade payable debt and the
balance will fund the Company's operations until additional financing can be
arranged. The loan bears interest at 12% and has $1,100,000 principal balance
due June 5, 1997. This loan is secured pursuant to an assignment of TPM Holding,
Inc. second Deed of Trust, Loan Agreement and Promissory Note dated December
1994 and is secured by a $573,000 first deed of trust placed against real
property owned by Selden Enterprises, ("Selden"), an affiliate of Ms. Reynolds
and Todd Fisher. In addition, Debbie Reynolds and Todd Fisher have personally
guaranteed this loan. The Company will issue Selden 500,000 shares of its common
stock as consideration for allowing the deed of trust to be placed on its real
property. The Company will also issue Ms. Reynolds 500,000 shares of its common
stock in consideration of her personal guarantee and in recognition of numerous
past uncompensated guarantees provided by Ms. Reynolds as well as Ms. Reynolds'
continued efforts on behalf of the Company. In connection with the financing the
Company has issued a warrant to purchase approximately 2% of the Company's
outstanding common stock, as calculated pursuant to the agreement, at an
exercise price of $.22 per share, the estimated fair market value, which expires
February 5, 2000. This loan is in default.
As of the filing of the Chapter 11 Cases, the Company was in default under
all its secured debt.
B. Insider Transactions
1. Agreement with Raymax Production, Ltd.
DRMC entered into an agreement with Debbie Reynolds and Raymax Production,
Ltd., a California corporation wholly-owned by Debbie Reynolds ("Raymax") as of
January 25, 1994, and as amended on March 9, 1995. Under the agreement Raymax
provided the entertainment, management and promotional services of Ms. Reynolds
on an exclusive basis in Las Vegas, Nevada during her lifetime. The agreement
was terminable upon Ms. Reynolds' death or a default. Under the agreement Ms.
Reynolds was to provide performance in the showroom at the Debbie Reynolds Hotel
for a minimum of 30 weeks per year and other managerial and promotional
activities. As compensation for her performance services, Raymax was to receive
$25,000 per weekly performance (the "Weekly Performance Fee"). Under the
agreement Raymax also was to receive annually 10% of the Company's net profits
(as defined in the agreement) for her non-entertainment services. Raymax had the
right to take a non-refundable monthly draw against the net profits equal to the
difference between $60,000 and the Weekly Performance Fees for such month, up to
a maximum draw of $1,000,000. If the draw taken for any year exceeded the 10%
net profits for such year, such excess would be carried forward as a
non-refundable advance against future net profits earned under the agreement.
Raymax also was to receive reimbursement of reasonable business and travel
expenses. Under the agreement, DRMC is required to carry life insurance on Ms.
Reynolds in the amount of $10,000,000 for the benefit of DRMC. During 1994 and
under the original terms of the agreement prior to its amendment in March 1995,
Ms. Reynolds was to receive compensation of $50,000 per month for her services.
During 1994, the Company had advanced $455,000 to Raymax against future amounts
owing under this agreement, all of which was outstanding at December 31, 1995.
As of December 31, 1995, the Company was in arrears approximately $795,000
pursuant to the weekly performance fee and monthly draw of this agreement. As of
December 31, 1996, the amount the Company was in arrears to Raymax and Ms.
Reynolds was $1,620,000 plus $162,000 in accrued interest. The Company and
Raymax agreed to net the $455,000 advance against the $1,620,000 in arrears as
of December 31, 1996. In September, 1996, Raymax and Ms. Reynolds served the
Company a written notice that this agreement was in default due to non-payment.
In November 1996, Raymax delivered a notice to the Company terminating this
agreement. Ms. Reynolds has agreed to render showroom and other services on an
"at will" basis, terminable at any time. The terms relating to Ms. Reynolds'
current "at will" services are the same as specified in the terminated
agreement.
2. Exclusive License Agreement.
Effective March 9, 1995, the Company entered into an agreement with Ms.
Reynolds and Raymax under which Ms. Reynolds was to grant the Company the
exclusive, perpetual, non-transferable license: (i) to display Ms. Reynold's
limited Hollywood memorabilia collection at the Hollywood Movie Museum; and (ii)
to use the name, photograph, likeness and signature of Ms. Reynolds for the
promotion of the Company and its operations. In consideration for the license,
the Company agreed to issue 400,000 shares of restricted Common Stock to Raymax
(which shares were never issued) and to insure, maintain and house the
memorabilia. As additional consideration for the license, upon Ms. Reynolds'
death, the Company would pay to her heirs and/or assigns annually, 10% of the
net profits of the Company (as defined in the agreement) in perpetuity. The
Company is in default of the agreement with Ms. Reynolds. In November 1996, Ms.
Reynolds delivered a written notice to the Company terminating this agreement.
3. Exclusive License Agreement.
Effective March 9, 1995, the Company entered into a license agreement with
Hollywood Motion Picture and Television Museum, a non-profit organization
("Hollywood"), which also owns an extensive Hollywood memorabilia collection.
Under the agreement with Hollywood, the Company has been granted the license to
display Hollywood's memorabilia in its Museum in consideration for the Company's
annual payment to Hollywood of $50,000 until the construction costs of the
Museum has been recouped from the Museum profits, at which time the annual
payment will increase to $100,000. On December 27, 1996, Hollywood sent a
default and 30-day termination notice to the Company due to non-performance on
the contract terminating the agreement as of January 26, 1997. The museum
continues to allow the Debtors to display its Hollywood memorabilia on an "at
will" basis.
4. Potential Actions Against Insiders.
(a) Debtors have disclosed a short term pre-petition loan by Art Petrie to
the Debtors for the purpose of paying certain payroll tax obligations. This loan
was guaranteed by Todd Fisher. This loan was repaid more than 90 days but less
than one year before the filing of the Debtors' petitions. This loan was repaid
by making payment to Todd Fisher who then paid Art Petrie. The Debtors have not
pursued this potential preference action. Under the Plan, the Unsecured
Creditors' Committee may pursue this preference action.
(b) In December, 1996 (within one year of the filing of the Debtors'
petitions) the Debtors made a bookkeeping entry which credited $445,000 owed by
Raymax Productions against a pre-existing debt for the services of Debbie
Reynolds in the amount of $1,620,000. Subsequent to this payment, Ms. Reynolds
continued to present her show at the Debtors' showroom for which she and Raymax
Productions have not been paid. The Debtors have not pursued the potential
preference action. Under the Plan, the Unsecured Creditors Committee may pursue
the preference action.
VII. OFFICERS AND DIRECTORS OF THE DEBTORS AND REORGANIZED DRHCI AND
ITS SUBSIDIARIES
A. Officers and Directors of Debtors
The following individuals served as officers and/or members of the Board of
Directors for the Debtors:
1. Todd Fisher.
Currently, Mr. Fisher is the sole director of the Debtors. Mr. Fisher has
more than twenty years of technical and creative experience in television and
film. He has designed and built sound stages, recording studios and TV
facilities. Mr. Fisher designed the Company's state-of-the-art, 500-seat
showroom which doubles as a complete television production studio. He also
conceived and designed the Company's unique, high-tech, multi-media Hollywood
Movie Museum, which is one of the first sites in the country to exhibit
high-definition television. In May 1995, the Board of Directors of the Company
appointed Mr. Fisher as the Company's Chief Executive Officer, President, Chief
Financial Officer and Treasurer. Mr. Fisher also is president, treasurer and a
director of DRMC and its president, treasurer and a director of Debbie Reynolds
Resorts, Inc.
2. Debbie Reynolds.
Debbie Reynolds previously served as a director and officer of the Debtors.
