<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---------- EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -------- EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 1-12962
GRAND CASINOS, INC.
-------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1689535
--------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
130 Cheshire Lane
Minnetonka, Minnesota 55305
--------------------- -----
(Address of principal executive offices) (Zip Code)
(612) 449-9092
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of May 12, 1997, there were 41,896,541 shares of Common Stock, $0.01 par
value per share, outstanding.
Page 1 of 24
<PAGE> 2
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
INDEX
-----
Page of
Form 10-Q
---------
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of 3
March 30, 1997 and December 29, 1996
Consolidated Statements of Earnings 4
for the three months ended March 30, 1997
and March 31, 1996
Consolidated Statements of Cash Flows 5
for the three months ended March 30, 1997
and March 31, 1996
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND 11
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings 16
ITEM 6. Exhibits and Reports On Form 8-K 22
- 2 -
<PAGE> 3
GRAND CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 30, 1997 DECEMBER 29, 1996*
- ---------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 128,556 $ 147,254
Current installments of notes receivable 5,777 7,792
Accounts receivable 15,094 13,463
Deferred income taxes 12,994 9,910
Other current assets 18,779 15,335
- -------------------------------------------------------------------------------------------
Total Current Assets 181,200 193,754
- -------------------------------------------------------------------------------------------
Property and Equipment, Net 848,809 821,827
- -------------------------------------------------------------------------------------------
Other Assets:
Cash and cash equivalents-restricted 9,450 10,276
Securities available for sale 21,089 23,603
Notes receivable-less current installments 30,651 30,772
Investments in unconsolidated affiliates 8,713 8,823
Debt issuance and deferred licensing costs-net 21,969 22,851
Other long-term assets 10,497 10,910
- -------------------------------------------------------------------------------------------
Total Other Assets 102,369 107,235
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $1,132,378 $1,122,816
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade and construction $ 14,201 $ 20,002
Current installments of long-term debt 3,342 4,101
Current installments of capital lease obligations 15,346 15,358
Accrued interest 17,650 5,486
Accrued payroll and related expenses 21,918 23,418
Other accrued expenses 25,796 31,542
- -------------------------------------------------------------------------------------------
Total Current Liabilities 98,253 99,907
- -------------------------------------------------------------------------------------------
Long-term Liabilities:
Long-term debt-less current installments 454,606 455,002
Capital lease obligations-less current installments 52,915 56,740
Deferred income taxes 73,615 71,494
- -------------------------------------------------------------------------------------------
Total Long-Term Liabilities 581,136 583,236
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 679,389 683,143
- -------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
Capital stock, $.01 par value; authorized 100,000 shares;
common stock issued and outstanding 41,847 and 41,796
at March 30, 1997 and December 29, 1996, respectively 418 418
Additional paid-in-capital 412,832 412,576
Net unrealized gains (losses) on securities available
for sale (163) 1,358
Retained earnings 39,902 25,321
- -------------------------------------------------------------------------------------------
Total Shareholders' Equity 452,989 439,673
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,132,378 $1,122,816
===========================================================================================
</TABLE>
* FROM AUDITED CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE> 4
GRAND CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------------
MARCH 30, 1997 MARCH 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $ 108,680 $ 74,303
Hotel 7,063 5,417
Food and beverage 14,605 9,179
Management fee income 19,054 18,692
Retail and other income 2,937 2,370
- -------------------------------------------------------------------------------------------
Gross Revenues 152,339 109,961
Less: Promotional allowances (10,169) (6,125)
- -------------------------------------------------------------------------------------------
NET REVENUES 142,170 103,836
- -------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 38,480 24,372
Hotel 1,819 1,797
Food and beverage 7,985 4,164
Other operating expenses 3,061 2,889
Depreciation and amortization 11,551 6,507
Lease expense 4,505 4,032
Selling, general and administrative 43,906 32,710
- -------------------------------------------------------------------------------------------
Total Costs and Expenses 111,307 76,471
- -------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 30,863 27,365
- -------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 3,713 5,318
Interest expense (10,646) (5,725)
Equity in earnings (loss) of unconsolidated affiliates (188) 858
- -------------------------------------------------------------------------------------------
Total other income (expense), net (7,121) 451
- -------------------------------------------------------------------------------------------
Earnings before income taxes 23,742 27,816
Provision for income taxes 9,161 10,169
- -------------------------------------------------------------------------------------------
NET EARNINGS $14,581 $17,647
===========================================================================================
EARNINGS PER COMMON SHARE $ 0.34 $ 0.41
===========================================================================================
WEIGHTED AVERAGE COMMON SHARES AND COMMON
STOCK EQUIVALENTS OUTSTANDING 42,435 42,865
===========================================================================================
</TABLE>
-4-
<PAGE> 5
GRAND CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
MARCH 30, 1997 MARCH 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 14,581 $ 17,647
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 11,551 6,507
Equity in (earnings) loss of unconsolidated affiliates 188 (858)
Deferred income taxes 1,250 616
Write off project note receivables - 989
Changes in operating assets and liabilities:
Other current assets (5,651) (5,396)
Accounts payable (5,801) 6,514
Accrued expenses 3,581 16,683
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 19,699 42,702
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of notes receivable 2,136 3,066
Investment in and notes receivable from unconsolidated affiliates - (3,468)
Payments for property and equipment (36,813) (86,936)
(Increase) decrease in cash and equivalent-restricted and other 826 (586)
(Increase) decrease in other long-term assets 132 (318)
- -------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (33,719) (88,242)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock-net 256 12,663
Debt issuance costs and deferred financing costs 57 (223)
Payments on long-term debt and capital lease obligations (4,991) (3,607)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (4,678) 8,833
- -------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (18,698) (36,707)
Cash and cash equivalents - beginning of period 147,254 334,772
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 128,556 $ 298,065
=======================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of capitalized interest $ 890 $ -
Income taxes $ 10,500 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
<PAGE> 6
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 30, 1997
--------------
(UNAUDITED)
-----------
NOTE 1 UNAUDITED FINANCIAL STATEMENTS
Grand Casinos, Inc. and Subsidiaries, collectively the Company,
develop, construct, and manage land-based and dockside casinos and
related hotel and entertainment facilities primarily in emerging gaming
jurisdictions. The Company owns and operates two dockside casinos on
the Mississippi Gulf Coast, and one dockside casino in Tunica County,
Mississippi, and manages two Indian-owned casinos in Minnesota and two
Indian-owned casinos in Louisiana. Related hotel and entertainment
facilities at the Grand Casino Biloxi and Grand Casino Tunica projects
are currently under construction and will open at various times. The
Company owns approximately 42% of Stratosphere Corporation
(Stratosphere), which owns and operates Stratosphere Tower, Casino &
Hotel, an integrated casino/hotel and entertainment complex located at
the north end of Las Vegas Boulevard South in Las Vegas, Nevada.
Stratosphere filed for reorganization under Chapter 11 of the
Bankruptcy Code on January 27, 1997. The Company and Stratosphere have
filed a Joint Plan of Reorganization in Stratosphere's Chapter 11
proceeding.
The consolidated financial statements include the accounts of Grand
Casinos, Inc. and its wholly-owned and majority-owned subsidiaries.
Investments in unconsolidated subsidiaries representing between 20% and
50% of voting stock are accounted for on the equity method. All
material intercompany balances and transactions have been eliminated in
the consolidation.
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted
accounting principles for interim financial information, in accordance
with the rules and regulations of the Securities and Exchange
Commission. Pursuant to such rules and regulations, certain financial
information and footnote disclosures normally included in the
consolidated financial statements have been condensed or omitted. In
the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation have
been included.
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<PAGE> 7
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
(UNAUDITED)
-----------
NOTE 1 UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
Operating results for the three months ended March 30, 1997, are not
necessarily indicative of the results that may be expected for the
fiscal year ending December 28, 1997.
The consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included
in the Company's annual report on Form 10-K for the fiscal year ended
December 29, 1996.
NOTE 2 NEW ACCOUNTING PRONOUNCEMENT
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128), which requires the disclosure of basic earnings per share
and diluted earnings per share. The Company expects to adopt Statement
128 in fiscal 1997 and anticipates it will not have a material impact
on the financial position or the results of operations of the Company.
NOTE 3 PREOPENING EXPENSES
Expenses incurred prior to opening of Company-owned facilities are
capitalized and amortized to expense using the straight-line method
over the six months following the opening of the respective
facilities. These costs include direct payroll and other operating
costs incurred prior to commencement of operations. Depreciation
and amortization for the three months ended March 30, 1997 and March
31, 1996 includes approximately $.6 million and $.3 million of
preopening amortization expense, respectively.
NOTE 4 INTEREST COSTS
The Company's policy is to capitalize interest incurred on debt during
the course of qualifying construction projects at Company-owned
facilities. Such costs are amortized over the related assets'
estimated useful lives. For the three months ended March 30, 1997 and
March 31, 1996, approximately $2.4 million and $6.1 million,
respectively, of interest cost was capitalized.
- 7 -
<PAGE> 8
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
NOTE 5 NOTES RECEIVABLE
Notes receivable consist of the following (in thousands):
March 30, 1997 Dec. 29, 1996
-------------- -------------
<S> <C> <C>
Notes from the Coushatta Tribe with
interest at a defined reference rate plus
1% (not to exceed 16%), receivable in
84 monthly installments through
January 2002 22,605 23,800
Notes from the Tunica-Biloxi Tribe with
interest at a defined reference rate plus
1% (not to exceed 16%), receivable in
84 monthly installments through June
2001 12,034 12,558
Other, less allowance for doubtful accounts
of $3,050 and $3,050, respectively 1,789 2,206
---------- ----------
$ 36,428 $ 38,564
Less current installments of notes receivable (5,777) (7,792)
---------- ----------
Notes receivable-less current installments $ 30,651 $ 30,772
========== ==========
</TABLE>
NOTE 6 LONG-TERM DEBT
On November 30, 1995, the Company completed its public offering of
$450.0 million of eight year 10.125% First Mortgage Notes due December
1, 2003. The First Mortgage Notes are secured by substantially all the
assets of Grand Casino Biloxi and Grand Casino Gulfport, Grand Casino
Tunica assets included in Phase 1 development, capital stock owned by
the Company in Stratosphere, and certain existing notes receivable due
the Company from Tribes. The notes require semi-annual payments of
interest only on June 1 and December 1 of each year which commenced June
1, 1996, until December 1, 2003, at which time the entire principal plus
accrued interest is due and payable. The notes may be redeemed at the
Company's option, in whole or in part, anytime after December 1, 1999,
at a premium, declining ratably thereafter to par value on December 1,
2002, to maturity.
- 8 -
<PAGE> 9
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
(UNAUDITED)
-----------
NOTE 6 LONG-TERM DEBT (CONTINUED)
On May 10, 1996, the Company completed a $120 million Senior Secured
Term Loan through BankAmerica Leasing and Capital Group. The five-year
Senior Secured Term Loan Facility, with varying interest rates ranging
from 1.75% to 2.50% over the LIBO Rate, is being used for the continued
development of the Company's Grand Casino Tunica project, located in
northern Mississippi, just outside of Memphis,Tennessee. Approximately
$90 million of the loan will be used for furniture, fixtures and
equipment for the 340,000 square foot casino complex. The balance of
approximately $30 million will be used to construct a 600-room hotel at
Grand Casino Tunica. As of March 30, 1997, $74.9 million had been
advanced and $68.3 million was the balance owing under the Senior
Secured Term Loan Facility.
