<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998
REGISTRATION NO. 333-39009
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
GRAND CASINOS, INC. 41-1689535
GRAND CASINOS RESORTS, INC. 41-1730234
GRAND CASINOS OF MISSISSIPPI, INC. -- GULFPORT 41-1726210
GRAND CASINOS OF MISSISSIPPI, INC. -- BILOXI 41-1726211
GRAND CASINOS BILOXI THEATER, INC. 41-1790979
BL DEVELOPMENT CORP. 41-1754530
GRAND CASINOS NEVADA I, INC. 41-1836869
BL RESORTS I, LLC 41-1891523
GCG RESORTS I, LLC 41-1891522
MILLE LACS GAMING CORPORATION 41-1683724
GRAND CASINOS OF LOUISIANA, INC. -- TUNICA -- BILOXI 41-1705810
GRAND CASINOS OF LOUISIANA, INC. -- COUSHATTA 41-1705808
GCA ACQUISITION SUBSIDIARY, INC. 41-1815669
(EXACT NAME OF REGISTRANTS AS (I.R.S. EMPLOYER
SPECIFIED IN THEIR CHARTERS) IDENTIFICATION NUMBERS)
</TABLE>
MINNESOTA
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION OF ALL REGISTRANTS)
------------------------
THOMAS J. BROSIG
PRESIDENT
GRAND CASINOS, INC.
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
(612) 574-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
RUSSELL F. LEDERMAN, ESQ.
NEIL P. AYOTTE, ESQ.
MASLON EDELMAN BORMAN & BRAND, LLP
3300 NORWEST CENTER
MINNEAPOLIS, MINNESOTA 55402
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practical after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION, DATED JANUARY 15, 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING
9% SERIES A SENIOR NOTES DUE 2004
IN EXCHANGE FOR 9% SERIES B SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OF
GRAND CASINOS, INC.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998
UNLESS EXTENDED
- --------------------------------------------------------------------------------
Grand Casinos, Inc., a Minnesota corporation, (the "Company"), together
with Grand Casinos Resorts, Inc., Grand Casinos of Mississippi, Inc. --
Gulfport, Grand Casinos of Mississippi, Inc. -- Biloxi, Grand Casinos Biloxi
Theater, Inc., Mille Lacs Gaming Corporation Grand Casinos of Louisiana, Inc. --
Tunica -- Biloxi, Grand Casinos of Louisiana, Inc. -- Coushatta, GCA Acquisition
Subsidiary, Inc., BL Development Corp., Grand Casinos Nevada I, Inc., BL Resorts
I, LLC, GCG Resorts I, LLC and GCA Acquisition Subsidiary, Inc., (each a
"Guarantor," and, collectively, the "Guarantors"), hereby offer, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange with the Eligible Holders (defined below) thereof, its 9% Series B
Senior Notes Due 2004 (the "New Notes") for an equal principal amount of its
outstanding 9% Series A Senior Notes Due 2004 (the "Old Notes"), of which an
aggregate of $115,000,000 in principal amount is outstanding as of the date
hereof. The Old Notes and the New Notes are collectively referred to herein as
the "Notes." See "THE EXCHANGE OFFER." For purposes of this Exchange Offer,
"Eligible Holder" shall mean the record owner of any Old Notes that remain
Transfer Restricted Securities. For purposes of this Exchange Offer, "Transfer
Restricted Securities" is defined in the Registration Rights Agreement, dated as
of October 16, among the Company, the Guarantors and the original purchasers of
the Old Notes (the "Registration Rights Agreement"). No proxies are being
solicited by the Company in connection with the Exchange Offer. The Notes are
full and unconditional, and joint and several obligations of the Guarantors.
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 p.m., New York City time, on , 1998 (if and
as extended, the "Expiration Date"). Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. Old Notes may be tendered only in integral
multiples of $1,000.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NEITHER THE MISSISSIPPI GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD
NOR THE NEVADA GAMING COMMISSION NOR ANY OTHER GAMING AUTHORITY HAS PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE
SECURITIES OFFERED HEREBY.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the offering of the
New Notes will have been registered under the Securities Act. The Old Notes have
been, and the New Notes will be, issued under the Indenture, dated as of October
16, 1997, (the "Indenture"), among the Company, the Guarantors, and Firstar Bank
of Minnesota, N.A., as Trustee (the "Trustee").
The New Notes will bear interest from and including their respective dates
of issuance. Eligible Holders whose Old Notes are accepted for exchange will
have the right to receive interest accrued thereon from the last Interest
Payment Date (as defined in "DESCRIPTION OF THE NEW NOTES AND GUARANTY") to, but
not including, the date of issuance of the New Notes, such interest to be
payable with the first interest payment on the New Notes to the holder of the
New Notes, and will be deemed to have waived the right to receive interest on
the Old Notes accrued on and after issuance of the New Notes.
The New Notes will bear interest at the same rate and on the same terms as
the Old Notes. The New Notes will bear interest at a rate equal to 9% per annum.
Interest on the New Notes will be payable semiannually in arrears on April 15
and October 15 of each year, or if any such date is not a business day, on the
next succeeding business day, commencing on the first such date following the
Expiration Date. See "DESCRIPTION OF THE NEW NOTES AND GUARANTEES."
The New Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after October 15, 2001 (the "First Optional
Redemption Date") in cash at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages (as defined), if any, thereon
to the date of redemption. In addition, at any time prior to the First Optional
Redemption Date, the Company may, at its option, redeem the New Notes, in whole
or in part, at a redemption price equal to 100% of the aggregate principal
amount thereof, plus the applicable Make-Whole Premium (as defined). In
addition, upon the occurrence of a Change of Control (as defined), each holder
of New Notes will have the right to require the Company to repurchase all or any
part of such holder's New Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. See "DESCRIPTION OF
THE NEW NOTES AND GUARANTEES -- REPURCHASE AT THE OPTION OF HOLDERS -- CHANGE OF
CONTROL." There can be no assurance that, in the event of a Change of Control,
the Company would have sufficient funds to purchase all Senior Notes tendered.
See "RISK FACTORS -- Risks of Leveraged Financial Position -- Ability to Service
Debt."
The Notes are unconditionally guaranteed by all significant subsidiaries of
the Company. See "DESCRIPTION OF THE NEW NOTES AND GUARANTEES -- Note
Guarantees."
(continued on next page)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in various no-action letters issued to
third parties, including Morgan Stanley and Co., Inc. (available June 5, 1991)
and Exxon Capital Holdings (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange for
Old Notes may be offered for resale, resold, and otherwise transferred by a
holder thereof (other than, (i) a broker-dealer who purchases such New Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the New Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
the Company, as required by the Registration Rights Agreement, that such
conditions have been met.
UNDER NO CIRCUMSTANCES MAY THIS PROSPECTUS BE USED FOR AN OFFER TO RESELL,
RESALE OR OTHER RETRANSFER OF NEW NOTES. THE COMPANY BELIEVES THAT, SUBJECT TO
THE LIMITATIONS AND CONDITIONS SET FORTH IN THE PRECEDING PARAGRAPH, NEW NOTES
ISSUED PURSUANT TO THE EXCHANGE OFFER MAY BE TRANSFERRED WITHOUT COMPLIANCE WITH
THE PROSPECTUS DELIVERY PROVISIONS OF THE SECURITIES ACT. THE COMPANY FORMED
SUCH BELIEF BASED ON NO-ACTION LETTERS ISSUED BY THE COMMISSION STAFF TO THIRD
PARTIES, WHICH ARE NOT RULINGS OF THE COMMISSION OR ITS STAFF. IN THE EVENT THAT
THE COMPANY'S BELIEF IS INACCURATE, HOLDERS WHO TRANSFER NEW NOTES IN VIOLATION
OF THE PROSPECTUS DELIVERY PROVISIONS OF THE SECURITIES ACT AND WITHOUT AN
EXEMPTION FROM REGISTRATION THEREUNDER MAY INCUR LIABILITY THEREUNDER. THE
COMPANY DOES NOT ASSUME OR INDEMNIFY HOLDERS AGAINST ANY SUCH LIABILITY,
ALTHOUGH THE COMPANY DOES NOT BELIEVE THAT ANY SUCH LIABILITY SHOULD EXIST.
As of the Record Date (as defined in "THE EXCHANGE OFFER -- Terms of the
Exchange Offer") of this Prospectus, there were registered holders of Old Notes.
The Company believes that, as of the date of this Prospectus, none of such
holders is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company. Prior to this Exchange Offer, there has been no
public market for the Notes. The Company does not expect an active public market
for the New Notes to develop. To the extent that a market for the New Notes does
develop, the market value of the New Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions, the
Company's financial condition, and other factors. Such conditions might cause
the New Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "RISK FACTORS -- Absence of Public
Market."
Neither the Company nor the Guarantors will receive any proceeds from this
offering, but, pursuant to the Registration Rights Agreement, the Company and
the Guarantors will be responsible for certain offering expenses. No underwriter
is being utilized in connection with the Exchange Offer.
As of September 28, 1997, on a pro forma basis after giving effect to the
issuance of the Old Notes and the application of the net proceeds thereof, the
Company and its subsidiaries (excluding Stratosphere Corporation) would have had
(i) total indebtedness of approximately $570.8 million, which includes the
Company's $450 million 10 1/8% First Mortgage Notes due 2003 (the "First
Mortgage Notes"), the New Notes and approximately $5.8 million of other Senior
Indebtedness (as defined), including capitalized lease obligations and (ii) no
Subordinated Indebtedness (as defined). The Company owns approximately 42%
interest in Stratosphere Corporation ("Stratosphere"), which filed for
reorganization under Chapter 11 of the Bankruptcy Code on January 27, 1997. In
connection with the closing of Stratosphere's First Mortgage Notes in 1995, the
Company delivered a Standby Equity Commitment pursuant to which the Company may,
under the terms and conditions described in the Standby Equity Commitment, be
obligated to purchase up to $20 million of additional equity in Stratosphere
during each of the first three years (up to $60 million total) Stratosphere is
operating to the extent Stratosphere's consolidated cash flow did not reach $50
million in each of such years. As a result of Stratosphere's Chapter 11 filing
and the application of the federal bankruptcy laws, the continued enforceability
of the Standby Equity Commitment is in question. The foregoing pro forma
indebtedness does not give effect to any potential Company liability under the
Standby Equity Commitment.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER.
The date of this prospectus is , 1998.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
RECENT DEVELOPMENTS......................................... 3
THE COMPANY................................................. 4
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER.................. 5
CONSEQUENCES OF EXCHANGING OLD NOTES........................ 8
SUMMARY DESCRIPTION OF THE NEW NOTES........................ 9
RISK FACTORS................................................ 11
THE EXCHANGE OFFER.......................................... 18
DESCRIPTION OF THE NEW NOTES AND GUARANTEES................. 25
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................... 55
LEGAL MATTERS............................................... 58
EXPERTS..................................................... 58
</TABLE>
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE FROM TIMOTHY J.
COPE, CHIEF FINANCIAL OFFICER, GRAND CASINOS, INC., 130 CHESHIRE LANE,
MINNETONKA, MINNESOTA 55305, (612) 449-9092.
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company can
be inspected and copied at the public reference facilities of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549, as well
as at the following Regional Offices: Seven World Trade Center, 13th Floor, New
York, NY 10148 and 500 West Madison Street -- Suite 1400, Chicago, IL 60661.