Ms. Reynolds' 49-year business, career has made her an internationally known
star of more than 30 motion pictures, two Broadway shows and hundreds of
television appearances. In December 1996, Paramount Pictures released a feature
film entitled "Mother," starring Ms. Reynolds and Albert Brooks. Hamlett
Productions, Ltd., a company owned 50% by Ms. Reynolds, purchased the old Paddle
Wheel Hotel and Casino in Las Vegas at auction as a site for a movie museum to
house her collection of Hollywood memorabilia, believed to be the largest
privately held in the world. The extensively renovated property reopened in July
1993 as the Debbie Reynolds Hotel/Casino/Hollywood Movie Museum. The unique,
high-tech, multi-media Hollywood Movie Museum opened in early 1995. Ms. Reynolds
also was secretary and a director of Debbie Reynolds Management Company, Inc.
("DRMC"), a wholly-owned subsidiary of the Company, was secretary and a director
of Debbie Reynolds Resorts, Inc., a wholly-owned subsidiary of DRMC, and is
president and sole shareholder of Raymax Production, Ltd., an entertainment
company, and Celebrity Restaurants, Inc., a service company.
3. Henry Ricci.
Mr. Ricci formerly served as president of the Debtors.
4. Donald Granatstein.
Mr. Granatstein formerly served as the executive vice president, treasurer
and CFO of the Debtors and a director of the Debtors.
5. Michael Wiener.
Mr. Wiener formerly served as a director of the Debtors.
6. Ed Preddy.
Mr. Preddy formerly served as a director of the Debtors.
B. Officers and Directors of the Reorganized Debtors
On the Effective Date, the operation of Reorganized DRHCI and its
subsidiaries shall become the general responsibility of their respective boards
of directors, who shall thereafter have responsibility for the management,
control and operation of Reorganized DRHCI and its subsidiaries. The names of
the initial five (5) members of the board of directors and the executive
officers of Reorganized DRHCI shall be disclosed at or prior to the Confirmation
Hearing. Four (4) such directors of Reorganized DRHCI will be selected by CFI
and one (1) such director shall be selected by TD. Such directors shall be
deemed to have been elected or appointed, as the case may be, pursuant to the
Confirmation Order, but shall not take office until the Effective Date. Those
directors not continuing in office after the Effective Date, if any, shall be
deemed removed therefrom without cause as of the Effective Date pursuant to the
Confirmation Order and shall be indemnified by the Estate for all actions taken
by such directors and officers while acting as directors and officers for the
Debtors from the Petition Date.
C. Pending Postpetition Litigation Matters
1. The Securities Litigation
After the filing of the Debtors' petitions, a securities law complaint was
filed in the Eighth Judicial District Court of the State of Nevada by Sorrel's
alleging prepetition violation of securities laws. This litigation is stayed
against the Debtors by reason of the Chapter 11 case.
Donald Sorrells, a shareholder in the Debbie Reynolds Hotel and Casino
("DRHC") has filed a class proof of claim as against all debtors herein on
behalf of himself and all claimant/shareholders similarly situated. While the
class proof of claim sounds in several counts and is quite detailed, the
gravamen of said proof of claim is that the Debtors, and each of them,
intentionally and/or negligently misrepresented to the claimants, in its
offering statements, various material facts, including the financial situation
and soundness of DRHC. Claimant/shareholder Sorrells has yet to file for
certification of said class, it being his contention that such motion would be
premature at this stage as the Debtors have yet to object to the Sorrells class
proof of claim.
Debtors intent to object to claim filed by Sorrells or to assist the
Disbursing Agent in objecting to such claim.
2. Other Actions
The Debtors threatened to bring an action to recover $80,000 preference
from AMS Neve, Inc. This matter was settled by AMS Neve, Inc. paying the Debtors
$40,000 and the Bankruptcy Court allowing the unsecured claim of AMS Neve, Inc.
in the amount of $181,000.
D. Debtor's Pre-Bankruptcy Financial Results
From the beginning of their operation of the Debbie Reynolds Hotel, the
Debtors have operated at a substantial loss from operations which resulted in a
working capital deficiency, a shareholders' equity deficiency, significant debt
and debt service obligations and defaults under various agreements. The
Consolidated Financial Statements dated December 31, 1996 (with Independent
Auditors' Report Thereon) are included in the Appendix as Exhibit "D". The
unaudited Financial Statements dated September 30, 1997 are included in the
Appendix as Exhibit "E".
E. Post-Petition
The Debtors continue to experience operating losses. As shown by the
Financial Statements dated September 30, 1997, the Debtors had a net loss of
$790,000 for three (3) months ending September 30, 1997.
F. Bankruptcy Filing
The Debtors filed petitions for relief under Chapter 11 of the Bankruptcy
Code on July 5, 1997.
VIII. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
The Debtors are currently operating their businesses as
debtors-in-possession. The Bankruptcy Court has certain supervisory powers over
the operations of the Debtors during the pendency of the Chapter 11 Cases. These
powers are generally limited to reviewing and ruling upon any objections raised
by a party in interest to business operations or proposed transactions of the
Debtors. Except as otherwise authorized by the Bankruptcy Court, the Debtors are
required to give notice of any transactions not in the ordinary course of
business and of the compromise of any controversy to parties in interest who
request such notice. In addition, the Bankruptcy Court supervises the employment
of attorneys, accountants and other professionals.
The Debtors submitted a Motion for Joint Administration requesting that the
Chapter 11 Cases be jointly administered which was approved by order entered on
September 17, 1997.
The Debtors each submitted an Ex Parte Application for Order Approving
Employment of Attorneys seeking approval by the Bankruptcy Court to employ the
law firm of Hale, Lane, Peek, Dennison, Howard, Anderson and Pearl as its
general bankruptcy counsel. An order approving such employment was entered on
July 23, 1997.
The Debtors each submitted an Application to Employ David F. Atwell and
Rudy Berti of Resort Properties of America as a real estate brokers to sell the
Debtors' hotel. An order approving such employment was entered on July 24, 1997.
The Debtors obtained authority by an Order entered August 29, 1997, to
employ the law firm of Kirshman, Harris & Cooper as special counsel in labor law
matters including those pending before the National Labor Relations Board.
The Debtors obtained authority by an Order entered September 22, 1997 to
lease a portion of the casino area to Capado Gaming Corporation for the
installation of approximately 25 slot machines.
The Debtors obtained authority by an Order entered December 4, 1997 to
enter into a lease of the showroom to allow the performance of the Kenny Kerr
Show on nights that Debbie Reynolds was not performing.
The Debtors obtained authority by an Order to employ Theresa Dowling as
special counsel in litigation matters in which she was representing the Debtors
prior to the Chapter 11 Cases.
Debtors have paid pre-petition wages and salaries, inclusive of vacation
days and sick leave, subject to withholdings for the state and federal
governments and any obligations under the Debtors' various employee benefit
plans. No order approving these payments were sought or entered.
Debtors have paid certain pre-petition obligations such as travel agent
commissions and room reservations. No order approving these payments was sought
or entered.
Debbie Reynolds has continued to perform at the Showroom at the Hotel. Ms.
Reynolds' services are provided by MaxRay Productions, her new production
company. Pursuant to the terms of her previous contract with the Debtors, Ms.