NOTE 7 COMMITMENTS AND CONTINGENCIES
STRATOSPHERE CORPORATION
The Company owns approximately 42% of the equity interest in
Stratosphere Corporation. Stratosphere did not make its scheduled
First Mortgage Notes interest payment due on November 15, 1996. On
January 6, 1997, Stratosphere, the Company and an ad hoc committee
representing the holders of more than 57% of Stratosphere's First
Mortgage Notes reached an agreement-in-principle for restructuring the
debt and equity of Stratosphere.
On January 27, 1997, Stratosphere filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the
agreement-in-principle, Stratosphere and the Company filed a joint
proposed plan of reorganization for Stratosphere and a related
investment agreement. The proposed plan of reorganization and
investment agreement state the terms and conditions pursuant to which
the Company agreed to participate in the reorganization of
Stratosphere. See Stratosphere's Form 8-K filed on January 6, 1997 for
further information regarding the proposed plan of reorganization.
The proposed plan of reorganization and the related investment
agreement provide that the Company's obligations to participate in the
proposed reorganization are conditioned on Stratosphere obtaining
average monthly consolidated cash flow (as defined in the investment
agreement) at least $2,267,000 for the months between October 1, 1996
and June 30, 1997. In April 1997, Stratosphere announced that its
average monthly consolidated cash flow for the six-month period ending
March 31, 1997 was $1,726,718.
- 9 -
<PAGE> 10
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
(UNAUDITED)
-----------
STRATOSPHERE CORPORATION (CONTINUED)
On April 9, 1997, the Company announced that (i) the Company will
not waive the minimum cash flow requirement in the proposed plan of
reorganization and related investment agreement, and (ii) the
Company is prepared to explore alternatives for a consensual
reorganization of Stratosphere with Stratosphere and the noteholder
committee which is representing holders of Stratosphere's
First Mortgage Notes in the Chapter II proceedings. The Company
also announced that if (i) the conditions to the Company's
participation in the pending proposed plan of reorganization are not
satisfied, and (ii) no agreement is reached among the appropriate
parties regarding an alternative reorganization arrangement
acceptable to the Company, then the Company may decide to propose or
participate in alternative plans of reorganization without such an
agreement, or may decide to terminate the Company's participation in
the reorganization of Stratosphere.
In connection with the issuance of Stratosphere's First Mortgage
Notes, the Company delivered a Standby Equity Commitment pursuant to
which the Company agreed, under the terms and conditions described
in the Standby Equity Commitment, to purchase up to $20 million of
additional equity in Stratosphere during each of the first three
years Stratosphere is operating (as defined in the Standby Equity
Commitment) to the extent Stratosphere's consolidated cash flow (as
defined in the Standy Equity Commitment) during each of such years
does not reach $50 million. As a result of Stratosphere's
bankruptcy filing and the application of federal bankruptcy laws,
the Company has contended that the enforceability of the Standby
Equity Commitment is in question.
The Company has also agreed to provide a limited guaranty pursuant to
the Stratosphere Participation Agreement for the purpose of
financing Hotel and Casino Equipment subject to a maximum
limitation amount of $8.7 million.
LOAN GUARANTY AGREEMENTS
The Company has guaranteed a loan and security agreement entered
into by the Tunica-Biloxi Tribe of Louisiana for $14.1 million for
the purpose of financing casino equipment. The agreement extends
through 1998, and as of March 30, 1997, the amount outstanding was
$5.8 million. The Company has also guaranteed a loan and security
agreement entered into by the Coushatta Tribe of Louisiana for $22.3
million for the purpose of financing casino equipment. The
agreements are for three years and have various maturity dates
through 1998, and as of March 30, 1997, the amounts outstanding were
$9.7 million.
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<PAGE> 11
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
(UNAUDITED)
-----------
LOAN GUARANTY AGREEMENTS (CONTINUED)
The Company has entered into a master hotel development agreement with
Casino Resource Corporation for the hotel adjacent to Grand Casino
Hinckley. The Company has guaranteed the mortgage related to the hotel
in the amount of $2.6 million as of March 30, 1997.
OTHER
The Company is a defendant in various pending litigation. In
management's opinion, the ultimate outcome of such litigation will not
have a material adverse effect on the results of operations or the
financial position of the Company. See Part II - Item 1. Legal
Proceedings of this Form 10-Q.
NOTE 8 SUBSEQUENT EVENTS
On April 7, 1997, the Company guaranteed a loan agreement entered into
by the Tunica-Biloxi Tribe of Louisiana for $16.5 million for the
purpose of purchasing a hotel and casino equipment. The agreement
extends through March, 2000. In addition, on May 1, 1997, the Company
entered into a guaranty agreement related to a loan agreement entered
into by the Coushatta Tribe of Louisiana in the amount of $25.0
million, for the purpose of constructing a hotel and acquiring
additional casino equipment. The agreement and the underlying
documents are subject to the Bureau of Indian Affairs (BIA) approval.
Upon approval of the agreements by the BIA, the guaranty would be
outstanding for five years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
OVERVIEW
The Company develops, constructs and manages land-based and dockside
casinos primarily in emerging gaming jurisdictions. The Company's
revenues are derived from the Company-owned casinos of Grand Casino
Biloxi, Grand Casino Gulfport, and Grand Casino Tunica, and from
management fee income from Grand Casino Mille Lacs, Grand Casino
Hinckley, Grand Casino Avoyelles, and Grand Casino Coushatta.
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<PAGE> 12
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
(UNAUDITED)
-----------
OVERVIEW (CONTINUED)
Pursuant to the Mille Lacs, Hinckley, Avoyelles, and Coushatta
management contracts, the Company receives a fee based on the net
distributable profits (as defined in the contracts) generated by
Grand Casino Mille Lacs, Grand Casino Hinckley, Grand Casino
Avoyelles, and Grand Casino Coushatta.
The Company commenced operations in August 1990, and opened its
Company-owned casinos, Grand Casino Gulfport, Grand Casino Biloxi
and Grand Casino Tunica in May 1993, January 1994 and June 1996,
respectively. Therefore, the Company's limited operating history
may not be indicative of the Company's future performance. In
addition, a comparison of results from year to year may not be
meaningful due to the opening of new facilities during such years.
The Company's growth strategy contemplates expanding existing
operations and establishing additional gaming operations.
The successful implementation of this growth strategy is contingent
upon the satisfaction of various conditions and the occurrence of
certain events, including obtaining governmental approvals and
increased competition, many of which are beyond the control of the
Company. The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 29, 1996.
Revenues from owned and operated casinos are calculated in
accordance with generally accepted accounting principles and are
presented in a manner consistent with industry practice. Net
distributable profits from Grand Casino Mille Lacs, Grand Casino
Hinckley, Grand Casino Avoyelles, and Grand Casino Coushatta are
computed using a modified cash basis of accounting in accordance
with the management contracts. The effect of the use of the
modified cash basis of accounting is to accelerate the write-off of
capital equipment and leased assets, which thereby impacts the
timing of net distributable profits.
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<PAGE> 13
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
(UNAUDITED)
-----------
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1997 COMPARED TO THE THREE MONTHS
--------------------------------------------------------------
ENDED MARCH 31, 1996
--------------------
Earnings Per Common Share and Net Earnings
------------------------------------------
Earnings per common share for the three months ended March 30, 1997
were $.34 versus $.41 for the prior year's comparable period based
upon weighted average common shares outstanding of 42.4 million and
42.9 million for the three month periods ended March 30, 1997 and
March 31, 1996, respectively. Net earnings decreased $3.1 million
to $14.6 million for the three months ended March 30, 1997 compared
to the same period in the prior year, primarily due to an increase
in net interest expense.
Net Revenues
------------
Net revenues for the Company increased $38.3 million for the three
months ended March 30, 1997 compared to the same period in the prior
year. The increase in net revenues is primarily due to the opening
of Grand Casino Tunica, which contributed revenues of $35.9 million
during the three months ended March 30, 1997.
Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino Tunica
generated $108.7 million in gross casino revenue and $24.6 million
in gross hotel, food, beverage, retail, and entertainment revenue
during the three months ended March 30, 1997. During the three
months ended March 31, 1996, Grand Casino Biloxi and Grand Casino
Gulfport generated $74.3 million in gross casino revenue and $17.0
million in gross hotel, food, beverage and retail revenue. The
increase in gross revenue is primarily a result of Grand Casino
Tunica being open for the entire first quarter of 1997.
Costs and Expenses
------------------
Total costs and expenses increased $34.8 million from $76.5 million
for the three months ended March 31, 1996 to $111.3 million for the
three month period ended March 30, 1997. Casino expenses were $38.5
million for the three month period ended March 30, 1997 compared to
$24.4 million for the comparable period in 1996.
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<PAGE> 14
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
(UNAUDITED)
-----------
Costs and Expenses (Continued)
------------------------------
This casino expense increase is principally related to the opening
of Grand Casino Tunica. Food and beverage expenses increased $3.8
million to $8.0 million for the three month period ended March 30,
1997, of which $2.8 million was a result of the opening of Grand
Casino Tunica.
Increases in selling, general and administrative expenses in the
amount of $11.2 million are related to Grand Casino Tunica's
operations.
Other
-----
Interest income decreased by $1.6 million to $3.7 million for the
three months ended March 30, 1997. This decrease is primarily
attributable to lower cash balances due to construction of Grand
Casino Tunica. In addition, interest expense increased by $4.9
million to $10.6 million for the three months ended March 30, 1997
compared to $5.7 million for the three months ended March 31, 1996.
The increase is the result of a reduction in capitalized interest
relating to the construction of Grand Casino Tunica and advances
under the $120 million Senior Secured Term Loan. Capitalized
interest was $2.4 million and $6.1 million for the three months
ended March 30, 1997 and March 31, 1996, respectively.
CAPITAL RESOURCES AND LIQUIDITY
As of March 30, 1997, the company had cash and cash equivalents of
$128.6 million. For the three months ended March 30, 1997, capital
expenditures were $36.8 million compared to $86.9 million for the
comparable period in the prior year. The majority of expenditures
for the three months ended March 30, 1997, related to additional
construction at Grand Casino Tunica and Grand Casino Biloxi. The
capital expenditures during the three months ended March 31, 1996
in the amount of $86.9 million included $74.5 million related to the
construction of Grand Casino Tunica which opened in June 1996.
Pursuant to the Company's covenants related to the $450.0 million
First Mortgage Notes, the Company is restricted from paying cash
dividends and maintenance of certain financial ratios. Because of
such restrictions and to provide funds for the growth of the
Company, no cash dividends are expected to be paid on common shares
in the foreseeable future.
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<PAGE> 15
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
(UNAUDITED)
-----------
FORWARD-LOOKING STATEMENTS
Certain information included in this Form 10-Q and other materials
filed or to be filed by the Company with the Securities and Exchange
Commission (as well as information included in oral statements or
other written statements made or to be made by the Company) contains
statements that are "forward-looking" under the Federal Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are those which include statements regarding projections,
plans and objectives, and future economic performance, together with
statements regarding any assumptions pertaining to such projections,
plans and objectives, and future economic performance. While these
forward-looking statements reflect the best judgment of the Company,
based on information available on the date of this Form 10-Q, such
statements are all subject to risks and uncertainties that could
cause actual results to vary from the forward-looking statements
made in this Form 10-Q. Those variances could be significant.