Copies can be obtained from the Commission by mail at prescribed rates. Requests
should be directed to the Commission's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549. In addition, such
material may also be accessed electronically at the Commission's site on the
Work Wide Web located at http://www.sec.gov.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, whether
or not it is required to do so by the rules and regulations of the Commission,
for so long as any of the Notes remain outstanding, it will furnish to each of
the holders of Notes and file with the Commission (unless the Commission will
not accept such a filing) (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" that describes the financial condition and results of operations of
the Company and its Restricted Subsidiaries, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the Commission
for so long as any of the Notes remain outstanding, the Company shall make such
information available to security analysts and prospective investors upon
request. In addition, the Company and the Guarantors have agreed that, for so
long as any of the Notes remain outstanding, they will furnish to holders and to
securities analysts and prospective investors of the Notes the information
required by Rule 144A(d)(4) under the Securities Act.
This Prospectus is part of a Registration Statement on Form S-4 (together
with all amendments and exhibits thereto, the "Registration Statement") which
the Company and the Guarantors have jointly filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the New
Notes offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company filed with the Securities and
Exchange Commission are incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 29,
1996.
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 30, 1997, June 29, 1997 and September 28, 1997.
(iii) The Proxy Statement for the Annual Meeting of Shareholders held
on May 9, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus. All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, and prior to the completion of the offering shall be deemed to be
incorporated herein by reference.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written request of such person, a copy of any
or all of the documents incorporated by reference into this Prospectus (not
including certain exhibits to such documents). Written requests for such copies
should be directed to Timothy J. Cope, 130 Cheshire Lane, Minnetonka, Minnesota
55305.
2
<PAGE> 6
RECENT DEVELOPMENTS
RECENT AMENDMENT TO SCHEDULE 13D. On January 13, 1998, the Company filed an
amendment to its report on Schedule 13D with respect to its investment in Casino
Magic Corp. ("CMC"). The Company beneficially owns 2,125,000 shares of CMC
common stock (the "CMC Shares"), or approximately 5.95% of the 35,722,124 shares
of CMC common stock outstanding on September 30, 1997. On May 26, 1995, Gaming
Corporation of America, a Minnesota corporation ("GCA"), acquired the CMC Shares
in consideration of the transfer to CMC of all of the issued and outstanding
stock of GCA's wholly-owned subsidiary, Casino One Corporation. On November 30,
1995, the Company acquired GCA.
On March 18, 1997, Grand signed a Confidentiality Agreement (the "CMC
Confidentiality Agreement") with CMC's financial advisor. The Company did not
pursue any possible transaction with CMC at that time. In the middle of December
1997, the Company began to evaluate its investment in CMC. Part of the Company's
evaluation resulted in discussions with CMC regarding its investment in CMC. On
December 9, 1997, the Company reaffirmed in writing the terms and conditions of
the CMC Confidentiality Agreement. The Company and CMC entered into an
additional Confidentiality Agreement on December 12, 1997.
Depending on the outcome of these discussions and on the Company's analysis
of CMC and the market, the Company may determine to sell its securities, to make
a proposal to acquire more securities of CMC or to maintain its current
ownership position. The Company does not, in any event, intend to attempt to
change directors or influence control of CMC unless it is accomplished pursuant
to a proposal to acquire CMC approved by CMC's Board of Directors. On the basis
of its analysis of, and discussions with, CMC, the Company believes any
substantial change in the trading price of either the Company's or CMC's stock
could decrease the likelihood of any possible acquisition of CMC. The Company
has not entered into any definitive agreements regarding the foregoing other
than the referenced Confidentiality Agreements and there can be no assurance
there will be any others.
ACQUISITION INQUIRIES. From time to time, the Company has engaged in
informal discussions with various third parties with respect to various
strategic growth opportunities, potential joint ventures, business combinations
and other acquisition opportunities, some of which could result in a merger,
sale or a change of control involving the Company. Except as otherwise described
herein, the Company currently has no present intention, agreements or
commitments to affect any transactions of this nature. In addition, there can be
no assurance that any such discussions would result in an agreement with respect
to the foregoing, or, if any agreement were to be reached, that any such
transaction could be consummated in a timely manner, if at all.
3
<PAGE> 7
THE COMPANY
Grand Casinos, Inc. (the "Company") is a casino entertainment company that
develops, constructs and manages land-based and dockside casinos in emerging
gaming markets. The Company's strategy is to distinguish itself within its
markets by offering superior facilities with extensive nongaming amenities,
combined with experienced corporate and casino management and comprehensive
marketing programs.
The Company owns and operates Grand Casino Biloxi and Grand Casino
Gulfport, the two largest casinos on the Mississippi Gulf Coast. Grand Casino
Gulfport opened on May 14, 1993 and Grand Casino Biloxi opened on January 17,
1994.
The Company manages two land-based, Indian-owned casinos in Minnesota:
Grand Casino Mille Lacs in Onamia, Minnesota, and Grand Casino Hinckley in
Hinckley, Minnesota. With over 86,000 square feet of combined gaming space,
Grand Casino Mille Lacs and Grand Casino Hinckley rank among Minnesota's largest
Indian gaming enterprises. In addition, the Company manages two land-based,
Indian-owned casinos in Louisiana: Grand Casino Avoyelles, in Marksville,
Louisiana, for the Tunica-Biloxi Tribe and Grand Casino Coushatta, in Kinder,
Louisiana, for the Coushatta Tribe.
Grand Casino Tunica opened on June 24, 1996 and is the largest dockside
casino in Mississippi and one of the largest casinos in the United States. The
Company is developing Grand Casino Tunica into a destination gaming resort
featuring a multi-themed casino. Grand Casino Tunica currently features two
hotels with an aggregate of 766 rooms. Other amenities include a Grand Casino
Kids Quest(sm) child care facility, a Grand Arcade, and valet and self-parking
for approximately 5,400 vehicles. Additions currently under construction include
an 18-hole professionally designed championship golf course and driving range, a
recreational vehicle park and a convention facility. Grand Casino Tunica offers
a 400,000-square-foot, three-story, multi-themed casino complex containing
approximately 140,000 square feet of gaming space with approximately 3,000 slot
machines and 108 table games.
The Company owns approximately 42 percent 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 has made total capital contributions to the Stratosphere project of
approximately $107.6 million and has outstanding advances to Stratosphere of
$50.0 million. The Company has written off or reserved for these investments and
other related costs in the project as of December 29, 1996, in the amount of
$161.8 million and has included this amount in the Company's 1996 fiscal year
results in the Consolidated Financial Statements incorporated by reference
herein, in project write-downs.
The Company periodically evaluates its development program and may
determine to complete projects or may determine not to develop any project,
based upon market, financial, or regulatory factors. No assurance can be given
that any of these projects will be completed as scheduled or contemplated.
4
<PAGE> 8
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
THE EXCHANGE OFFER......... The Company is offering to exchange $1,000
principal amount of its New Notes for each $1,000
principal amount of its outstanding Old Notes that
are properly tendered and accepted. As of the date
of this Prospectus, $115,000,000 in aggregate
principal amount of Old Notes were outstanding,
which is the maximum amount authorized in aggregate
by the Indenture for all Notes. As of the Record
Date, there were registered holders
of Old Notes.
EXPIRATION DATE............ 5:00 p.m., New York City time, on
, 1998 (the "Expiration Date").
See "THE EXCHANGE OFFER -- Terms of the Exchange
Offer; Expiration Date; Termination."
ACCRUED INTEREST ON THE NEW
NOTES AND OLD NOTES...... The New Notes will bear interest from their
respective issuance dates at the same rate and upon
the same terms as the Old Notes. Eligible Holders
whose Old Notes are accepted for exchange will
receive accrued but unpaid interest thereon to, but
not including, the issuance date of the New Notes
and will be deemed to have waived the right to
receive any payment in respect of interest on the
Old Notes accrued from and after the date of
issuance of the New Notes. Such accrued but unpaid
interest on the Old Notes will be payable with the
first interest payment on the New Notes to the
holder of the New Notes.
CONDITIONS OF THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, including (i) no commencement of any
action, legal or governmental, with respect to the
Exchange Offer or which the Company reasonably
determines would make it inadvisable to proceed
with the Exchange Offer, (ii) no banking moratorium
or similar event or international calamity
involving the United States, and (iii) no change in
the business or prospects of the Company that may
have a material adverse effect on the Company. The
Company expects that the foregoing conditions will
be satisfied. All such conditions may be waived by
the Company. Eligible Holders of Old Notes may have
certain rights and remedies against the Company
under the Registration Rights Agreement should the
Company fail to consummate the Exchange Offer. See
"THE EXCHANGE OFFER -- Conditions of the Exchange
Offer."
PROCEDURES FOR TENDERING
OLD NOTES.................. Each Eligible Holder wishing to accept the Exchange
Offer must complete and sign the Letter of
Transmittal, have the signature thereon guaranteed
if required by Instruction 5 of the Letter of
Transmittal and mail or deliver the Letter of
Transmittal, together with the Old Notes (or a
Notice of Guaranteed Delivery) and any other
required documents (such as evidence of authority
to act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent at the address set
forth herein and in the Letter of Transmittal on or
prior to the Expiration Date. Any beneficial owner
(as described in "THE EXCHANGE OFFER -- Procedures
for Tendering
5
<PAGE> 9
Old Notes") of Old Notes whose Old Notes are
registered in the name of a nominee, such as a
broker, dealer, commercial bank or trust company
and who wishes to tender Old Notes in the Exchange
Offer should contact such entity or person promptly
and instruct them to tender on such beneficial
owner's behalf.
Certain brokers, dealers, commercial banks, trust
companies and other nominees who hold Old Notes
through the Depositary Trust Company (the
"Book-Entry Transfer Facility") must effect tenders
by book-entry through the Book-Entry Transfer
Facility's automated tender offer program ("ATOP").
Tendering Eligible Holders of Old Notes wishing to
accept the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile
together with either certificates for such Old
Notes or, if tendering through ATOP, a Book-Entry
Confirmation (as defined herein) of such Old Notes
into the Book-Entry Transfer Facility, if such
procedure is available, and any other required
documentation to the exchange agent (the "Exchange
Agent") at the address set forth herein. Tendering
holders of Old Notes that use ATOP will, by so
doing, acknowledge that they are bound by the terms
of the Letter of Transmittal. See "THE EXCHANGE
OFFER -- Procedures for Tendering Old Notes." By
executing the Letter of Transmittal, each Holder
will represent to the Company, among other things,
that (i) the New Notes acquired pursuant to the
Exchange Offer by the Holder and any other person
are being obtained in the ordinary course of
business of the person receiving such New Notes,
(ii) neither the Holder nor such other person is
participating in, intends to participate in or has
an arrangement or understanding with any person to
participate in the distribution of such New Notes
and (iii) neither the Holder nor such other person
is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker or dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
New Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a
broker or dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer --
Procedures for Tendering Old Notes" and "PLAN OF
DISTRIBUTION."
GUARANTEED DELIVERY
PROCEDURES............... Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes, Letter of Transmittal and any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "THE EXCHANGE OFFER -- Guaranteed Delivery
Procedures."