Reynolds' production company is to be paid $25,000 per week for each full week
she performs. As of January 25, 1998, MaxRay Productions, Inc. is owed $380,000
having earned postpetition fees of $390,000 of which only $10,000 has been paid
postpetition. These fees are classified as an Administrative Claim. It is
expected that Ms. Reynolds will continue to perform in the Showroom at the Hotel
until the Effective Date and the fees for her services during this period will
also be classified as an Administrative Claim. Ms. Reynolds has indicated that
she will not perform under the present arrangement with the Debtor after March
31, 1998. She is presently performing in anticipation of confirmation of this
Plan and the sale of the hotel by the end of March, 1998.
A. Adequate Protection Orders
1. Adequate Protection Payments.
On October 22, 1997, the Bankruptcy Court ordered that the Debtors begin
making adequate protection payments of $500/month to Telerent Leasing Corp.
On October 28, 1997, the Bankruptcy Court ordered that the Debtors begin
making adequate protection payments of $250/month to Orix Credit Alliance, Inc.
And to file a plan of reorganization by December 30, 1997. By agreement, the
Debtors have increased these payments to $1,000 per month.
In December, 1997, the Debtors agreed to pay $1,000/month to Charter
Equipment Leasing.
IX. FURTHER DESCRIPTION OF THE PLAN
A. Means for Implementation of the Plan
1. New Capital Structure
a. Issuance of Stock to CFI. Under the terms of an agreement with Central
Florida Investments, Inc. ("CFI"), CFI will arrange for a loan to the Debtors in
the amount of $15,650,000. $14,000,000 of this loan will go to the
pre-confirmation Creditors of the Debtors in exchange for a release of all
claims against the Reorganized Debtors and the property of the Debtors. In
addition, CFI will invest an additional $3,000,000 in the Debtors. None of these
additional funds will be made available to Creditors of the Debtors. As a result
of the loan and investment, CFI will own 85% of the common stock of Reorganized
DRHCI (the "New Common Stock") and, thereby, control all of the Reorganized
Debtors. The pre-confirmation owners of Existing Common Stock and those persons
who have claims based upon ownership of Existing Common Stock will own 15% of
the equity in Reorganized DRHCI. CFI desires that the pre-confirmation
stockholders retain their stock in order to maintain Reorganized DRHCI's status
as a publicly traded company. If reorganized DRHCI cannot maintain its status as
a publicly traded company, there is no assurance that CFI will complete the
transaction.
The Debtor has approximately 14,000,000 common shares and common share
equivalents outstanding. Upon the Effective Date, after the funding of the
$15,650,000 New Loan and the investment of $3,000,000 in exchange for the Sale
Stock, CFI will hold approximately 80,000,000 common shares of New Common Stock.
b. Issuance of Warrants. Additionally, Reorganized DRHCI will issue
warrants for the purchase of additional shares of New Common Stock to CFI and TD
Entertainment, Inc. ("TD"). TD is the lessee of the Reorganized Debtors' casino,
restaurants, bars and showroom). No funds from the exercise of warrants will
benefit the Creditors of the Debtors. If all the warrants issued to CFI and TD
Entertainment for 13,000,000 shares of New Common Stock are issued, the holders
of Equity Interests and Equity Interest Related Claims or their successors in
interest will retain approximately 13% of the common stock of Reorganized DRHCI,
CFI will own 82.2%, and TD will own 4.7%.
c. Lease to TD. Under the terms of the agreement with CFI, upon the
Effective Date, the Reorganized Debtors (now controlled by CFI) will lease a
substantial portion of the public facilities at hotel to TD. TD is a corporation
to be formed which will be owned by Todd Fisher and Debbie Reynolds or their
designees. TD will lease the casino, gift shop, showroom, Museum, restaurant and
existing executive offices for payment of $50,000 per month. The specific terms
of the Lease are contained in section 6.6 of the Plan.
This lease was requested by CFI so that it did not have to go through
liquor or gaming license procedures before acquiring control of the Reorganized
Debtors.
2. Alternative Transaction Proposal
During the period commencing upon the filing of the Plan with the
Bankruptcy Court and up until the commencement of the Confirmation Hearing, the
Debtors will, upon the execution of appropriate confidentiality agreements,
respond to inquiries from, engage in discussions with and provide information to
any Person interested in the final restructuring of the Debtors in lieu of the
transaction contained in the Plan. At the Confirmation Hearing, Debtors shall
disclose to the Bankruptcy Court information concerning all Alternative
Transaction Proposals received and the Bankruptcy Court may in its own
discretion consider such Alternative Transaction Proposal. In the event that
prior to the Confirmation Hearing a written Alternative Transaction Proposal is
received, the Debtors shall notify the Unsecured Creditors Committee of such
Alternative Transaction Proposal, which notice shall identify the parties to
such Alternative Transaction Proposal and set forth in reasonable detail the
terms and conditions of such Alternative Transaction Proposal. Alternative
Transaction Proposal by a party who has not previously proved its ability to
fund the purchase price must be accompanied by a $1,000,000 cashiers' check
which will become a non-refundable deposit if said party's offer is accepted.
Debtors reserve the right to submit such Alternative Transaction Proposal to the
Bankruptcy Court for determination as to whether such Alternative Transaction
Proposal contains economic terms and conditions more favorable to the Creditors
than the transaction proposed by the Plan. Debtors believe that in order for an
Alternative Transaction Proposal to be better for Creditors, it must provide at
least $14,150,000 for creditors on the Effective Date. Debtors reserve the right
to alter, amend or modify the Plan as provided for in Section 13.1 of the Plan
prior to Confirmation or during the Confirmation Hearing to reflect such
Alternative Transaction Proposal.
In the event that Alternative Transaction Proposal is presented by the
Debtors or is considered by the Bankruptcy Court at the Confirmation Hearing,
each of the holders of Deed of Trust Note Claims shall have the right (if
appropriate under the circumstances) pursuant to Section 363(k) of the
Bankruptcy Code to credit bid their Allowed Secured Claim in the event that an
Alternative Transaction Proposal or any other sale proposal is considered by the
Bankruptcy Court at the Confirmation Hearing.
B. Conditions to Confirmation and Effectiveness of the Plan Confirmation
and effectiveness of the Plan is subject to a number of conditions, including,
but not limited to, approval of the Plan by the Bankruptcy Court pursuant to
Bankruptcy Code Section 1129, receipt of all necessary regulatory approvals
including those required by Gaming Authorities and the SEC, if any are required,
completion of definitive Plan-related documents and other customary closing
conditions. In addition, effectiveness of the Plan is conditioned in upon, among
other things more particularly described in the Plan, the following:
a) The entry of a Confirmation Order;
b) The Confirmation Order shall be a Final Order, except that Debtors
reserve the right to cause the Effective Date to occur notwithstanding the
pendency of an appeal of the Confirmation Order, under circumstances that would
moot such appeal;
c) No request for revocation of the Confirmation Order under Section 1144
of the Bankruptcy Code shall have been made, or, if made, shall remain pending;
d) The Bankruptcy Court in the Confirmation Order shall have approved the
retention of jurisdiction provisions in Article 12 of the Plan; and
e) All orders and documents necessary to implement the transactions
contemplated by the Plan shall be in form and substance reasonably acceptable to
the Debtor.
C. Consolidation
Upon the Effective Date, the Bankruptcy Estates of the 3 Debtors shall be
deemed consolidated for all purposes. The Debtors believe that substantive
consolidation is appropriate because (a) the Debtors' operated as a single
enterprise, (b) the Debtors' assets can only be operated as a single enterprise,
(c) the real property assets of DRRI and DRHCI cannot be used separately under
current Clark County land use regulations, and (d) it will be impossible to sell
the assets of DRRI without selling the assets of DRHCI, or vice versa, because
of the blanket deeds of trust which encumber the real property of both entities.