Such forward-looking statements involve risks and uncertainties that
could significantly affect future results, and accordingly, such
results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing
management, leverage and debt service (including sensitivity to
fluctuations in interest rates), changes in competitive conditions,
domestic or global economic conditions, changes in federal or state
tax laws or the administration of such laws and changes in gaming
laws or regulations (including the legalization of gaming in certain
jurisdictions). In addition to any specific risks and uncertainties
mentioned or discussed in this Form 10-Q, the risks and uncertainties
discussed in detail in the Company's 1996 Form 10-K, provide
information which should be considered in evaluating any of the
Company's forward-looking statements. In addition, you should be
aware that the facts and circumstances which exist when any
forward-looking statements are made and on which those
forward-looking statements are based, may significantly change in the
future, thereby rendering obsolete the forward-looking statements on
which such facts and circumstances were based.
- 15 -
<PAGE> 16
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company beneficially owns approximately 42% of Stratosphere
Corporation ("Stratosphere"). Stratosphere and Stratosphere Gaming
Corp. ("SGC"), a wholly-owned subsidiary of Stratosphere, filed
voluntary petitions on January 27, 1997 for Chapter 11 reorganization
pursuant to the United States Bankruptcy Code. Stratosphere and SGC
are acting as debtors-in-posession on behalf of their respective
bankruptcy estates and are authorized as such to operate their
business to bankruptcy court supervision.
The following descriptions are summaries of the status of each of the
following legal proceedings as of May 1, 1997. More complete
information may be obtained by reviewing the court files pertaining to
such actions.
HYLAND LITIGATION
The Company's 1996 Form 10-K included a summary of the action brought
by Thomas Hyland -- Thomas H. Hyland v. Griffin Investigations, et.
al. - Civil Action No. 95-CV2236(JEI) -- in the United States
District Court for the District of New Jersey against various
defendants, including the Company. Hyland alleged that the defendants
shared information regarding players in violation of federal
anti-trust and fair credit reporting laws. Hyland sought to have the
action certified as a class action, and to recover actual damages,
treble damages and attorneys' fees.
The defendants, including the Company, submitted a motion to dismiss
all claims in the action. That motion was granted, and the action was
dismissed.
COHEN - FEDERAL ACTION
In April 1994, Harvey Cohen brought an action in the United States
District Court for the District of Nevada -- Harvey Cohen, et. al. v.
Stratosphere Corporation, et. al. - Case No. CV-S-94-00334 DWH (LRL)
-- against various defendants, including Grand Casinos Resorts, Inc.
("Resorts"), a wholly-owned subsidiary of the Company. Cohen alleges
federal securities law violations and various state law claims in
connection with the initial public offering (the "IPO") for
Stratosphere Corporation ("Stratosphere"). Cohen brought the action as
a class action, and alleges that the defendants deprived the
plaintiffs of the opportunity to purchase Stratosphere common stock
in the IPO.
- 16 -
<PAGE> 17
GRAND CASINOS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
(CONTINUED)
COHEN - FEDERAL ACTION (CONTINUED)
In April 1995, the federal district court dismissed the action. In
May 1995, the plaintiffs filed a notice of appeal of the dismissal
with the United States Court of Appeals for the Ninth Circuit. The
appeal -- Case No. CA 95-16098 -- was subsequently briefed and
argued, and as of May 1, 1997 the appeals court has not issued its
decision.
COHEN - STATE ACTION
In August 1995, Harvey Cohen brought an action in the District
Court for Clark County, Nevada -- Harvey J. Cohen, et. al. v.
Stratosphere Corporation, et. al. - Case No. A349985 -- against
various defendants, including Grand Casinos Resorts, Inc., a
wholly-owned subsidiary of the Company. Cohen brought the action
as a class action, and makes substantially the same claims as made
in the federal action brought by Cohen and described above.
The state action has, by agreement of the parties, been stayed
pending a decision in the federal court action.
CALIFORNIA VIDEO POKER LITIGATION
In April 1996, three plaintiffs brought an action in the Superior
Court of California, County of San Diego -- Tom Payne, et. al. v.
Aztar Corporation, et. al. - Case No. 698592 -- against several
defendants, including the Company. The plaintiffs allege that the
defendants participated in fraudulent and misleading conduct
intended to induce plaintiffs to play video poker machines based on
a false beliefs regarding how such machines operate, and that the
defendants' alleged conduct violates various provisions of
California law. The plaintiffs seek to have the action certified a
class action, compensatory and punitive damages and other relief.
The defendants attempted to remove the action to federal court, but
that attempt was unsuccessful. The defendants then submitted
various motions to dismiss the action, including a motion based on
the claim that the California court does not have jurisdiction over
the defendants named in the action.
In March 1997, the court required the plaintiffs to file a
complaint stating more clearly the basis on which the plaintiffs
claim the defendants violated California law. In April 1997, the
plaintiffs filed an amended complaint. As of May 1, 1997, the
Company has not responded to the amended complaint.
- 17 -
<PAGE> 18
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
(CONTINUED)
-----------
SLOT MACHINE LITIGATION - NEVADA
In April 1994, William H. Poulos brought an action in the United
States District Court for the Middle District of Florida, Orlando
Division -- William H. Poulos, et. al. vs. Caesars World, Inc. et.
al. - Case No. 39-478-CIV-ORL-22 -- in which various parties
(including the Company) alleged to operate casinos or be slot
machine manufacturers were named as defendants. The plaintiff
sought to have the action certified as a class action.
A subsequently filed action -- William Ahearn, et. al. vs. Caesars
World, Inc., et. al. - Case No. 94-532-CIV-ORL-22 -- made similar
allegations and was consolidated with the Poulos action.
Both actions included claims under the federal
Racketeering-Influenced and Corrupt Organizations Act and under
state law, and sought compensatory and punitive damages. The
plaintiffs claimed that the defendants are involved in a scheme to
induce people to play electronic video poker and slot machines
based on false beliefs regarding how such machines operate and the
extent to which a player is likely to win on any given play.
In December 1994, the consolidated actions were transferred to the
United States District Court for the District of Nevada.
In September 1995, Larry Schreier brought an action in the United
States District Court for the District of Nevada -- Larry Schreier,
et. al. vs. Caesars World, Inc., et. al. - Case No.
CV-S-95-00923-DWH (RJJ).
The plaintiffs' allegations in the Schreier action were similar to
those made by the plaintiffs in the Poulos and Ahearn actions,
except that Schreier claimed to represent a more precisely defined
class of plaintiffs than Poulos or Ahearn.
In December 1996, the court ordered the Poulos, Ahearn and Schreier
actions consolidated under the title William H. Poulos, et. al. vs.
Caesars World, Inc., et. al. - Case No. CV-S-94-1126 - DAE (RJJ) -
(Base File), and required the plaintiffs to file a consolidated and
amended complaint. In February 1997, the plaintiffs filed a
consolidated and amended complaint.
In March 1997, various defendants (including the Company) filed (i)
motions to dismiss the amended complaint, and (ii) motions to stay
the consolidated action pending consideration of the plaintiff's
allegations by various gaming regulatory authorities. As of May 1,
1997, the court has not issued a decision regarding any of such
motions.
- 18 -
<PAGE> 19
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
(CONTINUED)
-----------
STRATOSPHERE SECURITIES LITIGATION - FEDERAL
In August 1996, a complaint was filed in the United States District
Court for the District of Nevada -- Michael Ceasar, et. al. v.
Stratosphere Corporation, et. al. -- against Stratosphere
Corporation and others, including the Company. The complaint was
filed as a class action, and sought relief on behalf of
Stratosphere shareholders who purchased their stock between
December 19, 1995 and July 22, 1996. The complaint included
allegations of misrepresentations, federal securities law
violations and various state law claims.
In August through October 1996, several other nearly identical
complaints were filed by various plaintiffs in the United States
District Court for the District of Nevada. Those complaints
include the following:
- Regina Peltz, et. al. v. Stratosphere Corporation, et. al.
- Robert Stengel, et. al. v. Stratosphere Corporation, et. al.
- Robert Johnson, et. al. v. Stratosphere Corporation, et. al.
- David Vallee, et. al. v. Stratosphere Corporation, et. al.
- Anthony L. Poli, et. al. v. Stratosphere Corporation, et. al.
- Darrell Russell and Gail Russell, et. al. v.
Stratosphere Corporation, et. al.
- Mitchell Gordon, et. al. v. Stratosphere Corporation, et. al.
- James J. Enright, Jr. v. Stratosphere Corporation, et. al.
The defendants in the above actions submitted motions requesting
that all of the actions be consolidated. Those motions were
granted on January 15, 1997, and the consolidated action is
entitled In Re: Stratosphere Corporation Securities Litigation -
Master File No. CV-S-96-00708 PMP (RLH).
- 19 -
<PAGE> 20
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
(CONTINUED)
-----------
STRATOSPHERE SECURITIES LITIGATION - FEDERAL (CONTINUED)
In February 1997, the plaintiffs filed a consolidated and amended
complaint naming various defendants, including the Company and
certain officers and directors of the Company. The amended
complaint includes claims under federal securities laws and Nevada
laws based on acts alleged to have occurred between December 19,
1995 and July 26, 1996.
In February 1997, various defendants, including the Company and the
Company's officers and directors named as defendants, submitted
motions to dismiss the amended complaint on various grounds. As of
May 1, 1997 the court has not issued a decision regarding the
motions to dismiss.
STRATOSPHERE SECURITIES LITIGATION - STATE
In August 1996, a complaint was filed in the District Court for
Clark County, Nevada -- Victor M. Opitz, et. al. v. Robert E.
Stupak, et. al. - Case No. A. 363019 -- against various defendants,
including the Company. The complaint seeks relief on behalf of
Stratosphere Corporation shareholders who purchased stock between
December 19, 1995 and July 22, 1996. The complaint alleges
misrepresentations, state securities law violations and other state
claims.
The Company and certain defendants submitted motions to (i)
dismiss, or (ii) stay the state court proceedings pending
resolution of the federal court actions described above. The court
has stayed further proceedings pending the proceedings in federal
district court in In Re: Stratosphere Securities Litigation.
GRAND SECURITIES LITIGATION - FEDERAL
In September and October 1996, two actions (Joel Blake, et. al. v.
Grand Casinos, Inc., et. al. and Robert D. Marcus, et. al. v. Grand
Casinos, Inc., et. al.) were filed in the United States District
Court for the District of Minnesota against the Company and certain
of the Company's directors and officers.
The complaints allege misrepresentations, federal securities law
violations and other claims in connection with the Stratosphere
project.
The actions have been consolidated -- In Re: Grand Casinos, Inc.
Securities Litigation - Master File No. 4-96-890 -- and the
plaintiffs filed a consolidated complaint. The defendants have
submitted a motion to dismiss the consolidated complaint. The court
has not issued a decision regarding the motion to dismiss.
- 20 -
<PAGE> 21
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
(CONTINUED)
-----------
MICHAELS COMPANY OF NEVADA
In December 1996, a complaint was filed in the United States
District Court for the District of Nevada -- Michaels Company of
Nevada v. Grand Casinos, Inc., et. al. - Case No. CV-S-96-01006-PMP
(RLH) -- against the Company and others, including certain
directors and officers of the Company. The complaint alleges that
the Company improperly withdrew from an agreement to finance and
develop a potential Indian-owned gaming project in California.
The complaint seeks lost profits which the plaintiff claims it
would have received had the Company not withdrawn. The Company
believes that it had legitimate business reasons to withdraw from
the proposed project.
The Company and the other defendants have submitted answers denying
the allegations of the complaint. No discovery has occurred.