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<PAGE> 10
WITHDRAWAL OF TENDERS...... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "THE EXCHANGE OFFER --
Withdrawal Rights."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.... Subject to the satisfaction or waiver of all
conditions of the Exchange Offer, the Company will
accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
Offer will be delivered in exchange for the
applicable Old Notes accepted in the Exchange Offer
promptly following the Expiration Date. See "THE
EXCHANGE OFFER -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............. For a discussion of certain federal income tax
consequences of the exchange of the Old Notes, see
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
EXCHANGE AGENT............. Firstar Bank of Minnesota, N.A., is the Exchange
Agent. The address and telephone number of the
Exchange Agent are set forth in "THE EXCHANGE OFFER
-- Assistance."
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<PAGE> 11
CONSEQUENCES OF EXCHANGING OLD NOTES
Eligible Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "REGISTRATION RIGHTS."
Based on interpretations by the staff of the Commission issued to third parties,
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by Eligible Holders thereof
(other than any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such Eligible
Holders' business and such Eligible Holders have no arrangement with any person
to participate in the distribution of such New Notes. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of New Notes. If any Holder is an affiliate of the
Company or is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities.
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<PAGE> 12
SUMMARY DESCRIPTION OF THE NEW NOTES
ISSUER..................... The Company
GUARANTOR.................. The Guarantors
SECURITIES OFFERED......... Up to $115 million aggregate principal amount of
New Notes, less the principal amount of Old Notes
not exchanged. See "DESCRIPTION OF THE NEW NOTES
AND GUARANTEES."
COMPARISON OF NEW NOTES TO
OLD NOTES................ The form and terms of the New Notes will be
identical in all material respects to the form and
terms of the Old Notes, except that the offering
and sale of the New Notes will have been registered
under the Securities Act. The rights of the holders
of New Notes and the holders of Old Notes will be
identical in all material respects.
INTEREST PAYMENT DATES..... April 15 and October 15 of each year, or if any
such date is not a business day, on the next
succeeding business day, commencing on the first
such date following the Expiration Date.
INTEREST RATE.............. The New Notes will bear interest payable in cash
from their respective dates of issuance at the same
rate and upon the same terms as the Old Notes. The
New Notes will bear interest at a rate equal to 9%
per annum.
MATURITY DATE.............. October 15, 2004.
MANDATORY REDEMPTION....... The Company will not be required to make mandatory
redemption or sinking fund payments prior to
maturity with respect to the New Notes. The New
Notes will not be redeemable at the option of the
Company before the First Optional Redemption Date.
The First Optional Redemption Date for the New
Notes will be October 15, 2001. From and after such
First Optional Redemption Date, the New Notes will
be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at a premium over
the principal amount thereof, declining ratably to
par until maturity, plus accrued and unpaid
interest and Liquidated Damages, if any.
RANKING.................... The New Notes will rank senior in right of payment
to all Subordinated Indebtedness of the Company.
Each Note Guarantee will rank senior in right of
payment to all Subordinated Indebtedness of the
respective Guarantor. The New Notes will be
unsecured. The New Notes and the Note Guarantees
will be effectively subordinated in right of
payment to secured Indebtedness of the Company and
the Guarantors, respectively, to the extent of the
assets securing such Indebtedness.
GUARANTY................... The New Notes are full and unconditional, joint and
several obligations of the Guarantors (as are the
Old Notes), and each Note Guarantee will be a
senior unsecured obligation of the respective
Guarantor. Strato-
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<PAGE> 13
sphere Corporation will not be a Guarantor and will
be an Unrestricted Subsidiary under the Indenture.
The obligations of each Guarantor under its Note
Guarantee will be limited to the extent necessary
under any applicable corporate law to ensure it
does not constitute a fraudulent conveyance under
applicable law.
PRINCIPAL COVENANTS........ The Indenture contains covenants relating to
certain business, financial and operating matters
of the Guarantors and the Company, including,
without limitation, a prohibition against (i)
Restricted Payments (as defined); (ii) the
incurrence of any Indebtedness (including Acquired
Indebtedness or Deemed Incurred Indebtedness) (as
defined) or any shares of Disqualified Stock (as
defined); or (iii) the creation or incurrence of
any Lien that secures obligations under any
Indebtedness, except Permitted Liens, and, except
in the case of clause (i) and (ii), under certain
specified circumstances. In addition, the Indenture
provides that the Company will not merge or
consolidate with or into, or dispose of all or
substantially all of its assets to, any person
unless certain conditions are met. See "DESCRIPTION
OF THE NEW NOTES AND GUARANTEES -- Certain
Covenants."
CHANGE OF CONTROL.......... In the event there is a Change of Control (as
defined), the Company is required to offer to
redeem all of the New Notes then outstanding at a
purchase price equal to 101% of principal amount of
New Notes, plus in each case accrued and unpaid
interest thereon.
For additional information regarding the New Notes, see "DESCRIPTION OF THE
NEW NOTES AND GUARANTEES."
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<PAGE> 14
RISK FACTORS
Eligible Holders should carefully consider, among other factors, the
following:
RISKS OF LEVERAGED FINANCIAL POSITION. The Company has substantial annual
debt service along with other operating expenses. As of September 28, 1997,
(excluding Stratosphere Corporation) the Company's pro forma ratio of
indebtedness to total capital, after giving effect to the issuance of the Old
Notes and the application of the net proceeds thereof, was approximately .53x.
Additionally, as of September 28, 1997, on a pro forma basis, the Company had
total indebtedness of approximately $570.8 million, which includes the Company's
$450 million First Mortgage Notes and approximately $5.8 million of other senior
indebtedness, including capitalized lease obligations. The Company may have
additional contingent obligations with respect to Stratosphere. In connection
with the closing of Stratosphere's First Mortgage Notes in 1995, the Company
delivered a Standby Equity Commitment pursuant to which the Company may be
obligated to purchase up to $20 million of additional equity in Stratosphere
during each of the first three years (up to $60 million total) Stratosphere is
operating to the extent Stratosphere's consolidated cash flow did not reach $50
million in each of such years. As a result of Stratosphere's Chapter 11 filing
and the application of the federal bankruptcy laws, the continued enforceability
of the Standby Equity Commitment is in question.
POTENTIAL INABILITY TO SERVICE DEBT. The First Mortgage Notes are senior
obligations of the Company and rank pari passu in right of payment with all
other senior indebtedness. The First Mortgage Notes and certain other permitted
senior indebtedness, including a senior credit facility, are secured on an equal
and ratable basis (with certain exceptions) by substantially all of the assets
of the Company and the stock of certain of the Company's wholly owned
subsidiaries. The ability of the Company to make interest payments on the First
Mortgage Notes, the New Notes and other indebtedness will depend on its ability
to generate sufficient cash flows from operations. There can be no assurance
that the Company will be able to generate sufficient cash flows from operations
to make interest payments on the First Mortgage Notes and such other
indebtedness.
RISK OF INCURRENCE OF ADDITIONAL DEBT. The indenture pursuant to which the
First Mortgage Notes were issued (the "First Mortgage Notes Indenture") permits,
under certain circumstances, additional first mortgage indebtedness which would
be collateralized and rank pari passu with the First Mortgage Notes. Such
incurrence will also be subject to certain other conditions. In addition, the
First Mortgage Notes Indenture permits the Company and its subsidiaries, under
certain circumstances, to incur additional unsecured indebtedness, or
indebtedness secured by assets that do not constitute collateral for the First
Mortgage Notes or other senior indebtedness, such as future gaming facilities
owned or operated by the Company. The ability of the Company to satisfy its
obligations relating to any additional indebtedness will depend on its operating
cash flow. Any inability of the Company to satisfy such debt obligations could
adversely affect the Company's ability to conduct its operations or finance its
capital needs.
RANKING; EFFECT OF BANKRUPTCY. The New Notes will rank senior in right of
payment to all Subordinated Indebtedness of the Company, and each Note Guarantee
will rank senior in right of payment to all Subordinated Indebtedness of the
respective Guarantor. The New Notes and the Note Guarantees will be effectively
subordinated in right of payment to secured Indebtedness of the Company and
Guarantors, respectively, to the extent of the assets securing such
Indebtedness. The Notes are general unsecured obligations of the Company. As a
result, in the event of any insolvency, liquidation or reorganization of the
Company or upon acceleration of the Notes due to an Event of Default (as defined
in the Indenture), the assets of the Company will be available to pay
obligations on the Notes only after all secured Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes then outstanding.
CHANGE OF CONTROL PUT RIGHTS; LIMITATIONS ON THE COMPANY'S REPURCHASE
OBLIGATION. Upon the occurrence of a Change of Control (as defined), the Company
will make an offer to purchase all or any part of the Notes pursuant to a Change
of Control Offer (as defined), at a price in cash (the "Change of Control
Payment") equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages (as defined), if any, to the date of
purchase. The existence of a holder's right to require the Company to repurchase
such holder's Notes upon the occurrence of a Change of Control may deter a third
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<PAGE> 15
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control. The source of funds for any repurchase of Notes upon a
Change of Control will be the Company's cash or cash generated from operations
or other sources, including borrowings, sales of assets or Capital Stock.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases. Any failure
by the Company to repurchase Notes tendered pursuant to a Change of Control
Offer will be deemed an Event of Default (as defined).
GAMING INDUSTRY IS HIGHLY COMPETITIVE. The gaming industry is highly
competitive. Gaming activities include traditional land-based casinos; riverboat
and dockside gaming; casino gaming on Indian land; state-sponsored lotteries and
video poker in restaurants, bars and hotels; parimutuel betting on horse racing,
dog racing and jai-alai; sports bookmaking; and card rooms. The casinos owned,
managed and being developed by the Company compete, and will in the future
compete, with all these forms of gaming, and will compete with any new forms of
gaming that may be legalized in additional jurisdictions, as well as with other
types of entertainment. Several large, well capitalized and experienced gaming
operators have announced plans to enter the already highly competitive
Mississippi Gulf Coast market. The Tunica Mississippi gaming market is also
highly competitive. The Company also competes with other gaming companies for
opportunities to acquire legal gaming sites in emerging and established gaming
jurisdictions and for the opportunity to manage casinos on Indian land. Some of
the competitors of the Company have more personnel and greater financial and
other resources than the Company. Such competition in the gaming industry could
adversely affect the Company's ability to attract customers and thus, adversely
affect its operating results. In addition, further expansion of gaming into new
jurisdictions could also adversely affect the Company's business by diverting
its customers to competitors in such jurisdictions.
HIGHLY REGULATED INDUSTRY. The ownership, management and operation of
gaming facilities are subject to extensive federal, state, provincial, tribal
and/or local laws, regulations, and ordinances, which are administered by the
relevant regulatory agency or agencies in each jurisdiction (the "Regulatory
Authorities"). These laws, regulations and ordinances vary from jurisdiction to
jurisdiction, but generally concern the responsibility, financial stability and
character of the owners and managers of gaming operations as well as persons
financially interested or involved in gaming operations.