X. RISK FACTORS
In addition to matters addressed elsewhere in this Disclosure Statement,
including the issuance and ownership of Common Stock, the Plan involves certain
significant risk which should be taken into consideration, including those
material factors set forth below.
A. Risk of Non-Payment
On and after the Effective Date, Debtors and the Disbursing Agent will be
required to make substantial payments to their creditors. The ability to meet
their obligations will be entirely dependent on the new loan provided by CFI.
Although the Debtors anticipate that CFI will make the loan on the Effective
Date, this belief is based upon a number of assumptions that are subject to
inherent uncertainties and contingencies, most of which will be beyond the
control of the Debtors.
B. Risk of Non-Confirmation of the Plan
Even if the requisite acceptances are received, the Plan may not be
confirmed by the Bankruptcy Court. Confirmation of the Plan requires, among
other things, a finding by the Bankruptcy Court that it is not likely that there
will be a need for further financial reorganization and that the value of
distributions to dissenting members of impaired Classes of Creditors and Equity
Interests not be less than the value of distributions such Creditors and holders
would receive if the Debtors were liquidated under Chapter 7 of the Bankruptcy
Code. Although the Debtors believe that the Plan will not be followed by a need
for further financial reorganization and that dissenting members of impaired
Classes of Creditors and Equity Interests will receive distributions at least as
great as would be received in a liquidation under Chapter 7 of the Bankruptcy
Code, there can be no assurance that the Bankruptcy Court will conclude that
these tests have been met.
Furthermore, the effectiveness of the Plan is subject to certain other
conditions and there can be no assurance that such conditions will be satisfied.
XI. POST CONFIRMATION DATE OPERATIONS AND PROJECTIONS
A. Summary of Title to Property and Dischargeability
1. Revesting of Assets
Subject to the provisions of the Plan, the tangible property of the Estate
shall revest in Reorganized Debtors on the Effective Date. As of the Effective
Date, all such property of Reorganized Debtors shall be free and clear of all
Liens and Claims of Creditors and Equity Interests, except as otherwise provided
in the Plan. From and after the Effective Date, Reorganized Debtors may operate
their businesses, and may use, acquire and dispose of their property free of any
restrictions of the Bankruptcy Code, including the employment of and payment to
professionals, except as otherwise provided in the Plan or the Confirmation
Order.
2. Discharge
Except as provided in the Plan or the Confirmation Order, the rights
afforded under the Plan and the treatment of Claims and Equity Interests under
the Plan shall be in exchange for and in complete satisfaction, discharge and
release of all Claims and termination of all Equity Interests, including any
interest accrued on Claims from the Petition Date.
3. Injunction
Except as provided in the Plan or the Confirmation Order, as of the
Confirmation Date, all entities that have held, currently hold or may hold a
Claim or other debt or liability that is discharged or an Equity Interest or
other right of an Equity Interest holder that this terminated pursuant to the
terms of the Plan are permanently enjoined from taking any actions on account of
any such discharged Claims, debts or liabilities or terminated an Equity
Interests or rights against the Debtors or the Reorganized Debtors.
4. Exculpation
Neither Debtors, Reorganized Debtors, nor any of their respective present
or former directors, officers, employees, advisors, attorneys or agents, shall
have or incur any liability to any holder of a Claim or Equity Interest, or any
other party in interest, or any of their respective agents, employees,
representatives, financial advisors, attorneys or affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Cases, the pursuit of confirmation of the Plan
or the consummation of the Plan, except for their willful misconduct, and in all
respects shall be entitled to reasonably rely upon the advise of counsel with
respect to their duties and responsibilities under the Plan or in the context of
the Chapter 11 Cases. No holder of a Claim or Equity Interest, or any other
party in interest, including their respective agents, employees,
representatives, financial advisors, attorneys or Affiliates, shall have any
right of action against Debtors, Reorganized Debtors, or any of their respective
present or former officers, directors, employees, advisors, attorneys or agents,
for any act or omission in connection with, relating to, or arising out of, the
Chapter 11 Cases, the pursuit of confirmation of the Plan, the consummation of
the Plan, or the administration of the Plan, except for their willful
misconduct.
B. Summary of Certain Material Documents of the Plan
1. Projections
Debtors have not prepared a cash flow analysis which depicts the
Reorganized Debtors' projected operating results. The Debtors never had positive
cash flow from operations and are not in a position to project future positive
cash flow.
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. Scope and Limitations
Under the Internal Revenue Code of 1986, as amended (the "Tax Code"), there
are certain federal income tax consequences associated with the Plan. It is not
practicable to present a detailed explanation of all of the federal income tax
aspects of the Plan and the following is only a summary discussion of certain
significant consequences. This Disclosure Statement does not constitute and is
not intended to constitute either a tax opinion or tax advice to any person, and
the summary contained herein is provided for informational purposes only. This
summary is based upon laws, regulations, rulings and decisions now in effect and
upon proposed regulations, all of which are subject to change (possibly with
retroactive effect) by legislation, administrative action or judicial decision.
Under present law, there is substantial uncertainty surrounding many of the tax
consequences discussed below. Uncertainty is created, in part, by the changes
made by the Bankruptcy Tax Act of 1980, and the Taxpayer Relief Act of 1997,
certain provisions of which call for the promulgation of regulations
("Regulations") by the United States Department of Treasury ("Treasury
Department") which have not yet been promulgated or have not yet become final.
As a result, many alternative tax consequences are possible. In addition, there
are differences in the nature of the Claims of various Creditors, their methods
of tax accounting and prior actions taken by Creditors with respect to their
Claims. Further, this summary does not discuss all aspects of federal taxation
that may be relevant to a particular Creditor affected by special considerations
not discussed below. For example, certain types of Creditors (including
non-resident aliens, foreign corporations, broker-dealers, financial
institutions, life insurance companies and tax-exempt organizations) may be
subject to special rules not discussed below. This summary assumes that Common
Stock is (or will be) held as capital assets by the holders thereof as defined
under the Tax Code. In addition to the federal income tax consequences discussed
below, the transactions contemplated herein may have significant state, local
and foreign tax consequences which are not discussed herein. Neither a ruling
from the IRS nor an opinion of counsel has been requested with respect to the
federal income tax consequences of the Second Amended Plan.
ACCORDINGLY, HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE STRONGLY URGED TO
CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PLAN WITH RESPECT TO THEIR CLAIM OR EQUITY
INTEREST. THE DEBTORS AND THEIR COUNSEL ARE NOT MAKING ANY REPRESENTATIONS
REGARDING THE PARTICULAR TAX CONSEQUENCES OF CONFIRMATION AND CONSUMMATION OF
THE PLAN AS TO ANY CREDITOR OR EQUITY INTEREST HOLDER NOR ARE THE DEBTORS OR
THEIR RESPECTIVE COUNSEL RENDERING ANY FORM OF LEGAL OPINION AS TO SUCH TAX
CONSEQUENCES.