DERIVATIVE ACTION
In February 1997, certain shareholders of the Company brought an
action in the Hennepin County, Minnesota District Court -- Lloyd
Drilling, et. al. v. Lyle Berman, et. al. - Court File No.
MC97-002807 -- against certain officers and directors of the
Company. The plaintiffs allege that those officers and directors
breached certain fiduciary duties to the shareholders of the
Company as a result of certain transactions involving the
Stratosphere project.
The Company's Board of Directors has authorized the appointment of
an independent committee to evaluate whether the Company should
pursue the claims against the officers and directors.
The Company's officers and directors named as defendants in the
action have filed an answer to the complaint and a motion to stay
further proceedings in the action pending completion of the
independent committee's evaluation. As of May 1, 1997, the court
has not issued a decision regarding the motion.
- 21 -
<PAGE> 22
GRAND CASINOS, INC. AND SUBSIDIARIES
------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
(CONTINUED)
-----------
STRATOSPHERE VACATION CLUB LITIGATION
In late April, 1997, the Company and Grand Casinos Resorts, Inc.
("Resorts"), a wholly-owned subsidiary of the Company, were served
with a summons and a second amended complaint in an action in
District Court in Clark County, Nevada -- Richard Duncan, et. al.
vs. Bob and Jane Doe Stupak, et. al. - Case No. A370127. The
plaintiffs allege that the defendants, including the Company and
Resorts, engaged in acts which constitute "consumer fraud" under
Nevada law. The plaintiffs also allege "unjust enrichment," breach
of contract and other claims under Nevada law. The plaintiffs seek
various remedies including compensatory damages and punitive
damages.
As of May 1, 1997, the Company has not responded to the second
amended complaint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT NUMBER 10.01 - AMENDMENT NO. 1 TO PARTICIPATION
AGREEMENT dated as of March 28, 1997, among BL DEVELOPMENT CORP.,
a Minnesota corporation, as Lessee and Construction Agent; GRAND
CASINOS, INC., a Minnesota corporation, and certain of its
Subsidiaries listed therein, as Guarantors; HANCOCK BANK, not in
its individual capacity, but solely as Lessor, Borrower and
Trustee; the persons listed therein, as Lenders; BANK OF SCOTLAND,
WELLS FARGO BANK, NATIONAL ASSOCIATION (successor by merger to
First Interstate Bank of Nevada), and SOCIETE GENERALE, as
Co-Agents; CREDIT LYONNAIS, LOS ANGELES BRANCH, as Lead Manager;
and BA LEASING CAPITAL CORPORATION, a California corporation, as
Arranger and Agent.
Exhibit Number 10.02 - Limited Warranty dated as of March 28, 1997
Exhibit Number 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarterly period
ended March 30, 1997.
- 22 -
<PAGE> 23
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 14, 1997 GRAND CASINOS, INC.
----------------------------
Registrant
By/ S /THOMAS J. BROSIG
----------------------------
Thomas J. Brosig, President
/ S / TIMOTHY J. COPE
----------------------------
Timothy J. Cope
Executive Vice President and
Chief Financial Officer
- 23 -
<PAGE> 1
[EXECUTION COPY]
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT (this "Amendment No. 1"),
dated as of March 28, 1997, among BL DEVELOPMENT CORP., a Minnesota corporation,
as Lessee and Construction Agent; GRAND CASINOS, INC., a Minnesota corporation,
and certain of its Subsidiaries listed therein, as Guarantors; HANCOCK BANK, not
in its individual capacity, but solely as Lessor, Borrower and Trustee; the
persons listed therein, as Lenders; BANK OF SCOTLAND, WELLS FARGO BANK, NATIONAL
ASSOCIATION (successor by merger to First Interstate Bank of Nevada), and
SOCIETE GENERALE, as Co-Agents; CREDIT LYONNAIS, LOS ANGELES BRANCH, as Lead
Manager; and BA LEASING & CAPITAL CORPORATION, a California corporation, as
Arranger and Agent.
W I T N E S S E T H:
WHEREAS, Lessee, Guarantors, Trustee (both in its individual and trust
capacities), the Lenders, the Co-Agents, the Lead Manager and Agent are parties
to a Participation Agreement, dated as of May 10, 1996 (as amended or otherwise
modified to the date hereof, the "Participation Agreement");
WHEREAS, Lessee has requested, among other things, a waiver of compliance
with certain financial covenants contained in the Participation Agreement
arising from payment by the Parent under the Guaranty of certain amounts to
complete construction and installation of the Hotel as well as amendments to
certain other financial covenants contained therein, as more fully set forth
herein; and
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth, to grant such requested waiver and to so amend
the Participation Agreement, but only upon the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the waiver and other agreements herein
contained, the parties hereto agree as follows:
<PAGE> 2
PART I
DEFINITIONS
SUBPART 1.1.
Certain Definitions. Unless otherwise defined in
Appendix 1 to the Participation Agreement, capitalized terms used in this
Amendment No. 1, including its preamble and recitals, have the following
meanings (such meanings to be equally applicable to the singular and plural
forms thereof):
"Amendment No. 1" is defined in the preamble.
"Amendment No. 1 Effective Date" is defined in Subpart 5.1.
"Participation Agreement" is defined in the first recital.
PART II
AMENDMENTS TO APPENDIX 1 TO PARTICIPATION AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 1
Effective Date, Appendix 1 to the Participation Agreement is amended in
accordance with this Part II. Except to the extent amended by this Amendment
No. 1, Appendix 1 to the Participation Agreement is and shall continue to be in
full force and effect and is hereby ratified and confirmed in all respects.
SUBPART 2.1. Amendments to Appendix 1 to the Participation Agreement.
(a) Section D of Appendix 1 to the Participation Agreement is hereby
amended by inserting the following definitions in their alphabetically
appropriate places:
"Amendment No. 1" means Amendment No. 1 to Participation
Agreement, dated as of March 28, 1997, among the Lessee and
Construction Agent; the Guarantors; the Lessor, Borrower and Trustee;
the Lenders; the Co-Agents; the Lead Manager; and Agent, amending the
Participation Agreement as then in effect.
"Amendment No. 1 Effective Date" means the first date on which
all of the conditions precedent set forth in Subpart 5.1 of Amendment
No. 1 shall be satisfied or waived by all of the Lenders, but in no
event shall such date be later than March 28, 1997.
"Limited Guaranty" means the Limited Guaranty, dated as March
28, 1997, made by Parent in favor of each of the Beneficiaries defined
therein.
2
<PAGE> 3
"Option Agreement" means the Option Agreement, dated as of
March 28, 1997, between Parent and First Security Trust Company of
Nevada.
"Qualified Stratosphere Subsidiary" means all Persons that are
consolidated with Stratosphere Corporation for financial reporting
purposes in accordance with GAAP, except any Subsidiary that owns,
leases or otherwise controls any assets formerly owned, leased or
otherwise controlled by Parent or any of Parent's Consolidated
Subsidiaries.
(b) The following definitions contained in Section D of Appendix 1
to the Participation Agreement are hereby amended in their entirety to read as
set forth below:
"Commitment Termination Date" means the earlier of (i) the
Completion Date, (ii) May 31, 1997 and (iii) such earlier date on
which the Commitments shall terminate as provided in the Operative
Documents.
"Consolidated Fixed Charges" means, for each Computation
Period (except as provided in clause (v) below), the sum of (i)
Consolidated Interest Expense payable in cash, plus (ii) capitalized
interest accrued by the Parent and its Consolidated Subsidiaries for
such period, plus (iii) the aggregate amount of all federal, state,
local and foreign income taxes currently due and payable by the Parent
and its Consolidated Subsidiaries for such period, plus (iv)
Maintenance Capital Expenditures of the Parent and its Consolidated
Subsidiaries which for purposes of this clause (iv) shall not be less
than one and two percent of consolidated gross revenues of such
Persons for the periods from the Closing Date through June 29, 1997,
and from June 30, 1997 through the Final Maturity Date, respectively,
plus (v) the aggregate amount of scheduled amortization of all Debt of
the Parent and its Consolidated Subsidiaries for the next following
Computation Period, plus (vi) without duplication, the aggregate
amount of all capital contributions and payments made by the Parent to
Stratosphere Corporation under the Standby Equity Commitment
Agreement.
"Consolidated Subsidiary" means all Persons that are
consolidated with Parent for financial reporting purposes in
accordance with GAAP, excluding Stratosphere Corporation, Stratosphere
Gaming Corporation and any Qualified Stratosphere Subsidiary should
any one become a Consolidated Subsidiary on Parent's consolidated
financial statements. Any investment of Parent or any of its
Consolidated Subsidiaries in Stratosphere Corporation or Stratosphere
Gaming Corporation or nay Consolidated Subsidiary thereof shall be
taken into account in determining the Consolidated Net Worth of
Parent.
"Fiscal Year" means any 52 or 53 week period ending on the Sunday in
December or January closest to December 31; any reference to a Fiscal Year with
a number corresponding to any calendar year refers to the Fiscal Year ended on
the Sunday closest to December 31st of such
3
<PAGE> 4
calendar year (e.g., "1996 Fiscal Year" refers to the Fiscal Year ended on
Sunday, December 29, 1996).
"Fiscal Quarter" means any quarter of a Fiscal Year consistent
with GAAP.
"Hotel Site" means from the date hereof until such date as
Trustee shall have complied with all the provisions of Subpart 5.4(a)
of Amendment No. 1, the parcel of real property described on Exhibit B
to the Lease, and thereafter the parcel of real property described on
Exhibit D to Amendment No. 1.
PART III
AMENDMENTS TO PARTICIPATION AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 1
Effective Date, the Participation Agreement is amended in accordance with this
Part III. Except to the extent amended by this Amendment No. 1, the
Participation Agreement is and shall continue to be in full force and effect
and is hereby ratified and confirmed in all respects.
SUBPART 3.1. Amendments to Article III.
(a) Section 3.4 of the Participation Agreement is hereby amended by
adding at the end of clause (d) thereof the following:
"(e) Water and Sewer Easement. Lessee shall have delivered
to Agent and Trustee:
(i) a duly executed document in recordable form
and in substance reasonably acceptable to Agent and Trustee,
granting to Trustee a limited, nonexclusive easement across
the Land running in favor of the Hotel Site, to assure that
sewer and water services can be made available to the Hotel
Site (in the event that the Trustee occupies or assumes
control over the Hotel Site), which easements shall terminate
upon the earlier of (i) the date on which the indebtedness
secured by the Deed of Trust is satisfied or (ii) the date, if
any, that Lessee and BL Utility Corp., a Minnesota corporation
("BL Utility"), transfer ownership of or grant a long term
lease to the related sewer and water facilities to an
unrelated third party and such third party delivers to Agent
and Trustee a certificate in form and substance acceptable to
Agent and Trustee stating that it is currently providing and
shall continue to provide sewer and water utilities to the
Hotel Site in an amount sufficient to meet the then required
demands for the
4
<PAGE> 5
Hotel. The foregoing easement shall be a present and current
grant of rights in and to the Land. Notwithstanding the
foregoing, Agent and Trustee agree not to exercise any such
right unless and until (i) Agent or Trustee, as the case may
be, acquires possession or control of the Hotel pursuant to
the terms of the Operative Documents and (ii) Lessee shall
fail to cause BL Utility to enter into a service contract
acceptable to Agent and Trustee which provides standard and
customary terms and provisions for the delivery and service of
sewer and water utilities to the Hotel and Hotel Site.