MANAGEMENT CONTRACTS OF LIMITED DURATION. The Company cannot have an
ownership interest in any casino it manages for Indian tribes. The management
contracts for the various Indian-owned casinos that the Company manages for
Indian tribes generally have a term of seven years. The management contracts for
Grand Casino Mille Lacs and for Grand Casino Hinckley expire April 2, 1998 and
May 15, 1999, respectively, and the management contracts for Grand Casino
Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002,
respectively. There can be no assurance that any of these agreements or any
other management contract will he renewed upon expiration or approved by the
National Indian Gaming Commission ("NIGC") upon any such review. The failure to
renew the Company's management contracts would result in the loss of revenues to
the Company derived from such contracts, which would have an adverse effect on
the Company's results of operations. For the fiscal year ended December 29,
1996, aggregate revenue derived from the Company's management contracts at these
two casinos was approximately $27.1 million and for the nine month period ended
September 28, 1997, aggregate revenue was approximately $25.0 million. The
Coushatta Tribe and the Tunica-Biloxi Tribe each entered into tribal-state
compacts with the State of Louisiana on September 29, 1992. These compacts were
approved in November, 1992 by the Secretary of the Interior. These compacts
expire in November, 1999 and will automatically renew for additional seven year
terms unless either the tribes or the State of Louisiana delivers to the other
prior written notice of non-renewal. The Company's management agreements with
the Tunica-Biloxi Tribe and the Coushatta Tribe expire after November 1999. In
the event the compacts are not renewed, legal gaming will not be permitted at
Grand Casino Avoyelles or Grand Casino Coushatta. There can be no assurance that
these compacts will be renewed on terms and conditions acceptable to either of
the tribes.
MANAGEMENT CONTRACTS SUBJECT TO GOVERNMENTAL MODIFICATION. NIGC has the
power to require modifications to Indian management contracts under certain
circumstances or to void such contracts or ancillary agreements including loan
agreements if the management company falls to obtain requisite approvals or to
comply with applicable laws and regulations. While the Company believes that its
management contracts
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<PAGE> 16
meet the requirements of the Indian Gaming Regulatory Act (the "IGRA"), NIGC has
the right to review each contract and has the authority to reduce the term of a
management contract or the management fee or otherwise require modification of
the contract, which could have an adverse effect on the Company. In addition,
the Company has made loans to Indian tribes which, in the aggregate, exceed the
loan ceilings set forth in each of the Indian management contracts by a total of
approximately $19.7 million. Under certain circumstances, these loans may not be
enforceable by the Company.
LIMITED RECOURSE AGAINST TRIBAL ASSETS. The Company has made, and will
make, substantial loans to tribes for the construction, development, equipment
and operations of casinos managed and to be managed by the Company. Although
these loans are generally secured, in most instances, the Company has
subordinated its security interest to other indebtedness of the tribe, which, in
turn, has been guaranteed by the Company. The Company's only recourse for
collection of indebtedness from a tribe or money damages for breach or wrongful
termination of a management contract is from revenues, if any, from casino
operations. The Company has subordinated, and may in the future subordinate, the
repayment of the Company's loans to a tribe and other distributions due to the
Company from a tribe in favor of other obligations of the tribe related to the
casino operations. Accordingly, in the event of a default by a tribe, the
Company's loans and other claims against the tribe will not be repaid until such
default has been cured or the tribe's senior casino-related creditors have been
repaid in full.
GRAND CASINO GULFPORT -- POTENTIAL EARLY TERMINATION OF LEASE. On May 21,
1992, the Company entered into a lease (the "Port Lease") with the Mississippi
State Port Authority (the "Authority") for the Grand Casino Gulfport mooring
site and adjoining land for five years with renewal options totaling 45 years.
The Authority has the option to cancel the Port Lease at any time upon 12
months' written notice if the Authority expands its own facilities to handle
expanded shipping and related commerce activities. The Authority's liability to
Grand Casino Gulfport upon such cancellation is limited to the depreciated value
of the leased property (which does not include the casino). Although the Company
does not believe that the Authority will exercise its option to cancel the Port
Lease, any such cancellation would require the Company to find substitute
property suitable for mooring Grand Casino Gulfport, which, if not then
available on terms acceptable to the Company, would cause Grand Casino Gulfport
to cease operations. In addition, all mooring sites would need to be approved by
the Mississippi Gaming Commission.
BILOXI SUBMERGED LAND LEASE RENTAL ADJUSTMENT. Grand Casino Biloxi's
submerged land lease with the State of Mississippi provides that rent will be
adjusted every 5 years. The rent will be required to be adjusted for the five
year term beginning January 28, 1998. The rent is currently $700,000 per annum.
The original rent was set, in part, based upon appraisals of the submerged land
value in 1993. The rent may be substantially increased for the next five year
term. If Grand Casino Biloxi cannot come to an agreement with the lessor, the
lessor may terminate the submerged land lease.
SEVERE WEATHER CONDITIONS ON THE GULF COAST; RISK OF FLOODING AT GRAND
CASINO TUNICA. Grand Casino Gulfport and Grand Casino Biloxi are constructed on
barges located adjacent to Gulf-front property and are subject to the risk of
severe weather, including high winds, water action and hurricanes. In the event
of severe weather, the Company has plans to securely moor the barges to their
mooring sites or to evacuate the casinos to the back-bay area of Biloxi. The
Company also maintains insurance policies that contain casualty cost and certain
business interruption coverage for casualties resulting from severe weather,
including hurricanes. However, a hurricane or other severe weather could cause
significant physical damage to Grand Casinos Gulfport and Biloxi and, for a
period of time, reduce the number of people traveling to the Gulf Coast, either
of which could have a material adverse effect on the Company.
Certain improvements at Grand Casino Tunica, including one of its hotels
and certain of the parking lots adjacent to the Grand Casino Tunica are located
on the river side of a levee. The parking lots are graded to approximately the
12-year flood plain, which means that, statistically, such grade level floods
two weeks out of every 12-year period. While the Company does not anticipate
that Grand Casino Tunica, which is constructed on three interlocking barges,
will be affected by flooding, flooding may disrupt the casino operations and
other amenities at Grand Casino Tunica and any such disruptions could have a
material adverse effect on the Company. Furthermore, the Company believes that
it will not be able to secure flood insurance for part or all of the Grand
Casino Tunica facilities.
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<PAGE> 17
PENDING LITIGATION. The Company and certain of its directors and officers
are defendants in several lawsuits related to the Company's investment in
Stratosphere Corporation, including, a purported class action lawsuit by
shareholders of the Company pending in Federal District Court in Minnesota, a
purported shareholder derivative action brought by shareholders of the Company
against certain directors and officers of the Company pending in Hennepin
County, Minnesota District Court, a purported class action lawsuit by
shareholders of Stratosphere Corporation against the Company and certain of the
Company's directors and officers pending in Federal District Court in Nevada, a
purported class action lawsuit by shareholders of Stratosphere Corporation
against the Company and certain of the Company's directors and officers pending
in Clark County, Nevada District Court, a purported class action lawsuit by
holders of pre-paid vacation packages sold by Bob Stupak seeking to have the
Company held responsible for such packages pending in Clark County, Nevada
District Court, a petition by the official Noteholders' Committee for assumption
of the Standby Equity Commitment on behalf of the Stratosphere Corporation
bankruptcy estate pending in U.S. Bankruptcy Court for the District of Nevada,
and a claim by the successor trustee under the Stratosphere Corporation
Indenture for performance under the Standby Equity Commitment pending in Federal
District Court in Nevada. See "Part II, Item 1. Legal Proceedings" in the
Company's Form 10-Q for the fiscal quarter ended September 28, 1997, which is
incorporated herein by reference. On December 9, 1997 the U.S. Federal District
Court for the District of Minnesota dismissed, with prejudice, a portion of the
claims in the purported class action lawsuit brought by shareholders of the
Company and plaintiffs have given no indication they intend to appeal the
dismissal. The court also denied, in part, the Company's motion to dismiss.
Discovery will now commence as to the remaining claims and the Company plans to
defend itself vigorously. In connection with the closing of Stratosphere's First
Mortgage Notes in 1995, the Company delivered a Standby Equity Commitment
pursuant to which the Company could, under the terms and conditions described in
the Standby Equity Commitment, be obligated to purchase up to $20 million of
additional equity in Stratosphere during each of the first three years (up to
$60 million total) Stratosphere is operating to the extent Stratosphere's
consolidated cash flow did not reach $50 million in each of such years. A
successor trustee under the Indenture pursuant to which Stratosphere issued its
First Mortgage Notes has recently filed a complaint in the United States
District Court for the District of Nevada naming the Company as a defendant. The
complaint alleges that the Company has failed to perform under the Standby
Equity Commitment and seeks an order compelling specific performance of the
Company's alleged performance obligations under the Standby Equity Commitment.
The trustee filed the complaint as a claimed third party beneficiary under the
Standby Equity Commitment. As a result of Stratosphere's Chapter 11 filing and
the application of the federal bankruptcy laws, the continued enforceability of
the Standby Equity Commitment is in question. An adverse determination under
this or other pending litigation may have a material adverse effect on the
Company. The Company has not maintained directors' and officers' insurance.
Under Minnesota corporate law, the Company is required, subject to certain
limitations and exclusions, to indemnify its officers and directors.
Accordingly, the Company will bear the cost of defending itself and its
directors and officers in these matters and may be obligated to indemnify its
officers and directors for any settlement or judgment of such matters. These
lawsuits are in their early stages. The Company plans to defend itself
vigorously. However, there can be no assurance that the costs of defense and any
indemnifiable settlement or judgment will not have an adverse effect on the
Company.
ABSENCE OF PUBLIC MARKET. As of the Record Date, there are registered
holders of Old Notes. There has previously been only a limited secondary market
and no public market for the Old Notes. Eligible Holders of the New Notes may
thus be unable to sell them for an extended period of time or at all. The Old
Notes are not, and it is not anticipated that the New Notes will be, listed on
any stock exchange or quoted on NASDAQ or any other quotation system. The
Company does not expect an active public market for the New Notes to develop. To
the extent that a market for the New Notes does develop, the market value of the
New Notes will depend on market conditions (such as yields on alternative
investments), general economic conditions, the Company's financial condition,
and other factors. Such conditions might cause the New Notes, to the extent that
they are actively traded, to trade at a significant discount from face value.
RISK OF DIMINUTION OF CLAIMS IN BANKRUPTCY. Under an analysis adopted by at
least one Bankruptcy Court, Eligible Holders who receive New Notes pursuant to
the Exchange Offer might have a smaller claim in a subsequent bankruptcy of the
Company than if they had not participated in the Exchange Offer. In general,
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<PAGE> 18
a note represents a potential bankruptcy claim equal to its stated principal
amount plus accrued and unpaid interest through the date a bankruptcy is
commenced. Unmatured interest is not allowable as a claim under the Bankruptcy
Code. In In re Chateaugay Corp., 109 Bankr. 51 (Bankr. S.D.N.Y. 1990), the
Bankruptcy Court for the Southern District of New York held that the difference
between (a) the market value of securities tendered in an exchange offer and (b)
the face amount of securities issued in exchange therefor, constitutes unmatured
interest that is not allowable as a claim. Under this reasoning, a bankruptcy
court in a bankruptcy proceeding subsequent to the consummation of the Exchange
Offer might determine that the New Notes were issued at the original issue
discount represented by the difference, if any, between the face value of the
New Notes and the fair market value of the Old Notes as of the date of the
Exchange Offer, and reduce an Eligible Holder's claim by such difference.