<PAGE>
B. Tax Consequences to Reorganized DRHCI
1. Discharge of Indebtedness Income
As a result of implementation of the Plan, the amount of Reorganized
Debtor's aggregate outstanding indebtedness will be reduced. In general, for
federal income tax purposes, the Tax Code provides that a debtor will realize
discharge of indebtedness ("DOI") income when a creditor accepts less than full
payment in satisfaction of its debt. Absent an exception, the amount of DOI
income realized must be included in taxable income. One of the exceptions to
this rule, Tax Code Section 108, provides that DOI income will not be included
in the debtor's taxable income where the debtor is under the jurisdiction of a
court in a case under Title 11 of the United States Code and the DOI is granted
by the court or is pursuant to a plan approved by the court. Under the Tax Code
Section 108 exception, unless another rule under Tax Code Section 108 applies
such that the debtor does not realize DOI income (e.g., the payment of the
discharged liability would have given rise to a deduction), the debtor's tax
attributes (notably, net operating loss ("NOL") carryovers, general business
credit carryovers, capital loss carryovers and the tax basis of its assets) will
be reduced in a prescribed order by the amount of DOI income excluded under Tax
Code Section 108. Tax attributes are generally reduced by one dollar for each
dollar excluded from taxable income, except that tax credits are reduced by 33.3
cents for each dollar excluded from taxable income. However, the debtor's tax
basis in assets will be reduced only to the extent that the aggregate tax basis
of property held by the debtor immediately after the debt discharge exceeds the
aggregate tax basis of property held by the debtor immediately after the debt
discharge exceeds the aggregate liabilities of the debtor at such time. An
election can be made to alter the order of priority of attribute reduction so as
to apply such reduction first against depreciable property held by the taxpayer
in an amount not to exceed the aggregate adjusted basis of such property. It is
uncertain at this time whether Reorganized Debtors would effect such election.
Reorganized Debtors will realize DOI income, but such income will not be
included in taxable income under Tax Code Section 108 because the discharge will
occur pursuant to the Plan approved by the Bankruptcy Court. The effect of the
exclusion of DOI income under Tax Code Section 108 will be to reduce the tax
attributes of Reorganized Debtors: (I) resulting in a corresponding reduction of
its NO L carryovers; and (ii) thereafter, possibly resulting in a reduction of
the tax basis of assets held by Reorganized Debtors, but not below the aggregate
amount of liabilities of Reorganized Debtors immediately after the Effective
Date. The Debtors' DOI income may be increased to the extent that unsecured
creditors holding unscheduled claims fail to timely file a proof of Claim and
have their Claims discharged on the Confirmation Date pursuant to Bankruptcy
Code Section 11441. The income tax consequences of a substantive consolidation
for bankruptcy purposes are highly uncertain, and Debtors express no view as to
such consequences.
To the extent that Debtors have accrued deductions for interest with
respect to Allowed Claims, Reorganized Debtors will realize DOI income with
respect to these Claims, and their tax attributes will be reduced, as described
above, by the excess of the amount of such Claims over the amount of any
consideration treated as distributed in respect of such Claims under the Plan.
To the extent that Debtors have not accrued deductions for these Claims, no DOI
income should be realized with respect to such Claims, because an offsetting
deduction should be allowable in the same amount.
2. Limitation on Net Operating Losses
Because of the limitations imposed on the availability of NOLs following an
ownership change discussed below, the availability of Debtors' NOL carryovers to
offset Reorganized Debtors' future taxable income may be severely limited. As of
December 31, 1996, Debtors had consolidated NOL carryovers totaling
approximately $16.6 million. These NOLs begin to expire in the year 2010 and
will completely expire by 2012. Of the total NOLs, based on information
provided, none are currently subject to Tax Code Section 382 use restrictions.
The Company estimates that it may have additional NOLs generated in taxable year
1997 of approximately $4.2 million. These amounts are estimates or
approximations and are subject to adjustment as a result of IRS audits of its
tax returns, which may not take place for several years.
Tax Code Section 382 provides that in the event of an "ownership change,"
the loss corporation's use of its pre-change NOLs and certain "built-in losses"
is limited. An ownership change generally occurs when the percentage of a
corporation's stock held by certain persons (including creditors who exchange
debt for stock) increases by more than fifty (50) percentage points over a
three-year testing period. If an ownership change occurs, a corporation's annual
use of its NOL carryovers (and certain built-in losses) is limited to the value
of the corporation's equity immediately before the ownership change multiplied
by the long-term tax exempt rate. The long-term tax-exempt rate changes from
month to month based on changes in the prevailing interest rates. Tax Code
Section 382 also provides that, in certain cases, a loss corporation may utilize
additional pre-change NOLs if the corporation is treated as having "built-in
gains" in excess of certain statutory thresholds. On the other hand, a loss
corporation may not be allowed to take certain deductions, including
depreciation, if the corporation has "built-in losses" in excess of similar
thresholds. Moreover, no NOLs will survive (except for certain items specified
in Tax Code Section 382(C)(2) if the loss corporation does not continue its
historic business or use a significant portion of its assets at all times during
the two-year period beginning on the date of the ownership change. If the
corporation has more than one line of business, continuity of business
enterprise for this purpose requires only that it continue a significant line of
business.
As a result of the issuance of Common Stock, Reorganized Debtors will incur
an ownership change on the Effective Date under the general rules of Tax Code
Section 382. Accordingly, Reorganized Debtors' ability to utilize its NOLs and
built-in losses will be subject to the limitations imposed by Tax Code Section
382. It is unclear at this time how Reorganized Debtors might be affected by all
of the limitations imposed under Tax Code Section 382. Reorganized Debtors will
be subject to special rules governing the allocations of income and NOLs in its
taxable year in which the Effective Date occurs.
Any shift (deemed or actual) in the ownership of stock of the Debtors,
directly or by attribution, outside the scope of the Plan may trigger (or may
have already triggered) the application of Section 382 and other provisions of
the Tax Code which may affect the availability of DRHCL's NOLs. Because the
federal income tax consequences of any shift would depend on the particular
facts and circumstances of such time and the application of complex legislation
and regulations, the Debtors express no views as to the effect of any
transactions outside the scope of the Plan or the survival of any NOLs or other
carryovers.
C. Tax Consequences to Debtor Shareholders
Under the Plan, the holders of Class 10 Equity Interests and all Equity
Interest Related Claims will retain their interests. As such, such holders are
not entitled to a deduction.
D. Tax Consequences to Creditors
The federal income tax consequences to Creditors arising from the Plan will
vary depending upon, among other things, the type of consideration received by
the Creditor in exchange for its Claim, whether the Creditor reports income
using the cash or accrual method, whether the Creditor has taken a "bad debt"
deduction with respect to its Claim, whether the Creditor receives consideration
in more than one (1) tax year of the Creditor, whether the Creditor is a
resident of the United States, and whether all the consideration received by the
Creditor is deemed to be received by that Creditor in an integrated transaction.
HOLDERS OF GENERAL UNSECURED CLAIMS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE TAX TREATMENT OF PAYMENTS RECEIVED
XIII. SECURITIES LAW CONSIDERATION
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR
DISAPPROVED THIS DISCLOSURE STATEMENT OR DETERMINED IF IT IS TRUTHFUL OR
COMPLETE.
A. Issuance of Securities
The Confirmation Order will authorize the issuance of New Common Stock to
CFI and warrants to CFI and TD without registration under the Securities Act and
without registration or qualification under state securities and "blue sky" laws
(all such registrations and qualifications are collectively referred to herein
as "Securities Law Registration"), in reliance on the exemptions set forth in
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act") and
applicable Nevada law (NRS 90, 530 (11)).
B. Resale Consideration
The Debtors believe that the resale or other disposition of the New Common
Stock or warrants by the recipient thereof will not be exempt from Securities
Law Registration.
Under Section 4(2) of the 1933 Act and NRS 90.530 (11), the issuance of
securities to a limited number of persons for investment purposes only and not
for resale may be exempt from the requirement of registration.
Under the Plan, the New Common Stock is being issued to CFI for investment
purposes only and not for resale, and (b) the warrants for the New Common Stock
are being issued to CFI and TD for investment purposes only and not for resale.