(ii) Lessee shall have leased the property
identified on Exhibit A to Amendment No. 1 to Trustee for
inclusion in the reconfigured Hotel Site as described on
Exhibit D to Amendment No. 1 in a manner acceptable to Agent
and Trustee.
(f) Legal Description; Amendments. Lessee shall have
delivered to Agent (with copies for the Trustee and the Lenders):
(i) a legal description of the Hotel Site
(reflecting the addition of the parcel of land described on
Exhibit A to Amendment No. 1 and the subtraction of the parcel
of land described on Exhibit E to Amendment No. 1), certified
by a surveyor;
(ii) amendments, in recordable form, of the
Improvements Deed, the Ground Lease, the Deed of Trust (Resort
Hotel), Lease, Trust Agreement and Security Agreement
reflecting the revised boundaries of the Hotel Site;
(iii) a fully executed release of Liens, except for
Permitted Liens, relating to the parcel of land described on
Exhibit A to Amendment No. 1 from the Indenture Trustee and
any other party who may have a Lien on such real property;
(iv) revised fixture filings (in proper form for
filing with the appropriate filing location) regarding the
Hotel;
(v) updated mortgagee's construction loan title
insurance policies (or endorsements to the existing
mortgagee's construction loan title insurance policies) issued
by the Title Insurance Company pursuant to Section 3.3(c)
hereof in form and substance satisfactory to the Agents with
respect to the Hotel Site, insuring that the interests created
by the Deed of Trust relating to the Hotel Site (reflecting
the addition of the parcel of land described on Exhibit A to
Amendment No. 1 and the subtraction of the parcel of land
described on Exhibit E to Amendment No. 1) and the Lease
constitute valid first Liens on the Hotel Site (reflecting the
new boundaries thereof) and the leasehold interest free and
clear of
5
<PAGE> 6
all defects and encumbrances, except for Permitted Liens,
unless otherwise approved by the Agents and its counsel in
writing; and
(vi) such other approvals, opinions or documents
as the Agents may reasonably request, including, without
limitation, an opinion concerning the documents and items in
Amendment No. 1 of Watkins, Ludlam & Stennis, P.A. in form and
substance substantially similar to its opinion delivered on
May 10, 1996, including an opinion that the Agent has remedies
customarily obtained by lenders in Mississippi and can
foreclose on the Hotel Site notwithstanding the location of
the Hotel Site within a planned unit development.
All of the above-referenced documents will be in form and
substance satisfactory to the Agents."
SUBPART 3.2. Amendments to Article V.
(a) Section 5.16 of the Participation Agreement is hereby amended and
restated in its entirety to read as set forth below:
"SECTION 5.16. Financial Covenants.
(a) Fixed Charge Coverage. Parent shall maintain a
ratio of Consolidated Adjusted EBITDA to Consolidated Fixed
Charges, calculated as of the last day of each Computation
Period, of not less than the ratio set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
through 12/28/97 1.15:1.00
12/29/97 and thereafter 1.25:1.00
</TABLE>
(b) Consolidated Net Worth. The Consolidated Net
Worth of the Parent shall not at any time for the Fiscal Year
ended December 29, 1996 be less than $439,672,000 and
thereafter be less than an amount equal to the sum of (x)
$439,672,000 plus (1) 75% of Consolidated Net Income of the
Parent beginning with the first Fiscal Quarter of the 1997
Fiscal Year (but excluding any Consolidated Net Losses for any
Fiscal Quarter incurred on or after the Fiscal Quarter
commencing December 30, 1996) and calculated quarterly
thereafter for each subsequent Fiscal Quarter, plus (2)
beginning December 30, 1996 and thereafter, 100% of the
proceeds from the issuance by the Parent of an equity interest
in the Parent or a Subsidiary (other than Stratosphere
Corporation and its Subsidiaries) to one or more Persons
unaffiliated with Parent, or the Ownership Percentage
6
<PAGE> 7
Interest of the proceeds from the issuance by a Subsidiary (other than
Stratosphere Corporation and its Subsidiaries) of an equity interest in
such Subsidiary to one or more Persons unaffiliated with the Parent.
(c) Consolidated Adjusted Senior Funded Debt/Consolidated Adjusted
EBITDA Ratio. Parent shall maintain a ratio of Consolidated Adjusted
Senior Funded Debt to Consolidated Adjusted EBITDA, calculated as of the
last day of each Computation Period, of not greater than the ratio set
forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
12/29/96 4.00:1.00
3/30/97 4.00:1.00
6/29/97 4.75:1.00
9/28/97 4.50:1.00
12/28/97 through 12/26/98 4.00:1.00
12/27/98 through 12/30/2000 3.50:1.00
12/31/2000 and thereafter 3.00:1.00
</TABLE>
(d) Consolidated Adjusted Total Funded Debt/Consolidated Adjusted EBITDA
Ratio. Parent shall maintain a ratio of Consolidated Adjusted Total Funded Debt
to Consolidated Adjusted EBITDA, calculated as of the last day of each
Computation Period, of not greater than the ratio set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
12/29/96 4.00:1.00
3/30/97 4.00:1.00
6/29/97 4.75:1.00
9/28/97 4.50:1.00
12/28/97 and thereafter 4.00:1.00
</TABLE>
(e) For purposes of computing the financial covenants set forth in
Sections 5.16(a), (c) and (d), acquisitions, dispositions and discontinued
operations that have been made by Parent or any of its Consolidated
Subsidiaries, including all mergers, consolidations and dispositions, during the
Computation Period, shall be calculated on a pro forma basis assuming that all
such acquisitions, dispositions, discontinued operations, mergers
7
<PAGE> 8
and consolidations (and the reduction of any associated fixed charge
obligations resulting therefrom) had occurred on the first day of the
Computation Period in question".
(b) A new Section 5.23 is hereby added to Article V of the Participation
Agreement to read as follows:
"SECTION 5.23. Fiscal Year. Neither Lessee nor Parent shall
change its Fiscal Year for financial accounting purposes without the
prior written consent of the Required Lenders.
(c) A new Section 5.24 is hereby added to Article V of the Participation
Agreement to read as follows:
"SECTION 5.24. Restrictions on Indebtedness. The first
$100,000,000 of Debt described in clause (i) of such definition
incurred by Lessee, Construction Agent, any Guarantor or Parent on or
after the Amendment No. 1 Effective Date will be used solely for
capital expenditures by Parent, Parent's Subsidiaries, Stratosphere
Corporation or Stratosphere Corporation's Subsidiaries."
(d) Sections 5.14 (a) and (b) of the Participation Agreement are hereby
amended to require the Parent and the Lessee to deliver to the Trustee, each
Lender and the Agent consolidating statements of Parent and its Consolidated
Subsidiaries (including Stratosphere Corporation and Stratosphere Gaming
Corporation) of operations, cash flows and common shareholders' equity, in each
case setting forth in comparative form the figures for the preceding Fiscal Year
or portion of the Fiscal Year, as the case may be, as well as the financial and
other information previously set forth in Sections 5.14(a) and (b). Such
consolidating financial statements shall be delivered together with the
consolidated financial statements of Parent in accordance with Sections 5.14(a)
and (b):
SUBPART 3.3. Amendment to Schedule VIII.
Part I of Schedule VIII of the Participation Agreement is hereby
amended and restated in its entirety to read as set forth in Exhibit B.
SUBPART 3.4. Amendment to Exhibit Q.
Exhibit Q of the Participation Agreement is hereby amended and
restated in its entirety to read as set forth in Exhibit C.
PART IV
8
<PAGE> 9
CONSENT TO CERTAIN ACTIONS
SUBPART 4.1. Consent. Effective on (and subject to the occurrence of) the
Amendment No. 1 Effective Date, and in reliance upon the representations and
warranties contained herein, the Trustee, Agent and Lenders hereby consent to:
(a) the mergers of GCI Biloxi Hotel Acquisition Corporation
into Grand Casinos of Mississippi, Inc.- Biloxi and of GCI Gulfport
Hotel Acquisition Corporation into Grand Casinos of Mississippi, Inc.-
Gulfport all and hereby acknowledge receipt of notice thereof;
(b) the relocation of Parent's chief executive offices prior
to the date hereof to a location in the same county and state without
notice to Trustee, Agent and Lenders;
(c) Parent's failure to deliver to Trustee and Agent the
Financial Covenant Compliance Certificate for the Fiscal Quarter ended
December, 1996 required pursuant to Section 5.6(b) of the
Participation Agreement; and
(d) the certification by Lessee that commercial operation of
the Hotel is reasonably expected to commence no later than three
months from March 31, 1997 and hereby acknowledge receipt of notice by
Construction Agent requesting the extension of the Construction
Termination Date for three months.
SUBPART 4.2. No Default. In order to induce the Lenders to (a) consent to
the actions set forth in Subpart 4.1 and (b) agree to the amendments set forth
in Article III, Lessee, Construction Agent and each Guarantor hereby jointly and
severally represent and warrant that, after giving effect to the consent to
actions set forth above and the amendments set forth in Article III, no Event of
Default has occurred and is continuing, and each of the representations and
warranties contained in the Participation Agreement and the other Operative
Documents (other than any representation or warranty which expressly relates to
a different date) is true and correct in all material respects as of the date
hereof as if made on the date hereof.
PART V
CONDITIONS TO EFFECTIVENESS, REPRESENTATIONS AND WARRANTIES AND
ADDITIONAL COVENANTS
SUBPART 5.1. Effective Date. This Amendment No. 1 shall be and become
effective as of the date (the "Amendment No. 1 Effective Date") upon the prior
or concurrent satisfaction of each of the conditions precedent set forth in this
Subpart 5.1.
9
<PAGE> 10
(a) Execution of Certain Documents. Agent shall have received: (i)
counterparts of this Amendment No. 1 duly executed by Lessee, each Guarantor,
Trustee, Lenders, Co-Agents, Lead Manager, and Agent (or evidence thereof
satisfactory to the Agent); (ii) the Option Agreement duly executed by Parent
and First Security Trust Company of Nevada; and (iii) the Limited Guaranty duly
executed by Parent.
(b) Resolutions, Incumbency, etc.. Agent shall have received (with copies
for the Trustee and each Lender) a certificate, dated the date hereof, of the
Secretary or Assistant Secretary of each of the Lessee and each Guarantor,
respectively, as to
(i) resolutions of the Board of Directors of such Person then in
full force and effect authorizing the execution, delivery and
performance of this Amendment No. 1,
(ii) the incumbency and signatures of those officers of such
Person authorized to act with respect to this Amendment No. 1, and
(iii) the Articles or Certificate of Incorporation of such
Person as in effect on the date hereof (certified by the Secretary of
State or similarly applicable Governmental Authority), of its state of
incorporation as of a recent date and the by-laws of such Person as in
effect on the date hereof, upon which certificates each Lender may
conclusively rely until it shall have received a further certificate
of the Secretary of the Lessee or such Guarantor, as the case may be,
canceling or amending such prior certificate.
(c) Fees. All reasonable fees and expenses of Mayer, Brown & Platt in
connection with the negotiation, execution and delivery of this Amendment No. 1
and the transactions contemplated herein shall have been paid in full.
(d) Opinions of Counsel. Agent shall have received (with copies for the
Trustee and each Lender) an opinion, dated as of the date hereof and addressed
to the Agent, the Lenders and the Trustee, from Maslon Edelman Borman & Brand,
counsel to the Lessee and Guarantors, in form and substance acceptable to the
Agent.