However, the United States Court of Appeals for the Second Circuit recently
rejected this approach, reversing the decision of the Bankruptcy Court for the
Southern District of New York and holding that, for bankruptcy law purposes, no
new original issue discount arises when notes are exchanged for new notes of a
like face amount. See In re Chateaugay Corp. v. Valley Fidelity Bank & Trust
Co., 961 F.2d 378 (2d Cir. 1992); accord In re Pengo Industries, Inc. v. Licht,
962 F.2d 543 (5th Cir. 1992).
CONSEQUENCES OF FAILURE TO EXCHANGE. The Old Notes, not tendered, of
Eligible Holders who do not exchange such Old Notes pursuant to the Exchange
Offer will remain restricted securities. Such Old Notes will continue to be
subject to the following restrictions on transfer, as set forth in the each of
the Purchase Agreement dated as of October 9, 1997 among the Company, the
Guarantors, and the original purchaser of the Old Notes (the "Purchase
Agreement") pursuant to which the Old Notes were originally purchased: (i) such
Old Notes may be resold only if registered pursuant to the Securities Act, if an
exemption from registration is available thereunder, or if neither such
registration nor such exemption is required by law, (ii) such Old Notes shall
bear a legend restricting transfer in the absence of registration or an
exemption therefrom, and (iii) any such Eligible Holder who desires to sell or
otherwise dispose of all or any part of such Old Notes under an exemption from
registration under the Securities Act, if requested by the Company, must deliver
to the Company an opinion of independent counsel experienced in Securities Act
matters, reasonably satisfactory in form and substance to the Company, that such
exemption is available.
USE OF PROCEEDS
Neither the Company nor the Guarantors will receive any cash proceeds from
the issuance of the New Notes offered hereby. In consideration of issuing the
New Notes as contemplated in this Prospectus, the Company will receive in
exchange Old Notes in like principal amount, the terms of which are identical in
all material respect to the New Notes. The Old Notes surrendered in exchange for
New Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase in the indebtedness of
the Company or the Guarantors. Proceeds from the sale of the privately placed
Old Notes will be used to refinance existing capital lease financing and for
other general corporate purposes.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth: (i) the consolidated capitalization of
Grand Casinos, Inc., on a historical basis as of September 28, 1997 and (ii) the
consolidated capitalization of Grand Casinos, Inc., as of September 28, 1997, as
adjusted to give effect to issuance of the Old Notes. The historical information
in this table is derived from the Consolidated Financial Statements of Grand
Casinos, Inc. and should be read in conjunction with the more detailed
information and financial statements available under "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1997
----------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)(2)............................. $ 140,333 $ 146,172
========== ==========
Long-term obligations (including current portion of
long-term indebtedness)(3)
10 1/8% First Mortgage Notes.............................. 450,000 450,000
Capital lease obligations................................. 104,318 0
Other Indebtedness........................................ 5,853 5,853
Senior Notes offered hereby............................... 0 115,000
---------- ----------
Total long-term debt.............................. 560,171 570,853
Shareholders' Equity
Capital Stock, $.01 par value, 100,000,000 shares
authorized, 41,930,000 shares issued and outstanding,
respectively........................................... 420 420
Additional paid-in capital................................ 413,530 413,530
Net unrealized gains (losses) on securities available for
sale................................................... 187 187
Retained Earnings(4)...................................... 80,382 77,585
---------- ----------
Total Shareholders' Equity........................ 494,519 491,722
---------- ----------
Total Capitalization........................................ $1,054,690 $1,062,575
========== ==========
</TABLE>
- -------------------------
(1) Excludes restricted cash and cash equivalents of $6.1 million as of
September 28, 1997.
(2) Net of estimated commissions and offering costs estimated at $3.8 million.
(3) Includes short-term indebtedness of $1.4 million and $4.5 million in capital
lease obligations and other indebtedness, respectively.
(4) Reflects an estimated charge of $2.8 million, net of taxes (assuming a 35%
effective tax rate) to be reflected in the Company's consolidated statement
of earnings upon consummation of the Exchange Offer.
16
<PAGE> 20
SELECTED HISTORICAL FINANCIAL INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
The following table presents historical financial information derived from
the Company's audited and unaudited consolidated financial statements and other
data as of the date and for the periods indicated. The historical information in
this table is derived from the Consolidated Financial Statements of Grand
Casinos, Inc. and should be read in conjunction with the more detailed
information and financial statements available under "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." Operating results for the nine months ended September
28, 1997 are not necessarily indicative of the results that may be expected for
the entire fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------- FISCAL YEARS ENDED
SEPTEMBER 29, SEPTEMBER 28, -----------------------------------------------------------
1996 1997 1996 1995 1994 1993 1992
------------- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net Revenues.................... 363,539 460,586 490,019 372,872 285,774 117,032 9,229
Earnings from operations........ 97,677 114,436 97,408 116,315 51,859 29,328 3,170
Ratio of earnings to fixed
charges....................... 3.3x 3.1x --(3) 3.0x 3.2x 2.5x 28.5x
Earnings (loss) per share before
extraordinary charge.......... 0.94 1.27 (2.43)(1) 1.98 0.87 0.71 0.13
BALANCE SHEET DATA:
Total Assets.................... 1,230,131 1,227,660 1,122,816 1,128,108 483,883 426,644 72,305
Long-term debt.................. 468,121 541,945 511,742 459,070 123,126 118,561 8,650
Shareholders' equity............ 582,516 494,519 439,673 526,100 276,861 247,864 55,156
Shares outstanding at
year-end...................... 41,768 41,930 41,796 40,988 33,447 33,415 22,003
Book value per share............ 13.95 11.79 10.52 12.84 8.28 7.42 2.51
</TABLE>
- -------------------------
(1) Earnings per share for the fiscal year ended December 29, 1996 includes
$(3.59) for project write-downs and losses associated with Stratosphere.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings from continuing operations before income taxes and fixed
charges. Fixed charges include interest expense and amortization of debt
issuance costs.
(3) Earnings before fixed charges were insufficient to cover fixed charges by
$63,761 for this fiscal year ended December 29, 1996. For the fiscal year
ended December 29, 1996, earnings include a $149,050 non-cash write-down of
the Stratosphere investment.
17
<PAGE> 21
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Company is making the Exchange Offer to satisfy its obligations under
the Registration Rights Agreement and Purchase Agreement, which have been
included as exhibits to the Registration Statement of which this Prospectus is a
part.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal amount of New Notes for each
$1,000 in principal amount of its outstanding Old Notes. New Notes will be
issued only in integral multiples of $1,000 to each tendering Eligible Holder
whose Old Notes are accepted in the Exchange Offer. The Company will accept any
Old Notes validly tendered and not withdrawn prior to 5:00 p.m. New York City
time on the Expiration Date. Old Notes that are not accepted for exchange will
be returned as promptly as practicable after the Expiration Date. Eligible
Holders may tender all or a portion of their Old Notes pursuant to the Exchange
Offer.
The form and terms of the New Notes under the Indenture will be identical
in all material respects to the form and terms of the Old Notes, except that the
offering of the New Notes will have been registered under the Securities Act.
The New Notes will bear interest from their respective dates of issuance at the
same rate and upon the same terms as the Old Notes. See "DESCRIPTION OF THE NEW
NOTES AND GUARANTEES." Accrued and unpaid interest on the Old Notes accepted for
exchange for the period to but not including the date of issuance of the New
Notes (the "Exchange Date") will be paid to the holders of New Notes on the
first Interest Payment Date (as defined) for the New Notes. Eligible Holders
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued on
and after the Exchange Date.
As of the date of this Prospectus, $115,000,000 aggregate principal amount
of Old Notes were outstanding.
This Prospectus and the Letter of Transmittal are being sent to all
Eligible Holders of Old Notes as of , 1998 (the "Record Date").
As of the Record Date, there are registered holders of Old Notes. The
Company believes that, as of the date of this Prospectus, none of such holders
is an affiliate (as defined in Rule 405 under the Securities Act) of the
Company.
Tendering Eligible Holders will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Old Notes for New
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain taxes which may be levied in the event of any
transfer of ownership, in connection with the Exchange Offer. See "THE EXCHANGE
OFFER -- Transfer Taxes" below.
EXPIRATION DATE; TERMINATION
The Exchange Offer will expire on the Expiration Date, i.e., 5:00 p.m., New
York City time, on , 1998; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Eligible Holders thereof. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Old Notes
not accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
18
<PAGE> 22
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender by an Eligible Holder as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
Eligible Holder and the Company upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal. Except
as set forth below, an Eligible Holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must transmit such Old Notes, together
with a properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the Exchange Agent at
the address set forth on the back cover page of this Prospectus on or prior to
5:00 p.m. New York City time on the Expiration Date. The method of delivery of
old notes, letters of transmittal and all other required documents is at the
election and risk of the eligible holders. If such delivery is by mail, it is
recommended that registered mail, properly insured, with return receipt
requested, be used. Instead of delivery by mail, it is recommended that the
eligible holder use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed either the box entitled "Special Exchange Instructions" or the
box entitled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) by an Eligible Institution (as defined below). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such guarantee must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must either (i) be endorsed
by the registered holder, with the signature thereon guaranteed by an Eligible
Institution, or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution along with the other documents required upon transfer by the
Purchase Agreement. The term "registered holder" as used herein with respect to
the Old Notes means any person in whose name the Old Notes are registered on the
books of the Registrar for the Old Notes.
Tenders may be made only in principal amounts of $1,000 and integral
multiples thereof. Subject to the foregoing, Eligible Holders may tender less
than the aggregate principal amounts represented by the Old Notes deposited with
the Exchange Agent provided they appropriately indicate this fact on the Letter
of Transmittal accompanying the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Old Notes not properly
tendered or to reject any particular Old Notes which acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and
19
<PAGE> 23
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. The Company will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange, but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, powers of attorney
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of such person's authority to so act
must be submitted.
ANY BENEFICIAL OWNER WHOSE OLD NOTES ARE REGISTERED IN THE NAME OF A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR OTHER NOMINEE AND WHO WISHES
TO TENDER OLD NOTES IN THE EXCHANGE OFFER SHOULD CONTACT SUCH REGISTERED HOLDER
PROMPTLY AND INSTRUCT SUCH REGISTERED HOLDER TO TENDER ON SUCH BENEFICIAL
OWNER'S BEHALF. IF SUCH BENEFICIAL OWNER WISHES TO TENDER DIRECTLY, SUCH
BENEFICIAL OWNER MUST, PRIOR TO COMPLETING AND EXECUTING THE LETTER OF
TRANSMITTAL AND TENDERING OLD NOTES, MAKE APPROPRIATE ARRANGEMENTS TO REGISTER
OWNERSHIP OF THE OLD NOTES IN SUCH BENEFICIAL OWNER'S NAME. BENEFICIAL OWNERS
SHOULD BE AWARE THAT THE TRANSFER OF REGISTERED OWNERSHIP MAY TAKE CONSIDERABLE
TIME.