Both CFI and TD will have to execute and deliver to the Reorganized DRHCI
an Investment Representation Statement.
In addition, based on the views of the SEC expressed in no-action letters,
recipients who are deemed "control persons" or "affiliates" of the Debtors will
be able to sell their securities (if not registered) pursuant to the safe harbor
provisions of Rule 144 under the Securities Act ("Rule 144") as those provisions
apply to sales by affiliates of securities which are not "restricted
securities." In the context of securities are held by control persons or
affiliates of the issuer, Rule 144 provides that if certain conditions are met
(including, among other things, volume limitations, manner of sale and
availability of current information about the issuer), control persons or
affiliates of the issuer may sell their securities without registration.
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN NATURE AND HAS BEEN INCLUDED
IN THIS DISCLOSURE STATEMENT SOLELY FOR INFORMATIONAL PURPOSES. THE DEBTORS MAKE
NO REPRESENTATIONS CONCERNING, AND ARE NOT PROVIDING ANY OPINION OR ADVICE WITH
RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS DESCRIBED ABOVE. IN
LIGHT OF THE COMPLEX AND SUBJECTIVE, INTERPRETIVE NATURE OF WHETHER A PARTICULAR
HOLDER OF ANY OF THE SECURITIES DESCRIBED HEREIN MAY BE DEEMED AN "AFFILIATE" OR
"CONTROL PERSON" UNDER THE LAWS AND REGULATIONS DISCUSSED ABOVE AND,
CONSEQUENTLY, THE UNCERTAINTIES CONCERNING THE AVAILABILITY OF EXEMPTIONS FROM
SECURITIES LAW REGISTRATION AND RESALES OR OTHER DISPOSITIONS OF THOSE
SECURITIES, THE DEBTORS ENCOURAGE EACH CLAIMANT TO CONSIDER CAREFULLY AND
CONSULT WITH HIS, HER, OR ITS OWN LEGAL ADVISERS WITH RESPECT TO THOSE (AND ANY
RELATED) MATTERS.
XIV. GAMING REGULATION AND LICENSING
Because DRHCI is not registered with the Gaming Commission and does not
hold a gaming license to conduct gaming operations at the Debbie Reynolds Hotel
& Casino, Debtors believe that the Plan is not subject to the jurisdiction and
prior approval of the Gaming Commission and Gaming Board. Accordingly, it is
important to note that while the ownership and operation of casino gaming
facilities in Nevada are subject to extensive state and local regulation,
landlords of casinos are not necessarily subject to such investigation and
licensing.
The Gaming Authorities may investigate any entity who has a material
relationship to, or material involvement with, any non-restricted licensee in
order to determine whether such entity is suitable or should be licensed as a
business associate of a gaming licensee. Landlords of licensees may be required
to be licensed or found suitable by the Gaming Authorities. The Gaming
Authorities may deny an application for licensing for any cause deemed
reasonable. A finding of suitability is comparable to licensing, and both
require the submission of detailed personal and financial information followed
by a thorough investigation.
Any entity or person who fails or refuses to apply for a finding of
suitability or a license within thirty (30) days after being ordered to do so by
the Gaming Commission or the Gaming Board may be found unsuitable.
It is important to note that the granting of findings of suitability,
approvals or licenses are discretionary with the Gaming Authorities. The burden
of demonstrating the suitability or desirability of certain business
transactions is at all times upon the applicant. Any licensing or approval
process requires the submission of detailed financial, business and personal
information, as well as the completion of a thorough investigation. The time and
manner in which each application is investigated and considered by the Gaming
Authorities. Once an application is filed it is within the sole discretion of
the Gaming Authorities to allow that application to be withdrawn. Additionally,
the Gaming Authorities have absolute authority to limit, restrict or condition
any application or request for withdrawal filed in any manner deemed reasonable
by the Gaming Authorities.
XV. CONFIRMATION OF THE PLAN
A. Confirmation Hearing
Pursuant to Bankruptcy Code Section 1128(a), the Bankruptcy Court will hold
a hearing regarding confirmation of the Plan at the United States Court, 300 Las
Vegas Boulevards South, Las Vegas, Nevada 89101 on a date to be set by the
Bankruptcy Court.
B. Objections to Confirmation of the Plan
Bankruptcy Code Section 1128(b) provides that any party in interest may
object to confirmation of a plan. Any objects to confirmation of the Plan must
be in writing, must state with specificity the grounds for any such objections
and must be filed with the Bankruptcy Court and served upon the following
parties so as to be received on or before the time fixed by the Bankruptcy
Court.
Counsel for the Debtors:
Lenard E. Schwartzer, Esq.
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
2300 West Sahara Ave., 8th Floor
Las Vegas, Nevada 89102
Tel: (702) 362-5118
Fax: (702) 365-6940
For the Plan to be confirmed, the Plan must satisfy the requirements stated
in the Bankruptcy Code Section 1129. In this regard, the Plan must satisfy,
among other things, the following requirements:
1. Best Interests of Creditors and Liquidation Analysis
Pursuant to Bankruptcy Code Section 1129(a)(7), for the Plan to be
confirmed, it must provide that Creditors and holders of Equity Interests will
receive at least as much under the Plan as they would receive in a liquidation
of the Debtors under Chapter 7 of the Bankruptcy Code (the "Best Interest
Test"). The Best Interest Test with respect to each impaired Class requires that
each holder of a Claim or Equity Interest of such Class either: (i) accepts the
Plan; or (ii) receives or retains under the Plan property of a value, as of the
Effective Date, that is not less than the value such holder would receive or
retain if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code.
The Bankruptcy Court will determine whether the value received under the Plan by
the holders of Claims in each Class of Creditors or Equity Interests equals or
exceeds the value that would be allocated to such holders in a liquidation under
Chapter 7 of the Bankruptcy Code. The Debtors believe that the Plan meets the
Best Interest Test and provides value which is not less than that which would be
recovered by each such holder in a Chapter 7 bankruptcy proceeding.
To determine what Creditors and holders of Equity Interests in each
impaired Class would receive if the Debtors were liquidated, the Bankruptcy
Court must determine what funds would be generated from the liquidation of the
Debtors' assets and properties in the context of a Chapter 7 liquidation case,
which would consist of the proceeds resulting from the disposition of the assets
of the Debtors, augmented by the Cash held by the Debtors at the time of the
commencement of the liquidation and by such additional Administrative and
Priority Claims as may result from the termination of the Debtors' businesses
and the use of Chapter 7 for the purpose of liquidation.
The Debtors' cost of liquidation under Chapter 7 would include the fees
payable to a trustee in Bankruptcy, as well as those which might be payable to
additional attorneys and other professionals that such trustee might engage,
plus any unpaid expenses incurred by the Debtors during the Chapter 11 Cases,
such as compensation for attorneys, financial advisors and accountants and costs
and expenses of members of any committees that are allowed in a Chapter 7 case.
In addition, Claims would arise by reason of the breach or rejection of
obligations incurred and executory contracts entered into by the Debtors during
the pendency of the Chapter 11 Cases.
The foregoing types of Claims and such other Claims that may arise in the
Chapter 7 case or result from the Chapter 11 Cases would be paid in full from
the liquidation proceeds before the balance of those proceeds would be made
available to pay pre-Chapter 11 Allowed Priority Claims, Allowed General
Unsecured Claims and Equity Interests.