(e) Accuracy of Representations and Warranties; No Default. On the
Amendment No. 1 Effective Date, Agent shall have received (with copies for the
Trustee and each Lender) certificates of the Secretary or Assistant Secretary of
each Guarantor and Lessee stating that after giving effect to this Amendment No.
1, all of the representations and warranties of the Lessee and each Guarantor
contained in the Participation Agreement and in Subpart 5.3 shall be true and
correct on and as of the Amendment No. 1 Effective Date in all material respects
as though made on and as of that date and no Default has occurred and is
continuing.
10
<PAGE> 11
(f) Legal Details, etc. Agent and its counsel shall have received
(with copies for the Trustee and each Lender) all information, and such
counterpart originals or such certified or other copies of such materials,
as Agent or its counsel may reasonably request, and all legal matters
incident to the effectiveness of this Amendment No. 1 shall be satisfactory
to Agent and its counsel. All documents executed or submitted pursuant
hereto or in connection herewith shall be satisfactory in form and
substance to Agent and its counsel.
SUBPART 5.2. Limitation. Except as expressly provided hereby, all of the
representations, warranties, terms, covenants and conditions of the
Participation Agreement and each other Operative Document shall remain unamended
and unwaived and shall continue to be, and shall remain, in full force and
effect in accordance with their respective terms. The amendments, modifications
and consents set forth herein shall be limited precisely as provided for herein,
and shall not be deemed to be a waiver of, amendment of, consent to or
modification of any other term or provision of the Participation Agreement or of
any term or provision of any other Operative Document or other instrument
referred to therein or herein, or of any transaction or further or future action
on the part of Lessee, any Guarantor or any other Person which would require the
consent of Agent or any of the Lenders under the Participation Agreement or any
such other Operative Document or instrument.
SUBPART 5.3. Representations and Warranties. Lessee and each Guarantor
jointly and severally represent and warrant to Trustee, Lenders, and Agents as
of the Amendment No. 1 Effective Date as follows:
(a) Attached hereto as Exhibit D is a true and complete legal
description of the Hotel Site, reflecting the addition of the property
identified on Exhibit A hereto and subtracting the property to be conveyed
to Lessee pursuant to Subpart 5.4(a), upon which the Hotel is being built.
(b) All utility services necessary for the operation and use of the
Hotel and Hotel Site are provided by persons or entities unaffiliated with
Lessee or Parent excluding water and sewer utilities services.
(c) The financial projections and assumptions delivered to Agent by
Parent and Lessee for purposes of amending the financial covenants
contained in Subpart 3.2 is based upon good faith estimates and assumptions
believed by the Parent and Lessee to be reasonable on the Amendment No. 1
Effective Date.
(d) No fact is known to the Parent or the Lessee which may have a
Material Adverse Effect that has not been set forth in the December 29,
1996 financial statements or disclosed to Trustee, Lenders and Agents in
connection with the preparation of this Amendment No. 1 or otherwise
notified to Trustee, Lenders, and Agents prior to the Amendment No. 1
Effective Date.
11
<PAGE> 12
SUBPART 5.4. Additional Covenants of Trustee, Co-Agents and Lenders.
(a) Upon transfer of the property identified on Exhibit A hereof
to Trustee and compliance by Lessee with Section 3.4(f)(ii) through
(v) of the Participation Agreement, Lenders shall direct the Trustee
to convey all right, title and interest to the property identified on
Exhibit E attached hereto to Lessee by quitclaim deed on an "as-is,
where-is" basis without representations or warranties except that such
property is free of any Lessor Liens.
(b) If at any time the Trustee, any Co-Agent, any of the Lenders
or their respective successors or assigns shall acquire fee ownership
or take possession or control of the Hotel, then upon the request of
the Lessee, they and Lessee agree to execute and deliver a reciprocal
easement agreement that mutually benefits and burdens each of the
Hotel Site and Land for the sole purpose of unrestricted shared
parking over and on each of said parcels of Land, which agreement
shall contain standard and customary terms reasonably acceptable to
each of the parties thereto and the Lenders.
PART VI
MISCELLANEOUS
SUBPART 6.1. Cross-References. References in this Amendment No. 1 to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of this
Amendment No. 1.
SUBPART 6.2. Operative Document Pursuant to Participation Agreement. This
Amendment No. 1 is an Operative Document executed pursuant to the Participation
Agreement and shall (unless otherwise expressly indicated therein) be construed,
administered and applied in accordance with the terms and provisions of the
Participation Agreement.
SUBPART 6.3. Successors and Assigns. This Amendment No. 1 shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SUBPART 6.4. Counterparts, etc. This Amendment No. 1 may be executed by
the parties hereto in several counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
SUBPART 6.5. Governing Law. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
12
<PAGE> 13
SUBPART 6.6. Guarantor Affirmation and Consent. By its signature below,
each Guarantor under the Guaranty hereby acknowledges and consents to this
Amendment No. 1 and the amendments to the Participation Agreement as amended
hereby, and the terms and provisions hereof. Each Guarantor hereby reaffirms as
of the Amendment No. 1 Effective Date its covenants and agreements contained in
the Guaranty, including as such covenants and agreements may be modified by this
Amendment No. 1, and further confirms that as of the Amendment No. 1 Effective
Date (both before and after giving effect to the effectiveness to this Amendment
No. 1), the Guaranty is and shall continue to be in full force and effect and is
hereby ratified and confirmed in all respects except that upon the effectiveness
of this Amendment No. 1, all references in the Guaranty to the "Operative
Documents", "Participation Agreement", "thereunder", "thereof", or words of like
import shall mean the Participation Agreement, as the case may be, as in effect
and amended by this Amendment No. 1.
SUBPART 6.7. Lender Confirmation. Execution and delivery to Agent by a
Lender of a counterpart to this Amendment No. 1 shall be deemed confirmation by
such Lender that (i) all conditions precedent in Subpart 5.1 have been fulfilled
to the satisfaction of such Lender and (ii) the decision of such Lender to
execute and deliver to Agent an executed counterpart to this Amendment No. 1 was
made by such Lender independently and without reliance on Agent or any other
Lender as to the satisfaction of any condition precedent set forth in Subpart
5.1.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be executed by their respective officers hereunto duly authorized as of the day
and year first above written.
BL DEVELOPMENT CORP., as Lessee
By /s/ Timothy J. Cope
-----------------------------------
Name: Timothy J. Cope
Title: CFO
GRAND CASINOS, INC., as Guarantor
By /s/ Timothy J. Cope
-----------------------------------
Name: Timothy J. Cope
Title: CFO
13
<PAGE> 14
GRAND CASINOS RESORTS, INC., as Guarantor
By /s/ Timothy J. Cope
----------------------------------
Name: Timothy J. Cope
Title: CFO
GRAND CASINOS OF MISSISSIPPI, INC.
- GULFPORT, as Guarantor
By /s/ Timothy J. Cope
----------------------------------
Name: Timothy J. Cope
Title: CFO
GRAND CASINOS OF MISSISSIPPI, INC.
- BILOXI, as Guarantor
By /s/ Timothy J. Cope
----------------------------------
Name: Timothy J. Cope
Title: CFO
14
<PAGE> 15
GRAND CASINOS OF BILOXI THEATER, INC.,
as Guarantor
By /s/ Timothy J. Cope
------------------------------
Name: Timothy J. Cope
Title: CFO
GCI BILOXI HOTEL ACQUISITION
CORPORATION, as Guarantor
By /s/ Timothy J. Cope
------------------------------
Name: Timothy J. Cope
Title: CFO
GCI GULFPORT HOTEL ACQUISITION
CORPORATION, as Guarantor
By /s/ Timothy J. Cope
------------------------------
Name: Timothy J. Cope
Title: CFO
MILLE LACS GAMING CORPORATION, as
Guarantor
By /s/ Timothy J. Cope
------------------------------
Name: Timothy J. Cope
Title: CFO
GRAND CASINOS OF LOUISIANA, INC.
TUNICA - BILOXI, as Guarantor
By /s/ Timothy J. Cope
------------------------------
Name: Timothy J. Cope
Title: CFO
15
<PAGE> 16
GRAND CASINOS OF LOUISIANA, INC. -
COUSHATTA, as Guarantor
By /s/ Timothy J. Cope
----------------------------------
Name: Timothy J. Cope
Title: CFO
GCA ACQUISITION SUBSIDIARY, INC., as Guarantor
By /s/ Timothy J. Cope
----------------------------------
Name: Timothy J. Cope
Title: CFO
HANCOCK BANK, not in its individual capacity,
but solely as Lessor, Borrower and Trustee
By /s/ H. Arnold Wethey
----------------------------------
Name: H. Arnold Wethey
Title: Vice President and Trust Officer
BA LEASING & CAPITAL CORPORATION, not
in its individual capacity, but solely as
Agent
By /s/ Sonia T. Delen
----------------------------------
Name: Sonia T. Delen
Title: Assistant Vice President
BA LEASING & CAPITAL CORPORATION, as
Lender
By /s/ Kim Lee
----------------------------------
Name: Kim Lee
Title: Assistant Vice President
16
<PAGE> 17
BANK OF SCOTLAND, as Co-Agent and as Lender
By /s/ Annie Chin Tat
--------------------------------------
Name: Annie Chin Tat
Title: Assistant Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION (successor by merger to FIRST
INTERSTATE BANK OF NEVADA), as Co-
Agent and as Lender
By /s/ Brad Peterson
--------------------------------------
Name: Brad Peterson
Title: Vice President
SOCIETE GENERALE, as Co-Agent and as Lender
By /s/ Maureen E. Kelly
--------------------------------------
Name: Maureen E. Kelly
Title: Vice President
CREDIT LYONNAIS, LOS ANGELES BRANCH,
as Lead Manager and as Lender
By /s/ Robert Ivosevich
--------------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
THE CIT GROUP/EQUIPMENT FINANCING,
INC., as Lender
By /s/ Thomas L. Abbate
--------------------------------------
Name: Thomas L. Abbate
Title: Executive Vice President
17
<PAGE> 18
UNITED STATES NATIONAL BANK OF
OREGON, as Lender
By /s/ Dale Parshall
---------------------------------------
Name: Dale Parshall
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF BOSTON, as
Lender
By /s/ Reginald T. Dawson
---------------------------------------
Name: Reginald T. Dawson
Title: Director
IMPERIAL BANK, as Lender
By /s/ Steven Johnson
---------------------------------------
Name: Steven Johnson
Title: Senior Vice President
TRUSTMARK NATIONAL BANK, as Lender
By /s/ John W. Ray Jr.
--------------------------------------
Name: John W. Ray, Jr.
Title: Vice President
FIRST SECURITY BANK, N.A., as Lender
By /s/ David P. Williams
--------------------------------------
Name: David P. Williams
Title: Vice President
18
<PAGE> 19
FIRST NATIONAL BANK OF COMMERCE, as
Lender
By /s/ Louis Ballero
---------------------------------------
Name: Louis Ballero
Title: Senior Vice President
HANCOCK BANK, as Lender
By /s/ John S. Hall
--------------------------------------
Name: John S. Hall
Title: Senior Vice President
DEPOSIT GUARANTY NATIONAL BANK, as
Lender
By /s/ Larry C. Ratzlaff
--------------------------------------
Name: Larry C. Ratzlaff
Title: Senior Vice President
19
<PAGE> 20
EXHIBIT LIST
EXHIBIT A Description of Land to be Included in Reconfigured
Hotel Site
EXHIBIT B Litigation matters required to be disclosed
pursuant to Section 4.1(d)
EXHIBIT C Financial Covenant Compliance Certificate
EXHIBIT D Amended Legal Description of Hotel Site
EXHIBIT E Description of Land to be Excluded from Original
Hotel Site
1
<PAGE> 1
[EXECUTION COPY]
THIS LIMITED GUARANTY (this "Limited Guaranty"), dated as of March 28,
1997, is made by GRAND CASINOS, INC., a Minnesota corporation ("GCI"), in favor
of each the Beneficiaries (as defined below).