Each Eligible Holder that tenders the Old Notes in the Exchange Offer will
be required to represent to the Company that the New Notes to be acquired by
such Eligible Holder and any beneficial owner(s) pursuant to the Exchange Offer
are being acquired in the ordinary course of business of such Eligible Holder
and any beneficial owner(s), that such Eligible Holder and each beneficial owner
are not participating, do not intend to participate, and have no arrangement
with any person to participate, in the distribution of the New Notes, and to
acknowledge that any person participating in the Exchange Offer for the purpose
of distributing the New Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the New Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in various no-action
letters that are discussed under "Resales of the New Notes" below.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes but whose Old Notes are
not immediately available or who cannot deliver their Old Notes and Letter of
Transmittal or any other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed Delivery (as defined
in the Letter of Transmittal) must be signed by such Eligible Holder; (ii) prior
to the Expiration Date, the Exchange Agent must have received from the Eligible
Holder and the Eligible Institution a properly completed and duly executed
Letter of Transmittal and a Notice of Guaranteed Delivery (by facsimile
transmission, mail, or hand delivery) setting forth the name and address of the
Eligible Holder, the certificate number or numbers of the tendered Old Notes,
and the principal amount of tendered Old Notes, stating that the tender is being
made thereby and guaranteeing that, within four business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Old Notes and any
other required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed documents
required by the Letter of Transmittal and the tendered Old Notes in proper form
for transfer must be received by the Exchange Agent within four business days
after the Expiration Date. Any Eligible Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date. Failure to complete the guaranteed delivery procedures
outlined above will not, of itself, affect the validity or effect a revocation
of any Letter of Transmittal form properly completed and executed by an Eligible
Holder who attempted to use the guaranteed delivery process.
20
<PAGE> 24
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "Conditions of the Exchange Offer". For purposes of the Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old Notes
for exchange when, as, and if the Company has given oral or written notice
thereof to all Eligible Holders of properly tendered Old Notes.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents; provided, however, that
the Company reserves the absolute right to waive any defects or irregularities
in the tender or conditions of the Exchange Offer. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the Eligible Holder desires to exchange, such unaccepted or non-exchanged Old
Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering Eligible Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. New
York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at its
address set forth on the back cover page of this Prospectus. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the Eligible Holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by a
bond power into the name of the person withdrawing the tender, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution along with the other documents required upon transfer by the
Purchase Agreement, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. The Old Notes so
withdrawn, if any, will be deemed not to have been validly tendered for exchange
for purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are withdrawn will be returned to the Eligible Holder thereof
without cost to such Eligible Holder as soon as practicable after withdrawal.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue the New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer if, at
any time before the acceptance of the Old Notes for exchange or the exchange of
the New Notes for the Old Notes, any of the following events shall occur, which
occurrence, in the sole judgment of the Company and regardless of the
circumstances (including any action by the Company) giving rise to any such
events, makes it inadvisable to proceed with the Exchange Offer:
(a) there shall be threatened, instituted, or pending any action or
proceeding before, or any injunction, order, or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
21
<PAGE> 25
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated, or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any domestic or
foreign government or governmental authority or any action shall have been
taken, proposed, or threatened by any domestic or foreign government or
governmental authority that, in the reasonable judgment of the Company,
might directly or indirectly result in any of the consequences referred to
in clauses (i) or (ii) above or, in the reasonable judgment of the Company,
might result in the holders of the New Notes having obligations with
respect to resales and transfers of New Notes that are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus or would otherwise in the reasonable judgment of
the Company make it inadvisable to proceed with the Exchange Offer;
provided, however, that the Company will use reasonable efforts to modify
or amend the Exchange Offer or to take such other reasonable steps as to
make the provisions of this section inapplicable;
(b) there shall have occurred (i) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States or any limitation by any governmental agency or authority which
adversely affects the extension of credit, or (ii) a commencement of a war,
armed hostilities, or other similar international calamity directly or
indirectly involving the United States, or, in the case of any of the
foregoing existing at the time of the commencement of the Exchange Offer, a
material acceleration or worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations, or
prospects of the Company that, in the reasonable judgment of the Company,
is or may be adverse to the Company or the Guarantor, or the Company shall
have become aware of facts that, in the sole judgment of the Company, have
or may have adverse significance with respect to the value of the Old Notes
or the New Notes.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be asserted
by the Company regardless of the circumstances giving rise to any such condition
or may be waived by the Company in whole or in part at any time and from time to
time in its reasonable discretion. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement or the qualification of the Senior Note Indenture under
the Trust Indenture Act of 1939.
Eligible Holders of Old Notes may have certain rights and remedies against
the Company under the Registration Rights Agreement should the Company fail to
consummate the Exchange Offer, notwithstanding any nonfulfillment of the above
conditions. Such conditions are not intended to modify such rights and remedies
in any respect.
22
<PAGE> 26
ASSISTANCE
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, MN 55101-1860
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Registration Rights Agreement
provides that the Company will bear all expenses incident to its performance
thereunder, with certain exceptions.
TRANSFER TAXES
Eligible Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register New Notes in the name of, or request that
Old Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the tendering Eligible Holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
The untendered Old Notes of Eligible Holders who do not exchange such Old
Notes for New Notes pursuant to the Exchange Offer will remain restricted
securities. Such Old Notes will continue to be subject to the following
restrictions on transfer of such Old Notes, as set forth in the Purchase
Agreement pursuant to which the Old Notes were originally purchased: (i) such
Old Notes may be resold only if registered pursuant to the Securities Act, if an
exemption from registration is available thereunder, or if neither such
registration nor such exemption is required by law, (ii) such Old Notes shall
bear a legend restricting transfer in the absence of registration or an
exemption therefrom, and (iii) any such Eligible Holder who desires to sell or
otherwise dispose of all or any part of such Old Notes under an exemption from
registration under the Securities Act, if requested by the Company, must deliver
to the Company an opinion of independent counsel experienced in Securities Act
matters, reasonably satisfactory in form and substance to the Company, that such
exemption is available. See "RISK FACTORS -- Risk of Diminution of Claims in
Bankruptcy; Consequences of Failure to Exchange."
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
RESALES OF THE NEW NOTES
With respect to resales of New Notes, based on an interpretation by the
staff of the SEC set forth in no-action letters issued to third parties, the
Company believes that an Eligible Holder (other than (i) a broker-dealer who
purchases such New Notes directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act) who exchanges Old Notes for New Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the
23
<PAGE> 27
purchasers of the New Notes a prospectus that satisfies the requirements of
Section 10 thereof. However, if any Eligible Holder acquires New Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such Eligible Holder cannot rely on the position
of the staff of the Commission enunciated in Exxon Capital Holdings Corporation
(available April 13, 1989) or similar no-action letters or any similar
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each Eligible Holder accepting the Exchange Offer is required to
represent to the Company in the Letter of Transmittal that (i) the New Notes are
to be acquired by the Eligible Holder and each beneficial owner in the ordinary
course of business, (ii) the Eligible Holder and each beneficial owner are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, and (iii) the Eligible Holder and each beneficial owner acknowledge that
any person participating in the Exchange Offer for the purpose of distributing
the New Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale of the
New Notes and cannot rely on the above no-action letters.
24
<PAGE> 28
DESCRIPTION OF THE NEW NOTES AND GUARANTEES
The Old Notes have been, and the New Notes will be, issued under the
Indenture and pursuant to the Purchase Agreement. The terms of the Notes include
those stated in the Indenture and, with respect to the New Notes, those made a
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") as in effect on the date of the Indenture.
The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Indenture, including definitions
therein and those terms made a part of the Indenture by reference to the Trust
Indenture Act in effect on the date of the Indenture. Capitalized terms used
herein and not otherwise defined in this Prospectus have the meanings ascribed
to them in the Indenture. A copy of the Indenture has been incorporated by
reference as an Exhibit to the Registration Statement of which this Prospectus
is a part.
GENERAL
The New Notes will be issued by Grand Casinos, Inc. (the "Company")
pursuant to the Exchange Offer and the Senior Note Indenture between the Company
and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee"). The New Notes
will be unconditionally guaranteed, jointly and severally (each a "Note
Guarantee" and, together, the "Note Guarantees"), by Grand Casinos Resorts,
Inc., the subsidiaries that own and operate the Gulfport, Biloxi and Tunica
casinos, the subsidiaries operating the Gulfport and Biloxi hotels and by each
Restricted Subsidiary of the Company now existing or formed hereafter pursuant
to the terms of the Senior Note Indenture (each a "Guarantor" and, together, the
"Guarantors"). The terms of the New Notes include those stated in the Senior
Note Indenture and those made part of the Senior Note Indenture by reference to
the Trust Indenture Act as in effect on the date of the Senior Note Indenture.
The Senior Notes are subject to all such terms, and holders of Senior Notes are
referred to the Senior Note Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Senior
Note Indenture does not purport to be complete and is qualified in its entirety
by reference to the Senior Note Indenture, including the definitions therein of
certain terms used below.
RANKING
The New Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. Each Note Guarantee will rank senior in right of
payment to all Subordinated Indebtedness of the respective Guarantor. The New
Notes will be unsecured. The New Notes and the Note Guarantees will be
effectively subordinated in right of payment to secured Indebtedness of the
Company and the Guarantors, respectively, to the extent of the assets securing
such Indebtedness.
NOTE GUARANTEES
The Company's obligations under the New Notes and the Senior Note Indenture
will be jointly and severally and fully and unconditionally guaranteed by the
Guarantors, and each Note Guarantee will be a senior unsecured obligation of the
respective Guarantor. Each Guarantor is a wholly owned subsidiary of the
Company. Stratosphere Corporation will not be a Guarantor, and will be an
Unrestricted Subsidiary under the Senior Note Indenture. The obligations of each
Guarantor under its Note Guarantee will be limited to the extent necessary under
any applicable corporate law to ensure it does not constitute a fraudulent
conveyance under applicable law. Separate financial statements of each Guarantor
have not been included herein because management of the Company has determined
that they are not material.
Except for the sale of a Guarantor by way of merger or consolidation, the
Senior Note Indenture will provide that no Guarantor shall consolidate with or
merge with or into (whether or not such Guarantor is the surviving Person)
another Person, whether or not affiliated with such Guarantor, unless: (i)
subject to the provisions of the following paragraph and certain other
provisions of the Senior Note Indenture, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Person shall
unconditionally guarantee, on a senior basis, all of such
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<PAGE> 29
Guarantor's obligations under such Guarantor's Note Guarantee and the Senior
Note Indenture on the terms set forth in the Senior Note Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such transaction will not result in the loss or suspension
or material impairment of any material Gaming License; and (iv) such
transactions would not require any holder of the New Notes to obtain a gaming
license or be qualified under the laws of any applicable gaming jurisdiction,
provided that such holder would not have been required to obtain a gaming
license or be qualified under the laws of any applicable gaming jurisdiction in
the absence of such transactions.
The Senior Note Indenture provides that in the event of (i) a sale or other
disposition of all or substantially all of the assets of any Guarantor or the
sale of a Guarantor, by way of merger, consolidation or otherwise, (ii) a
Restricted Subsidiary becoming an Unrestricted Subsidiary pursuant to terms of
the Senior Note Indenture or (iii) or a sale or other disposition of all of the
Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the Capital Stock of such Guarantor or the Restricted Subsidiary becomes an
Unrestricted Subsidiary pursuant to the terms of the Senior Note Indenture) or
the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) shall
be released and relieved of any obligations under its Note Guarantee; provided
that (x) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and (y) the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Senior Note
Indenture; and provided further that any Mississippi Licensee and any
corporation acquiring the property of a Mississippi Licensee (in the event of a
sale or other disposition of all or substantially all of the assets of such
Mississippi Licensee) shall not be released as provided in this sentence unless
prior to the event described in clauses (i), (ii) or (iii) above the approval of
the Mississippi Gaming Commission of this Offering of Notes has been received.
See "Repurchase at the Option of Holders -- Asset Sales."