The distributions from the liquidation proceeds would be paid Pro Rata
according to the amount of the aggregate Claims held by each Creditor. Debtors
believe that the most likely outcome of liquidation proceeds under Chapter 7
would be the application of the "absolute priority rule." Under that rule, no
junior Creditor may receive any distribution until all senior Creditors are paid
in full, with interest, and no Equity Interest holder may receive any
distribution until all Creditors are paid in full. In addition, and in
accordance with Section 510(b) of the Bankruptcy Code, all holders of Equity
Interest-Related Claims being holders of Claims for reimbursement or
contribution allowed under Section 502 of the Bankruptcy Code on account of a
Claim arising from rescission of a purchase or sale of a security of the
Debtors, or for damages arising from the purchase or sale of such a security
receive the same priority as holders of Equity Interests and are entitled to
receive distributions Pro Rata with holders of Equity Interests after all other
Creditors are paid in full.
The Debtors have determined that Confirmation of the Plan will provide each
Creditor and holder of an Equity Interest with no less of a recovery than it
would receive if Debtors were liquidated under Chapter 7. In a liquidation under
Chapter 7, the Debtors have determined that: (i) holders of Administrative
Claims will be paid in full; (ii) holders of Capital Lease Claims and the YESCO
Claim will be paid in part from liquidation of their leased furniture, fixtures
and equipment; (iii) holders of Deed of Trust Notes will be paid in full from
liquidation of their collateral; and (iv) holders of General Unsecured Claims
will be paid only in part; and (v) holders of Equity Interest-Related Claims and
Equity Interests will receive nothing in liquidation.
This determination is based upon the effect that a Chapter 7 liquidation
would have on the ultimate proceeds available for distribution to Creditors and
holders of Equity Interests, including: (i) the likelihood of the termination of
the Debtors' operations upon conversion to Chapter 7; (ii) the increased costs
and expenses of a liquidation under Chapter 7 arising from fees payable to a
trustee in bankruptcy and professional advisors to such trustee; (iii) the
erosion in value of assets in a Chapter 7 case in the context of the expeditious
liquidation required under Chapter 7 and the "forced sale" atmosphere that would
prevail; (iv) the adverse effects on the salability of business segments as a
result of the disruption of the rights of Time Share Unit Owners; (v) the loss
of the right to use the name "Debbie Reynolds"; (vi) the amount of existing
Claims and the substantial increases in Claims (particularly those of Time Share
Unit Owners) that would have to be satisfied on a priority basis or on a parity
basis with Creditors in the Chapter 11 Cases; and (vii) the fair market value of
the Debtors' assets.
Debtors also believe that there is a risk that no buyer will be found if
the Plan is not confirmed (based in part on the understanding that CFI is only
interested in purchasing a going concern with an existing time share sales
license and an operator of the restaurants, bars, showroom and casino). If no
buyer is found within a reasonable period of time, the holders of the notes
secured by deeds of trust would be allowed to foreclose. Such a foreclosure is
likely to result in no distribution to any Creditors or Equity Interests.
As of the Petition Date, all of the Debtors' real property was encumbered
by deeds of trust in favor of the holders of the Deed of Trust Notes securing
the principal amount of $8,300,000, including accrued interest, as of December
31, 1997. Substantially all of the furniture, fixtures and equipment is subject
to the security interests of the Capital Lease Claims in the principal amount of
$1,100,000 as of September 30, 1997. The signage is subject to the YESCO claim
in the amount of $743,000. There are employee medical benefit claims of
$438,000. There are tax claims of $2,110,000.
Unsecured debt of the Debtors as of the Petition Date was in excess of
$30,000,000. Such amount includes approximately $25,000,000 in disputed claims.
The Debtors have not separately analyzed the effect of liquidation of each
of the Debtors because the property of the Debtors can only be operated and, for
that reason, sold as a unit. DRHCI owns all the real property except for the
hotel tower. DRRI owns the hotel tower. Neither can operate separately. Without
the hotel tower, DRHCI only could operate the restaurants, bars and showroom.
The casino would have to close. Without the hotel lobby and parking areas, DRRI
could not operate the hotel tower. While some allocation between DRHCI and DRRI
could be made of the sales price of the whole property, such as allocation would
require the employment of experts, potential litigation among the Creditors of
DRHCI, DRMC (which owns 100% of the DRRI) and DRRI. This litigation would (i) be
at the expense of creditors (which expense could be substantial if the
Bankruptcy Court required the employment of all new professionals because the
currently employed professionals for the Debtors and the Creditors' Committee
represent interests that may have conflicted interests) and (ii) would likely
delay distributions to all creditors until a final order of allocation has been
made.
The fair market value of the Debtors' real and personal property has been
appraised at $18,000,000, which is less than the above-stated liabilities as of
the Petition Date of approximately $42,000,000. When the cost of liquidation of
such property is considered as well as the time delay in receiving
distributions, the Debtors believe that certain Creditors will receive
substantially smaller distributions pursuant to a Chapter 7 liquidation than
under the Plan, and that no distributions would be available to holders of
Equity Interests and Equity Interest-Related Claims. The Liquidation Analysis
attached hereto as Exhibit "F" summarizes the Debtors' best estimate of
recoveries to creditors in the event of liquidation of the Debtors as of
December 31, 1997.
2. Feasibility
The Bankruptcy Code requires that in order to confirm the Plan, the
Bankruptcy Court must find that Confirmation of the Plan is not likely to be
followed by liquidation or the need for further financial reorganization of the
Debtors (the "Feasibility Test"). For the Plan to meet the Feasibility Test, the
Bankruptcy Court must find that the Debtors will possess the resources and
working capital necessary to operate profitably and will be able to meet their
obligations under the Plan.
The proposed operations of the Debtors and Confirmation of the Plan are not
based upon projected cash flow analysis. The Plan is based upon a New Loan of
$15,650,000 and a $3,000,000 capital investment of CFI into the Reorganized
Debtors. Debtors believe that the Plan meets the requirements of the Feasibility
Test.
3. Accepting Impaired Class
For the Plan to be confirmed, the Plan must be accepted by at least one
impaired Class of Claims. For an impaired Class of Claims to accept the Plan,
those representing at least two-thirds (2/3) in amount and a majority in number
of the Allowed Claims voted in that Class must be cast for acceptance of the
Plan (not including the votes of insiders of the Debtors). Similarly, for an
impaired Class of Equity Interests to accept the Plan, votes representing at
least two-thirds (2/3) in amount of the outstanding Equity Interests voted in
that Class must be cast for acceptance of the Plan (not including the votes of
insiders of the Debtors). Similarly, for an impaired Class of Equity Interests
to accept the Plan, votes representing at least two-thirds (2/3) in amount of
the outstanding Equity Interests voted in that Class must be cast for acceptance
of the Plan.
4. Confirmation over Dissenting Class ("Cram Down")
If there is less than unanimous acceptance of the Plan by impaired Classes
of Claims or Equity Interests, the Bankruptcy Court nevertheless may confirm the
Plan at the Debtors' request. Bankruptcy Code Section 1129(b) provides that if
all other requirements of Bankruptcy Code Section 1129(a) are satisfied and if
the Bankruptcy Court finds that: (i) the Plan does not discriminate unfairly;
and (ii) the Plan is fair and equitable with respect to the rejecting Class(es)
of Claims or Equity Interests impaired under the Plan, the Bankruptcy Court may
confirm the Plan despite the rejection of the Plan by a dissenting impaired
Class of Claims or Equity Interests. The Debtor will request confirmation of the
Plan pursuant to Bankruptcy Code Section 1129(b) with respect to any impaired
Class of Claims or Equity Interests which does not vote to accept the Plan.