W I T N E S S E T H:
WHEREAS, pursuant to a Participation Agreement, dated as of April 29, 1996
(as amended or otherwise modified to the date hereof, the "Stratosphere
Participation Agreement"), among Stratosphere Gaming Corp., a Nevada
corporation, as Lessee; Stratosphere Corporation, a Delaware corporation, as
Guarantor; First Security Trust Company of Nevada, a Nevada trust company, not
in its individual capacity, except as expressly stated therein, but solely as
Lessor and Trustee; the persons listed therein, as Lenders; Bank of Scotland,
Wells Fargo Bank, National Association (successor by merger to First Interstate
Bank of Nevada), and Societe Generale, as Co-Agents; Credit Lyonnais, Los
Angeles Branch, as Lead Manager; and BA Leasing & Capital Corporation, a
California corporation, as Arranger and Agent, the Lenders made term loans to
the Trustee to enable the Trustee to make Advances (such term, and all other
capitalized terms used herein, shall have the meanings ascribed to them in
Section 18 hereof) to Lessee to finance the acquisition of certain Equipment;
WHEREAS, pursuant to a Lease Agreement, dated as of April 29, 1996 (as
amended or otherwise modified to the date hereof, the "Lease"), between the
Trustee, as Lessor, and the Lessee, the Trustee leased the Equipment purchased
with the term loan proceeds to the Lessee;
WHEREAS, Lessee, Guarantor and certain noteholders under the Indenture
entered into a Restructuring Agreement, dated as of January 6, 1997 (the
"Restructuring Agreement"), pursuant to which the parties thereto agreed to a
restructuring of the Lessee and the Guarantor to be implemented through a plan
of reorganization of the Lessee and the Guarantor (the "Plan of Reorganization")
under Chapter 11 of the Bankruptcy Code;
WHEREAS, pursuant to a Stipulation Providing Adequate Protection dated as
of February 3, 1997 (the "Stipulation") among the parties to the Stratosphere
Participation Agreement and the Lease, the Trustee and the Lenders have agreed
not to exercise or instruct, authorize, or allow any other Person to exercise,
any
<PAGE> 2
Limited Guaranty
action pursuant to Section 362(d) of the Bankruptcy Code with regard to the
Collateral, until among other things, a plan of reorganization is substantially
consummated, provided, that the Lessee continues to make scheduled payments of
Rent in accordance with the terms of the Stratosphere Participation Agreement
and the Lease and to perform and comply with its other obligations under the
Operative Documents;
WHEREAS, in connection with the Stipulation, Lessee has requested the
Lenders and the Trustee to amend the Stratosphere Participation Agreement and
the Lease to extend the Lease Term and adjust certain financial covenants; and
WHEREAS, certain parties are concurrently amending the Participation
Agreement dated as of May 10, 1996 among GCI, BL Development Corp., Hancock
Bank, not in its individual capacity, but solely as trustee, certain lenders
named therein and BA Leasing & Capital Corporation as Agent and the Lease
Agreement and Deed of Trust, dated as of May 10, 1996 between Hancock Bank, in
its trust capacity, as lessor, and BL Development Corp., as lessee, in certain
respects as provided in Amendment No. 1 to Participation Agreement, dated as of
the date hereof ("Amendment No. 1");
NOW, THEREFORE, in consideration of the premises and in order to induce the
parties thereto to enter into Amendment No. 1, GCI covenants and agrees as
follows:
SECTION 1. GCI Guaranty. GCI hereby absolutely, unconditionally and
irrevocably guarantees to Trustee (both individually and in its capacity as
Trustee), Agent, each Lender and each other Indemnitee and their respective
successors and assigns (individually, a "Beneficiary" and, collectively, the
"Beneficiaries") the due, punctual and full payment of all amounts (including
amounts payable as damages in case of default, any amounts due pursuant to
Articles VII and VIII of the Stratosphere Participation Agreement and interest
at the Overdue Rate on any amount due and owing from the date the same shall
have become due and payable to the date of payment) payable by Lessee pursuant
to the Lease, the Stratosphere Participation Agreement, or any other Operative
Document to which Lessee is a party, whether such obligations now exist or arise
hereafter, as and when the same shall become due and payable in accordance with
the terms thereof (including in all cases all such amounts which would become
due but for the operation of the automatic stay under Section 362(a) of the
United States Bankruptcy Code, 11 U.S.C. Section 362(a), the operation of
Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C.
Section 502(b) and Section 506(b)
-2-
<PAGE> 3
Limited Guaranty
or the commencement or operation of any other bankruptcy, insolvency,
reorganization or like proceeding relating to Lessee) (such obligations subject
to the Maximum Limitation Amount being hereinafter called the "Guaranteed
Obligations"); provided, however, that except for amounts paid pursuant to the
next paragraph hereof, the maximum amount payable by GCI hereunder shall not
exceed Eight Million Six Hundred Eighty-four Thousand Three Hundred Sixty-two
Dollars ($8,684,362.00) (the "Maximum Limitation Amount"). Any payment by GCI
under Section 2(a) of the Option Agreement, dated the date hereof, between GCI
and the Trustee shall not constitute a payment by GCI under this Guaranty. GCI
shall be treated as having made a payment under this Limited Guaranty only if
Agent or Trustee shall have made a written demand hereunder for payment, and
then only to the extent of the amount so demanded.
In addition to the Maximum Limitation Amount, GCI further will pay any and
all reasonable costs and expenses (including reasonable fees and disbursements
of counsel, which may include allocated costs of staff counsel of any
Beneficiary) that may be paid or incurred by any Beneficiary in collecting any
amounts payable by GCI under this Limited Guaranty or in preserving or enforcing
any rights under this Limited Guaranty, it being understood that GCI shall not
be obligated to pay any amounts hereunder to the extent that Lessee has made
corresponding payments under the Operative Documents.
This Limited Guaranty constitutes an unconditional and irrevocable guaranty
of payment and not of collectability, is in no way conditioned or contingent
upon any attempt to collect from or enforce performance or compliance by Lessee
or upon any other event, contingency or circumstance whatsoever, and shall be
binding upon and against GCI without regard to the validity or enforceability of
the Lease or any other Operative Document.
SECTION 2. GCI's Guaranteed Obligations Unconditional.
The covenants and agreements of GCI set forth in this Limited Guaranty
shall be primary obligations of GCI, and shall be continuing, absolute and
unconditional, shall not be subject to any counterclaim, setoff, deduction,
diminution, abatement, recoupment, suspension, deferment, reduction or defense
(other than full and strict compliance by GCI with its obligations hereunder),
whether based upon any claim that Lessee, GCI, or any other Person may have
against any Beneficiary or any other Person or otherwise, and shall remain in
full force and effect without regard to, and shall not be released, discharged
or in any way affected by, any circumstance or condition whatsoever (whether or
-3-
<PAGE> 4
Limited Guaranty
not GCI or Lessee shall have any knowledge or notice thereof) including, without
limitation:
(a) any amendment, modification, addition, deletion, supplement,
renewal or any other change to or of the Guaranteed Obligations, the Lease
or any Operative Document (whether by agreement of the parties thereto, a
plan of reorganization of Lessee or otherwise), or any of the agreements
referred to in any of the aforementioned documents, or any other instrument
or agreement applicable to any such agreements or any of the parties to
such agreements, or to the Equipment, or any assignment or transfer thereof
or of any interest therein, or any furnishing or acceptance of additional
security for, guaranty of or right of offset with respect to, any of the
Guaranteed Obligations; or the failure of any security or the failure of
any Beneficiary to perfect or insure any interest in any Collateral;
(b) any failure, omission or delay on the part of Lessee, any
Beneficiary or any other Person to conform or comply with any term of any
instrument or agreement referred to in clause (a) above;
(c) any waiver, consent, extension, indulgence, compromise, release
or other action or inaction under or in respect of any instrument,
agreement, guaranty, right of offset or security referred to in clause (a)
above or any obligation or liability of Lessee or any Beneficiary, or any
exercise or non-exercise by any Beneficiary or any other Person of any
right, remedy, power or privilege under or in respect of any such
instrument, agreement, guaranty, right of offset or security or any such
obligation or liability;
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding with respect
to Lessee, any Beneficiary or any other Person, or any of their respective
properties or creditors, the imposition of any stay or injunction in
connection with any such proceeding, or any action taken by any trustee or
receiver or by any court in any such proceeding;
(e) any limitation on (i) the liability or obligations of Lessee, GCI
or any other Person under any agreement or instrument referred to in clause
(a) above, or (ii) the Guaranteed Obligations or any collateral security
for the Guaranteed Obligations;
-4-
<PAGE> 5
Limited Guaranty
(f) the Guaranty or any other guaranty of the Guaranteed Obligations
or any discharge, termination, cancellation, frustration, irregularity,
invalidity or unenforceability, in whole or in part, of any of the
foregoing, or any other agreement or instrument, referred to in clause (a)
above or any term of any agreement in clause (a) above;
(g) any defect in the title, compliance with specifications,
condition, design, operation or fitness for use of, or any damage to or
loss or destruction of, or any interruption or cessation in the use of the
Equipment by Lessee or any other Person for any reason whatsoever
(including any governmental prohibition or restriction, condemnation,
requisition, seizure or any other act on the part of any governmental or
military authority, or any act of God or of the public enemy) regardless of
the duration thereof (even though such duration would otherwise constitute
a frustration of the Lease), whether or not resulting from accident and
whether or not without fault on the part of Lessee or any other Person;
(h) any merger or consolidation of Lessee or GCI into or with any
other Person or any sale, lease or transfer of any of the assets of Lessee
or GCI to any other Person;
(i) any change in the ownership of any shares of capital stock of
Lessee or any corporate change in Lessee;
(j) a failure of the Lease to be effective;
(k) A failure to obtain confirmation of or otherwise to substantially
consummate a Plan of Reorganization of Lessee:
(l) any assignments, transfers or subleases of the Lease or any of
Lessee's rights thereunder including an assignment, transfer or sublease
pursuant to Article IV of the Lease; or
(m) any other occurrence or circumstance whatsoever, whether similar
or dissimilar to the foregoing and any other circumstance that might
otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or that might otherwise limit recourse
against GCI.
-5-
<PAGE> 6
Limited Guaranty
The unconditional obligations of GCI set forth herein constitute the full
recourse obligations of GCI enforceable against it to the full extent of all its
assets and properties.
The rights of each Beneficiary set forth herein are in addition to the
rights of each such Beneficiary under the Guaranty, and nothing contained in
this Limited Guaranty shall limit or otherwise impair the rights, claims or
liens of any Beneficiary against the Guarantor under the Guaranty or be deemed
to require any Beneficiary to proceed against the Guarantor for payment of all
or any portion of the Guaranteed Obligations before exercising any remedies
permitted hereunder.
SECTION 3. Acceleration of Limited Guaranty. GCI agrees that if (a) any
event described in Sections 4 or 5 of the Stipulation shall occur or (b) the
Stipulation shall terminate and cease to be effective for any reason (other than
by mutual written agreement of all of the parties to the Stipulation or
confirmation of a Plan of Reorganization to which Lenders as a class have voted
affirmatively to accept), it shall pay to the Beneficiaries forthwith the full
amount of the Guaranteed Obligations.