The Senior Note Indenture provides that the Company shall cause each
Restricted Subsidiary, now existing or hereafter formed or acquired, to (i)
execute and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the New Notes
on the terms set forth in the Senior Note Indenture and (ii) deliver to the
Trustee an opinion of counsel that, subject to customary assumptions and
exclusions, such supplemental indenture has been duly executed and delivered by
such Restricted Subsidiary. The Note Guarantee shall be released if the Company
or its Restricted Subsidiaries cease to own any Equity Interests in such
Restricted Subsidiary or if such Restricted Subsidiary becomes an Unrestricted
Subsidiary in accordance with the terms of the Senior Note Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be general unsecured obligations of the Company to be
issued as provided in the Senior Note Indenture. The New Notes offered in the
Offering will mature on October 15, 2004.
Each New Note will bear interest at the rate of 9% per annum of the
principal amount then outstanding from the Issuance Date to the date of payment
of such principal amount of such New Note. Installments of fixed interest will
become due and payable semi-annually in arrears on each April 15 and October 15
to the holders of record at the close of business on the preceding April 1 or
October 1.
The New Notes will be payable both as to principal and interest at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest may be
made by check mailed to the holders of the New Notes at their respective
addresses set forth in the register of holders of New Notes. Until otherwise
designated by the Company, its office or agency in New York will be the office
or agency of the Trustee maintained for such purpose. The New Notes will be
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
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<PAGE> 30
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments prior to maturity with respect to the New Notes.
OPTIONAL REDEMPTION
Except as described below, the New Notes are not redeemable at the
Company's option prior to the date set forth on such New Note (the "First
Optional Redemption Date"). The First Optional Redemption Date for the New Notes
will be October 15, 2001. From and after such First Optional Redemption Date,
the New Notes will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001................................................. 104.500%
2002................................................. 102.250%
2003 and thereafter.................................. 100.000%
</TABLE>
In addition, at any time prior to the First Optional Redemption Date, the
Company may, at its option, redeem the New Notes, in whole or in part, at the
redemption price equal to 100% of the principal amount thereof plus the
applicable Make-Whole Premium.
Notwithstanding any other provision hereof, if any Gaming Authority
requires that a holder or beneficial owner of the New Notes must be licensed,
qualified or found suitable under any applicable gaming laws in order to
maintain any gaming license or franchise of the Company or any Restricted
Subsidiary under any applicable gaming laws, and the holder or beneficial owner
fails to apply for a license, qualification or finding of suitability within 30
days after being requested to do so by the Gaming Authority (or such lesser
period that may be required by such Gaming Authority) or if such holder or
beneficial owner is not so licensed, qualified or found suitable, the Company
shall have the right, at its option, (i) to require such holder or beneficial
owner to dispose of such holder's or beneficial owner's New Notes within 30 days
of such failure to comply with such requirement in a timely manner or upon
receipt of a demand for such divestiture by the applicable Gaming Authority (or
such earlier date as may be required by the applicable Gaming Authority) or (ii)
to call for redemption all of the New Notes of such holder or beneficial owner
at a redemption price equal to the lesser of the principal amount thereof, the
price at which such holder or beneficial owner acquired the New Notes or the
fair market value thereof, together with, in either case, accrued and unpaid
interest and Liquidated Damages, if any, to the earlier of the date of
redemption or, the date of the finding of unsuitability by such Gaming
Authority, which may be less than 30 days following the notice of redemption if
so ordered by such Gaming Authority. In connection with any such redemption, and
except as may be required by a Gaming Authority, the Company shall comply with
the procedures contained in the New Notes for redemptions of the New Notes.
Under the Senior Note Indenture, the Company is not required to pay or reimburse
any holder of the New Notes or beneficial owner who is required to apply for
such license, qualification or finding of suitability for the costs or fees of
the licensure or investigation for such qualification or finding of suitability.
Such expenses will, therefore, be the obligation of such holder or beneficial
owner.
REPURCHASE AT THE OPTION OF ELIGIBLE HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will make an offer
to purchase all or any part (equal to $1,000 or an integral multiple thereof) of
the New Notes pursuant to the offer described below (the "Change of Control
Offer") at a price in cash (the "Change of Control Payment") equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. Within 30 days following
any Change of Control, the Company will mail a notice to each
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<PAGE> 31
holder with the following information: (1) a Change of Control Offer is being
made pursuant to the covenant entitled "Change of Control," and that all New
Notes properly tendered pursuant to such Change of Control Offer will be
accepted for payment; (2) the purchase price and the purchase date, which will
be no earlier than 30 days nor later than 60 days from the date such notice is
mailed, except as may be otherwise required by applicable law (the "Change of
Control Payment Date"); (3) any New Note not properly tendered will remain
outstanding and continue to accrue interest; (4) unless the Company defaults in
the payment of the Change of Control Payment, all New Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control Payment Date; (5) holders electing to have any New Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the New Notes, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the New Notes completed, to the paying agent specified in the
notice at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date; (6) holders
will be entitled to withdraw their tendered New Notes and their election to
require the Company to purchase the New Notes, provided that the paying agent
receives, not later than the close of business on the last day of the Offer
Period (as defined in the Senior Note Indenture), a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of New Notes tendered for purchase, and a statement that such holder is
withdrawing his tendered New Notes and his election to have such New Notes
purchased; and (7) that holders whose New Notes are being purchased only in part
will be issued New Notes equal in principal amount to the unpurchased portion of
the New Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the New Notes pursuant to a Repurchase Offer.
On the Change of Control Payment Date, the Company will, to the extent
permitted by law, (1) accept for payment all New Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount equal to the aggregate Change of Control Payment in
respect of all New Notes or portions thereof so tendered and (3) deliver, or
cause to be delivered, to the Trustee for cancellation the New Notes so accepted
together with an Officers' Certificate stating that such New Notes or portions
thereof have been tendered to and purchased by the Company. The paying agent
will promptly mail to each holder of New Notes the Change of Control Payment for
such New Notes, and the Trustee will promptly authenticate and mail to each
holder a New Note equal in principal amount to any unpurchased portion of the
New Notes surrendered, if any, provided that each such New Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The existence of a holder's right to require the Company to repurchase such
holder's New Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
The source of funds for any repurchase of New Notes upon a Change of
Control will be the Company's cash or cash generated from operations or other
sources, including borrowings, sales of assets or Capital Stock. However, there
can be no assurance that sufficient funds will be available at the time of any
Change of Control to make any required repurchases. Any failure by the Company
to repurchase New Notes tendered pursuant to a Change of Control Offer will be
deemed an Event of Default.
ASSET SALES
The Senior Note Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (w) no Default or Event of Default exists or is continuing
immediately prior to or after giving effect to such Asset Sale, (x) the Company,
or its Restricted Subsidiaries, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by the Company) of the assets sold or otherwise
disposed of and (y) at least 90% of the consideration therefor received by the
Company, or such Restricted Subsidiary,
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<PAGE> 32
as the case may be, is in the form of cash or Cash Equivalents; provided that
the amount of (A) any liabilities (as shown on the Company's, or such Restricted
Subsidiary's, as the case may be, most recent balance sheet or in the notes
thereto) of the Company, or any Restricted Subsidiary, as the case may be (other
than liabilities that are by their terms expressly subordinated to the New Notes
or any Note Guarantee), that are assumed by the transferee of any such assets
and (B) any notes or other obligations received by the Company, or any
Restricted Subsidiary, as the case may be, from such transferee that are
converted by the Company, or such Restricted Subsidiary, as the case may be,
into cash (to the extent of the cash received) within 90 days following the
closing of such Asset Sale, shall be deemed to be cash only for purposes of
satisfying clause (y) of this paragraph and for no other purpose.
Within 270 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale to either (i) permanently reduce
Indebtedness that is not subordinated to the New Notes or redeem or retire New
Notes or (ii) or to the investment in any one or more business, capital
expenditure or other tangible asset of the Company or any Restricted Subsidiary,
in each case, engaged, used or useful in the Principal Business or to an
Investment in a Grand Managed Entity if such Investment is permitted by the
covenant described under the caption "Restricted Payments," with no concurrent
obligation to make an offer to purchase any New Notes. Pending the final
application of any such Net Proceeds, the Company or such Restricted Subsidiary
may temporarily reduce Indebtedness under a revolving credit facility, if any,
or otherwise such Net Proceeds in Cash Equivalents. Any Net Proceeds from the
Asset Sale that are not invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $10.0 million, the Company shall make an offer
to all holders of New Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of New Notes, that is an integral multiple of $1,000, that may
be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date fixed for the closing of such offer,
in accordance with the procedures set forth in the Senior Note Indenture. The
Company will commence an Asset Sale Offer with respect to Excess Proceeds within
30 days after the date that Excess Proceeds exceeds $10.0 million by mailing the
notice required pursuant to the terms of the Senior Note Indenture. To the
extent that the aggregate amount of New Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
New Notes surrendered by holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the New Notes to be purchased in the manner described
under the caption "Selection and Notice" below. Upon completion of any such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the New Notes are to be purchased in an Asset Sale
Offer or redeemed at any time, selection of New Notes for purchase or redemption
will be made by the Trustee in compliance with the requirements of the New York
Stock Exchange or the principal national securities exchange, if any, on which
the New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such other method as the Trustee shall deem fair and
appropriate (and in such manner as complies with applicable legal requirements),
provided that (i) all New Notes of every series shall be treated as a single
class and (ii) no New Notes of $1,000 or less shall be purchased or redeemed in
part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each holder of New Notes to be purchased or redeemed at such
holder's registered address. If any New Note is to be purchased or redeemed in
part only, any notice of purchase or redemption that relates to such New Note
shall state the portion of the principal amount thereof that has been or is to
be purchased or redeemed.
A New Note in principal amount equal to the unpurchased or unredeemed
portion of any New Note purchased or redeemed in part will be issued in the name
of the holder thereof upon cancellation of the original New Note. On and after
the purchase or redemption date, unless the Company defaults in payment of
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<PAGE> 33
the purchase or redemption price, interest shall cease to accrue on New Notes or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Senior Note Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (other than (1)
dividends or distributions by the Company payable in Equity Interests (other
than Disqualified Stock) of the Company or (2) dividends or distributions by a
Restricted Subsidiary of the Company, provided that to the extent that a portion
of such dividend or distribution is paid to a holder other than the Company or a
Restricted Subsidiary, such portion of such dividend or distribution is not
greater than such holder's pro rata aggregate common equity interest in such
Restricted Subsidiary; (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Equity Interests of the Company; (iii) purchase, redeem or
otherwise acquire or retire for value any Subordinated Indebtedness of the
Company or any of its Restricted Subsidiaries prior to the scheduled dates for
payment of principal and interest in accordance with the original documentation
for such Subordinated Indebtedness or, if refinanced, the documentation relating
to such refinancing or (iv) make any Restricted Investment or any Contingent
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) for any Restricted Payment the Company would, at the time of such
Restricted Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to clauses (a), (b) or (c) under the first
paragraph of the description of the covenant described under the caption
"Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issuance Date (including Restricted Payments permitted by the
next succeeding paragraph, other than clauses (2), (3), (7), (9), (10) and
(12), is less than the sum of (X) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the fiscal
quarter that first begins after the Issuance Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available (or, in the case such Consolidated Net Income for
such period is a deficit, minus 100% of such deficit), plus (Y) 100% of the
aggregate net cash proceeds received by the Company since the Issuance Date
from the issue or sale of Equity Interests or debt securities of the
Company that have been converted into such Equity Interests of the Company
(other than Equity Interests or convertible debt securities of the Company
sold to a Restricted Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (Z) to the extent not otherwise included in the Company's Consolidated
Net Income, 100% of the cash dividends or distributions or the amount of
the cash principal and interest payments received since the Issuance Date
by the Company or any Restricted Subsidiary from any Unrestricted
Subsidiary or in respect of any Restricted Investment (other than dividends
or distributions to pay obligations of such Unrestricted Subsidiary such as
income taxes), provided that such calculation will be made (i) without
duplication for any actual Restricted Investment paid in respect of any
Contingent Restricted Investment previously made, and (ii) such that any
Contingent Restricted Investment terminated or released will no longer be
deemed to be an outstanding Restricted Payment to the extent so terminated
or released.