The Debtors believe that the Plan satisfies all of the statutory
requirements for Confirmation, that the Debtors have complied with or will have
complied with all the statutory requirements for Confirmation of the Plan and
that the Plan is proposed in good faith. At the Confirmation Hearing, the
Bankruptcy Court will determine whether the Plan satisfies the statutory
requirements for Confirmation.
5. Allowed Claims
You have an Allowed Claim if: (i) you timely file a proof of Claim and no
objection has been filed to your Claim within the time period set for the filing
of such objections; (ii) you timely file a proof of Claim and an objection was
filed to your Claim upon which the Bankruptcy Court has ruled and allowed your
Claim; (iii) your Claim is listed by any of the Debtors in their respective
schedules or any amendments thereto which are on file with the Bankruptcy Court
as a public record) as liquidated in amount and undisputed and no objection has
been filed to your Claim; or (iv) your Claim is listed by any of the Debtors in
their respective schedules as liquidate din amount and undisputed and an
objection was filed to your Claim upon which the Bankruptcy Court has ruled to
allow your Claim. Under the Plan, the deadline for filing objections to Claims
is forty-five (45) days following the Effective Date and the deadline for filing
objections to Claims based upon a rejected executory contract or lease is thirty
(30) days following the Effective Date. If your Claim is not an Allowed Claim,
it is a Disputed Claim and you will not be entitled to vote on the Plan unless
the Bankruptcy Court temporarily or provisionally allows your Claim for voting
purposes pursuant to Bankruptcy Rule 3018. If you are uncertain as to the status
of your Claim or Equity Interest or if you have a dispute with either of the
Debtors, you should seek appropriate legal advice. The Debtors and their
professionals cannot advise you about such matters.
6. Impaired Claims and Equity Interests
Impaired Claims and Equity Interests include those whose legal, equitable
or contractual rights are altered by the Plan, even if the alteration is
beneficial to the Creditor or Equity Interest holder, or if the full amount of
the Allowed Claims will not be paid under the Plan. Holders of Claims which are
not impaired under the Plan are deemed to have accepted the Plan pursuant to
Bankruptcy Code Section 1126(f) and the Debtors need not solicit the acceptances
of the Plan of such unimpaired Claims.
7. Voting Procedures
a. Submission of Ballots
All Creditors entitled to vote will be sent a Ballot, together with
instructions for voting, a copy of this approved Disclosure Statement and a copy
of the Plan. You should read the Ballot carefully and follow the instructions
contained therein. Please use only the Ballot that was sent with this Disclosure
Statement. You should complete your Ballot and return it to:
Lenard E. Schwartzer, Esq.
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
2300 West Sahara Ave., 8th Floor
Las Vegas, Nevada 89102
Tel: (702) 362-5118
Fax: (702) 365-6940
TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED AT THE ADDRESS LISTED ABOVE BY
A DATE TO BE SET BY THE BANKRUPTCY COURT
b. Incomplete Ballots
Unless otherwise ordered by the Bankruptcy Court, Ballots which are signed,
dated and timely received, but on which a vote to accept or reject the Plan has
not been indicated, will not be counted as a vote on the Plan.
c. Withdrawal of Ballots
A Ballot may not be withdrawn or changed after it is cast unless the
Bankruptcy Court permits you to do so after notice and a hearing to determine
whether sufficient cause exists to permit the change.
d. Questions and lost or damaged Ballots If you have any questions
concerning these voting procedures, if your Ballot is damaged or lost or if you
believe you should have received a Ballot but did not receive one, you may
contact:
Lenard E. Schwartzer, Esq.
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
2300 West Sahara Ave., 8th Floor
Las Vegas, Nevada 89102
Tel: (702) 362-5118
Fax: (702) 365-6940
XVI. ALTERNATIVES TO THE PLAN
The Debtors believe that the Plan provides Creditors, the holders of Equity
Interest-Related Claims and holders of Equity Interests the best and most
complete form of recovery available. As a result, the Debtors believe that the
Plan serves the best interests of all Creditors and parties in interest in the
Chapter 11 Cases. Nevertheless, there are, at least theoretically, several
alternatives to the Plan.
A. Alternative Plans of Reorganization
In formulating and developing the Plan, the Debtors have explored other
alternatives and engaged in a negotiation process with Creditors. The Debtors
believe not only that the Plan, as described herein, fairly adjusts the rights
of various Classes of Creditors and enables the Creditors to realize the
greatest sum possible under the circumstances, but also that rejection of the
Plan in favor of some theoretical alternative method of reconciling the Claims
and Equity Interests of the various Classes will require, at the very least, an
extensive and time-consuming negotiation process and will not result in a better
recovery for any Class. It is not atypical for bankruptcy proceedings involving
substantial entities to continue for months or years before a plan of
reorganization is consummated and payments are made.
B. Liquidation Under Chapter 7
If a plan cannot be confirmed, the Debtors' Chapter 11 Cases may be
converted to cases under Chapter 7, in which a trustee would be elected or
appointed to liquidate the assets of the Debtors for distribution to their
Creditors and Equity Interest holders in accordance with the priorities
established by the Bankruptcy Code. For a discussion of the effect that a
Chapter 7 liquidation would have on the recovery by Creditors, see Section
XV(B)(1) "Confirmation of the Plan -- Best Interest of Creditors and Liquidation
Analysis."
As previously stated, the Debtors believe that a liquidation under Chapter
7 would result in a substantially reduced recovery of funds by their Estates
because of: (i) an enormous loss of value resulting from the possible cessation
of operations; (ii) a significant increase in claims by time share unit owners
if operations did cease; (iii) additional Administrative Expenses involved in
the appointment of a trustee for the Debtors and attorneys and other
professionals to assist such trustee; (iv) additional expenses and Claims, some
of which would be entitled to priority, which would be generated during the
liquidation and from the rejection of leases and other executory contracts in
connection with a cessation of the Debtors' operations. Accordingly, the Debtors
believe that holders of certain classes of Claims may be expected to receive
substantially smaller distributions pursuant to a Chapter 7 liquidation than
under the Second Amended Plan.
XVII. RECOMMENDATION AND CONCLUSION
The Plan provides the best possible recovery for Creditors. Accordingly,
Debtors recommend that all Creditors which are entitled to vote on the Plan
should vote to accept the Plan.
DATED this _______ day of February, 1998.
Respectfully submitted,
DEBBIE REYNOLDS HOTEL & CASINO, INC.
By:/s/ Todd Fisher
Todd Fisher, President
DEBBIE REYNOLDS MANAGEMENT
COMPANY, INC.
By:/s/ Todd Fisher
Todd Fisher, President
DEBBIE REYNOLDS RESORTS, INC.
By:/s/ Todd Fisher
Todd Fisher, President
Prepared By
HALE, LANE, PEEK, DENNISON,
HOWARD, ANDERSON AND PEARL
By______________________________
Lenard E. Schwartzer, Esq.
Jeanette E. McPherson, Esq.
2300 West Sahara Avenue, 8th Floor
Las Vegas, Nevada 89102
(702) 362-5118
Attorneys for Debtors in Possession
<PAGE>
LIST OF EXHIBITS IN APPENDIX
"A" Debtors' Joint Plan of Reorganization
"B" Letter Agreement with David A. Siegel dated November 13, 1997
"C" List of Creditors noting which claims are disputed
"D" Consolidated Financial Statements dated December 31, 1996
"E" Financial Statements dated September 30, 1997
"F" Liquidation Analysis
Phase Two of the project will result in the sale of an additional 600
units, in which event Nitzberg will be entitled to an additional $3,744,000.
(600 units x 52 weeks x $120.)