SECTION 4. Waiver and Agreement. GCI waives any and all notice of the
creation, renewal, extension or accrual of any of the Guaranteed Obligations and
notice of or proof of reliance by any Beneficiary upon this Limited Guaranty or
acceptance of this Limited Guaranty, and the Guaranteed Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred
in reliance upon this Limited Guaranty. GCI unconditionally waives, to the
extent permitted by law: (a) acceptance of this Limited Guaranty and proof of
reliance by any Beneficiary hereon; (b) notice of any of the matters referred to
in Section 2, or any right to consent or assent to any thereof; (c) all notices
that may be required by statute, rule of law or otherwise, now or hereafter in
effect, to preserve intact any rights against GCI, including without limitation,
any demand, presentment, protest, proof or notice of nonpayment under any
agreement or instrument referred to in clause (a) of Section 2, and notice of
default or any failure on the part of Lessee to perform and comply with any
covenant, agreement, term or condition of any agreement or instrument referred
to in clause (a) of Section 2; (d) any right to the enforcement, assertion or
exercise against Lessee of any right, power, privilege or remedy conferred in
any agreement or instrument referred to in clause (a) of Section 2 or otherwise;
(e) any requirement of diligence on the part of any Person; (f) any requirement
of any Beneficiary to take any action whatsoever, to exhaust any remedies or to
-6-
<PAGE> 7
Limited Guaranty
mitigate the damages resulting from a default by any Person under any agreement
or instrument referred to in clause (a) of Section 2; (g) any notice of any
sale, transfer or other disposition by any Person of any right under, title to
or interest in any agreement or instrument referred to in clause (a) of Section
2 or the Collateral; and (h) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge, release or defense of a
guarantor or surety, or that might otherwise limit recourse against GCI.
GCI agrees that this Limited Guaranty shall be automatically reinstated if
and to the extent that for any reason any payment by or on behalf of Lessee is
rescinded or must be otherwise restored by any of the Beneficiaries, whether as
a result of any proceedings in bankruptcy or reorganization or otherwise.
GCI further agrees that, without limiting the generality of this Limited
Guaranty, if a Lease Event of Default shall have occurred and be continuing and
Trustee or its assignee is prevented by applicable law from exercising its
remedies under the Lease or if any agreement or instrument referred to in clause
(a) of Section 2 shall be terminated as a result of the rejection or
disaffirmance thereof by any trustee, receiver or liquidating agent of Lessee or
any other Person upon the insolvency, bankruptcy or reorganization of Lessee or
such other Person, or as a result of any modifications to the Lease contained in
a plan of reorganization to which the Lenders as a class have not voted to
accept, GCI's Guaranteed Obligations hereunder shall continue to the same
extent as if Trustee had exercised any remedies available under the Lease and
any such agreement or instrument had not been rejected, disaffirmed or otherwise
modified .
SECTION 5. Assignment. GCI hereby acknowledges that it is contemplated
that on the date hereof the Trustee will assign to the Agent for the benefit of
the Lenders all of the Trustee's rights, title and interest in and to this
Limited Guaranty in respect of any Guaranteed Obligations hereunder which are
part of the Trust Estate and GCI hereby agrees to such assignment.
SECTION 6. Subrogation. GCI will not exercise any rights (including any
right to vote such claims in support of or against any plan of reorganization)
which it may acquire against the Lessee by way of subrogation under this Limited
Guaranty, by any payment made hereunder or otherwise, until such time as the
Lease Balance, all the Guaranteed Obligations and all other amounts payable
under this Limited Guaranty shall have been paid in full. If any amount shall be
paid to GCI on account of such subrogation rights in violation of the preceding
sentence and the Lease
-7-
<PAGE> 8
Limited Guaranty
Balance, the Guaranteed Obligations and all other amounts payable under this
Limited Guaranty shall not have been indefeasibly paid in full in cash, such
amount shall be deemed to have been paid to GCI for the benefit of, and held in
trust for, the Beneficiaries, and shall forthwith be paid to Agent to be
credited and applied pursuant to the terms of the Loan Agreement and the Trust
Agreement. If (i) GCI shall make payment to Agent of all or any part of the
Lease Balance and the Guaranteed Obligations and (ii) the Lease Balance and the
Guaranteed Obligations and all other amounts payable under this Limited Guaranty
shall have been indefeasibly paid in full in cash, Agent on behalf of itself and
the Beneficiaries will, at GCI's request, execute and deliver to GCI appropriate
documents, without recourse and without representation or warranty, necessary to
evidence transfer by subrogation to GCI of an interest in the obligations
resulting from such payment by GCI. If (x) GCI makes any payments under this
Limited Guaranty during the pendency of the Chapter 11 case of the Lessee (the
"Chapter 11 Guaranty Payments"), and (y) the Trustee, the Agent and the Lenders
receive a cash distribution on account of their claims in such Chapter 11 case
that exceeds the amount which is the then-outstanding Lease Balance immediately
prior to such cash distribution plus all other payments then due and payable
under the Operative Documents less the total Chapter 11 Guaranty Payments made
(the "Realized Net Balance"), then the Trustee, the Agent and the Lenders shall
retain only the Realized Net Balance from such distributions and pay to GCI the
excess.
SECTION 7. Rights of the Beneficiaries. This Limited Guaranty is made for
the benefit of, and shall be enforceable by, each Beneficiary as its interest
may appear or by the Agent on behalf of the Beneficiaries.
SECTION 8. Term of Limited Guaranty. This Limited Guaranty and all
guaranties, covenants and agreements of GCI contained herein shall continue in
full force and effect and shall not be discharged until such time as all the
Guaranteed Obligations and all other amounts payable under this Limited Guaranty
(including, but not limited to, all costs and expenses payable pursuant to
Section 1 hereof) shall be indefeasibly paid in full in cash and all the
agreements of GCI hereunder and the Lessee hereunder and under the Lease shall
have been duly performed. If, as a result of any bankruptcy, dissolution,
reorganization, insolvency, arrangement or liquidation proceedings (or
proceedings similar in purpose or effect), or if for any other reason any
payment received by any Beneficiary in respect of the Lease Balance and the
Guaranteed Obligations is rescinded or must be returned by such Beneficiary,
this Limited Guaranty shall continue to be
-8-
<PAGE> 9
Limited Guaranty
effective as if such payment had not been made and, in any event, as provided in
the preceding sentence.
SECTION 9. Agreement of GCI. GCI assumes the responsibility for being and
keeping itself informed of the financial condition of Lessee and of all other
circumstances with respect to the Lease Balance and any of the Guaranteed
Obligations, and GCI agrees that no Beneficiary shall be under any duty to
advise GCI of information known to it regarding such condition or any such
circumstance whether or not any Beneficiary has a reasonable opportunity to
communicate such information or has reason to believe that any such information
is unknown to GCI or materially increases the risk to GCI beyond the risk GCI
intends to assume hereunder.
SECTION 10. Representations and Warranties. GCI hereby represents and
warrants to each Beneficiary as follows:
(a) GCI is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and has
full corporate power and authority to enter into this Limited Guaranty and
to carry out the transactions contemplated hereby.
(b) The execution and delivery by GCI of this Limited Guaranty and
the consummation by GCI of the transactions contemplated hereby have been
duly authorized by all necessary corporate action of GCI. This Limited
Guaranty has been duly executed and delivered by GCI and constitutes the
legal, valid and binding obligation of GCI enforceable against GCI in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or similar laws at the time in effect affecting
the rights of creditors generally and subject to the effects of general
principles of equity (regardless of whether considered in a proceeding in
law or equity).
(c) The execution and delivery of this Limited Guaranty and the
consummation by GCI of the transactions contemplated hereby do not (i)
contravene or result in a default under GCI's articles of incorporation or
bylaws, (ii) contravene or result in a default under any contractual
restriction, law or governmental regulation or court decree or order
binding on GCI, (iii) require any filings, consents or authorizations which
have not been duly obtained or (iv) result in the creation or imposition of
any Lien on GCI's properties, other than Permitted Liens.
-9-
<PAGE> 10
Limited Guaranty
SECTION 11. Further Assurances. GCI hereby agrees to execute and deliver
all such instruments and take all such action as any Beneficiary may from time
to time reasonably request in order to fully effectuate the purposes of this
Limited Guaranty.
SECTION 12. Notices, Etc. All notices, demands, requests, consents,
approvals and other instruments hereunder shall be in writing and shall be
deemed to have been properly given if given as provided for in Section 9.3 of
the Stratosphere Participation Agreement and addressed to GCI as provided below
its signature hereto, or to such other address as GCI may designate by written
notice to Agent.
SECTION 13. Amendments, Etc. No amendment to or waiver of any provision
of this Limited Guaranty, nor consent to any departure by GCI herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Beneficiaries, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 14. Severability. In case any provisions of this Limited Guaranty
or any application thereof shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions and statements
and any other application thereof shall not in any way be affected or impaired
thereby. To the extent permitted by law, GCI hereby waives any provision of law
that renders any term or provision hereof invalid or unenforceable in any
respect.
SECTION 15. Operative Document. This Limited Guaranty is an Operative
Document executed pursuant to Amendment No. 1 and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in accordance
with the terms and provisions hereof and thereof.
SECTION 16. Governing Law. THIS LIMITED GUARANTY HAS BEEN DELIVERED IN
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS LIMITED GUARANTY SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW BUT
EXCLUDING ALL OTHER CHOICE OF LAWS AND CONFLICTS RULES OF SUCH STATE.
SECTION 17. Successors and Assigns. This Limited Guaranty shall be
binding upon GCI and its successors, transferees and assigns and inure to the
benefit of and be enforceable by the respective successors, transferees, and
assigns of the Beneficiaries; provided, however, that GCI may not delegate any
-10-
<PAGE> 11
Limited Guaranty
of its obligations hereunder without the prior written consent of the Trustee
and each Lender.
SECTION 18. Definitions. Capitalized terms used and not otherwise defined
in this Limited Guaranty shall have the meaning assigned to such term in
Appendix 1 to the Stratosphere Participation Agreement.
[Signature page follows]
-11-
<PAGE> 12
Limited Guaranty
IN WITNESS WHEREOF, GCI has caused this Guaranty to be executed as of the
date first above written.
GRAND CASINOS, INC.
By: /s/ Timothy J. Cope
-------------------------------
Name: Timothy J. Cope
Title: CFO
Address: 13705 First Avenue North
--------------------------
Minneapolis, MN 55441
--------------------------
Telephone: (612) 449-7030
------------------------
Facsimile: (612) 449-7064
------------------------
Attention: Timothy J. Cope
------------------------
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 128,556
<SECURITIES> 0
<RECEIVABLES> 15,094
<ALLOWANCES> 0
<INVENTORY> 5,766
<CURRENT-ASSETS> 181,200
<PP&E> 920,307
<DEPRECIATION> 71,498
<TOTAL-ASSETS> 1,132,378
<CURRENT-LIABILITIES> 98,253
<BONDS> 454,606
0
0
<COMMON> 418
<OTHER-SE> 452,571
<TOTAL-LIABILITY-AND-EQUITY> 1,132,378
<SALES> 142,170
<TOTAL-REVENUES> 152,339
<CGS> 51,345
<TOTAL-COSTS> 111,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,646
<INCOME-PRETAX> 23,742
<INCOME-TAX> 9,161
<INCOME-CONTINUING> 14,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,581
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