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The foregoing provisions will not prohibit the following Restricted
Payments:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Senior Note Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
Equity Interests of the Company (other than any Disqualified Stock);
(3) the redemption, repurchase, retirement or other acquisition of any
Subordinated Indebtedness of the Company or any Restricted Subsidiary in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of Subordinated
Indebtedness of the Company or Equity Interests of the Company (other than
Disqualified Stock), provided that (x) the principal amount of such
Subordinated Indebtedness shall not exceed the principal amount of the
Subordinated Indebtedness so redeemed, repurchased, retired or otherwise
acquired (plus the amount of reasonable expenses incurred and any premium
in connection therewith), (y) the Subordinated Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Subordinated Indebtedness being redeemed,
repurchased, retired or otherwise acquired, and (z) such Subordinated
Indebtedness is subordinate in right of payment to the New Notes and any
Note Guarantee on terms at least as favorable to the holders of the New
Notes as those contained in the documentation governing the Subordinated
Indebtedness being redeemed, repurchased, retired or otherwise acquired;
(4) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of any Equity Interests of the
Company held by any employee or director of the Company or any Subsidiary
pursuant to any management equity plan or stock option plan, provided that
the Restricted Payments made under this clause (4) does not exceed $5.0
million in the aggregate in any one fiscal year;
(5) any redemption or purchase by the Company or any Restricted
Subsidiary of Equity Interests of the Company required by a Gaming
Authority in order to preserve a material Gaming License, provided that so
long as such efforts do not jeopardize any material Gaming License, the
Company or such Restricted Subsidiary shall have diligently tried to find a
third-party purchaser for such Equity Interests and no third-party
purchaser acceptable to the applicable Gaming Authority was willing to
purchase such Equity Interests within a time period acceptable to such
Gaming Authority;
(6) (i) Restricted Investments or Contingent Restricted Investments of
up to $50 million in the aggregate outstanding at any one time in Grand
Controlled Entities or Gaming Support Businesses plus (ii) Restricted
Investments or Contingent Restricted Investments in Grand Controlled
Entities or Gaming Support Businesses, provided that the Company has, at
the time of making such Restricted Investment or Contingent Restricted
Investment, a Consolidated Net Debt to Cash Flow Ratio of not more than 3.0
to 1 on a pro forma basis giving effect to the Restricted Investment;
(7) Restricted Investments or Contingent Restricted Investments to the
extent that such Restricted Investment or the payment under such Contingent
Restricted Investment is made using Equity Interests of the Company (other
than Disqualified Stock);
(8) Restricted Investments in Stratosphere; provided that the
aggregate payments do not exceed the aggregate payments provided for under
the Stratosphere Agreements in existence on the Issuance Date;
(9) Restricted Investments to purchase, retire or otherwise acquire
all or part of any outstanding Equity Interests in Stratosphere Corporation
that the Company or a Restricted Subsidiary does not own all of the
beneficial equity interest thereof;
(10) Restricted Investments in, or a lease or sublease to, any
Unrestricted Subsidiary consisting of Substantially Undeveloped Land owned
or leased by the Company or a Restricted Subsidiary as of the Issuance
Date;
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(11) Contingent Restricted Investments in any Indian tribe recognized
as a sovereign entity for any gaming enterprise as to which the Company or
a Restricted Subsidiary has been officially selected by such Indian tribe
as the manager thereof pursuant to an executed management agreement, if
such Contingent Restricted Investments under this clause does not exceed
$10 million in the aggregate;
(12) Restricted Investments in debt securities of the Mississippi
Business Finance Corporation (an agency of the State of Mississippi
chartered to promote the development of business within the State of
Mississippi), provided that the proceeds from such debt securities are
invested in the Company or a Restricted Subsidiary; and
(13) Restricted Payments not otherwise permitted in an aggregate
amount outstanding under this clause (13) not to exceed $20.0 million at
any one time;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (4), (6), (9), (10), (11), (12) and
(13), no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof.
The amount of any Restricted Payment, as of any date, consisting of a
Contingent Restricted Investment shall be the amount of the maximum obligation
(the 'Maximum Obligation') under such Contingent Restricted Investment on such
date. The Maximum Obligation of any Contingent Restricted Investment as of any
date shall be:
(i) for Guarantees of Capital Lease Obligations or purchase money
loans for equipment, an amount equal to the then outstanding principal
balance of such Capital Lease Obligation or loan minus 75% of the
depreciated book value of the Equipment so financed;
(ii) for Guarantees of other Indebtedness, an amount equal to the then
outstanding principal balance of such Indebtedness so Guaranteed minus any
cash collateral then securing such Indebtedness; or
(iii) for any other Contingent Restricted Investment, an amount equal
to the dollar amount or value of the Maximum Obligation or commitment;
provided the Maximum Obligation of any Contingent Restricted Investment shall be
zero so long as the Consolidated Net Debt to Cash Flow Ratio of the Guaranteed
Party is less than 2.5 to 1 for the four consecutive fiscal quarters last
completed for which internal financial statements are then available or the
Fixed Charge Coverage Ratio of the Guaranteed Party is at least 3.5 to 1. If any
Contingent Restricted Investment is released or satisfied, the Maximum
Obligation will be correspondingly reduced.
If the outstanding principal amount guaranteed or the amount obligated or
committed to be invested of any Contingent Restricted Payment increases on any
date, then the Guarantor Party shall be deemed to have made a Contingent
Restricted Investment on such date in the amount of such increase. If the
Maximum Obligation of any Contingent Restricted Payment decreases on any date
(other than solely as a result of any change in the Guaranteed Party's
Consolidated Debt to Cash Flow Ratio or Fixed Charge Coverage Ratio), then the
corresponding Contingent Restricted Investment will not be deemed outstanding in
the amount of such decrease and the amount of such Contingent Restricted
Investment shall be deemed not to have been made as a Restricted Payment in the
amount of such decrease.
Upon making any Contingent Restricted Investment, the Company will be
deemed to have incurred on such date Deemed Incurred Indebtedness in the amount
of the Maximum Obligation thereunder less any cash segregated and restricted
solely for the satisfaction of such Contingent Restricted Investment.
For purposes of determining the amount of Restricted Investments
outstanding at any time, all Restricted Investments will be valued at their fair
market value at the time such Restricted Investments were made or, if such
Restricted Investments consists of property acquired within 2 years of the date
of investment, at the election of the Company, at historical cost (in each case
as determined in good faith by the Company's Board of Directors), and no
adjustments will be made for subsequent changes in fair market value.
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DESIGNATION OF UNRESTRICTED SUBSIDIARY
The Senior Note Indenture provides that the Board of Directors of the
Company may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary, provided that:
(i) at the time of designation, the Investment by the Company and any
of its Restricted Subsidiaries in such Subsidiary shall be deemed a
Restricted Investment (to the extent not previously included as a
Restricted Investment) made on the date of such designation in the amount
of the greater of (1) the net book value of such Investment or (2) the fair
market value of such Investment as determined in good faith by the Board of
Directors and any contingent obligation or commitment to make an Investment
in such Restricted Subsidiary or any Guarantee of the Indebtedness of such
Restricted Subsidiary shall be deemed a Contingent Restricted Investment
made on such date;
(ii) at the time of designation, no Default or Event of Default has
occurred and is continuing or results immediately after such designation or
as a result of any Restricted Investment in such Subsidiary;
(iii) at the time of designation, such Subsidiary has no Indebtedness
other than Permitted Unrestricted Subsidiary Indebtedness of such
Subsidiary or a Note Guarantee; and
(iv) such Subsidiary does not own any Equity Interests in a Restricted
Subsidiary.
An Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary and
shall become a Restricted Subsidiary if either (i) at any time while it is a
Subsidiary of the Company (1) such Subsidiary acquires any assets from the
Company or any Restricted Subsidiary other than as permitted by the provisions
of the Senior Note Indenture, including the provisions described under the
covenants entitled "Restricted Payments" and "Asset Sales;" (2) such Subsidiary
has any Indebtedness other than Permitted Unrestricted Subsidiary Indebtedness;
and (3) such Subsidiary owns any Equity Interests in a Restricted Subsidiary of
the Company; or (ii) the Company designates such Unrestricted Subsidiary to be a
Restricted Subsidiary and no Default or Event of Default occurs or is continuing
immediately after such designation. If the Company designates any Unrestricted
Subsidiary to be a Restricted Subsidiary and no Default or Event of Default
occurs or is continuing immediately after such designation, then any Restricted
Investments previously made in such Unrestricted Subsidiary and any outstanding
Contingent Restricted Investments or Deemed Incurred Indebtedness will no longer
be deemed outstanding and shall be deemed not to have been made under the
covenants entitled "Restricted Payments" or "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock."
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
Any Restricted Subsidiary that has been designated as an Unrestricted
Subsidiary pursuant to the terms of the Company's 10 1/8% First Mortgage Notes
Indenture shall be deemed to be an Unrestricted Subsidiary under the Senior Note
Indenture as of the date thereof.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Senior Note Indenture will provide that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to (collectively, "incur" and correlatively, an
"incurrence" of) any Indebtedness (including Acquired Indebtedness or Deemed
Incurred Indebtedness) or any shares of Disqualified Stock; provided that the
Company or any Restricted Subsidiary may incur:
(a) Indebtedness or shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company and its Restricted Subsidiaries for the most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such incurrence
would have been at least 2.0 to 1.0 determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or the Disqualified Stock had
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been issued, as the case may be, and application of proceeds had occurred
at the beginning of such four-quarter period;
(b) Subordinated Indebtedness (and related subordinated guarantees by
any Restricted Subsidiary) or Disqualified Stock, in each case with a
Weighted Average Life to Maturity that is longer than the New Notes by at
least one year, if the Fixed Charge Coverage Ratio for the Company and its
Restricted Subsidiaries for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence would have been at least 1.75 to 1.0
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been
incurred or the Disqualified Stock had been issued, as the case may be, and
application of proceeds had occurred at the beginning of such four-quarter
period;
(c) Senior Secured Indebtedness if the Consolidated Net Secured Debt
to Cash Flow Ratio for the Company and its Restricted Subsidiaries for the
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such incurrence
would have been less than 2.5 to 1 determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom) as if the
additional Indebtedness had been incurred or the Disqualified Stock had
been issued, as the case may be, and application of proceeds had occurred
at the beginning of such four-quarter period;
(d) any Indebtedness in an aggregate principal amount not to exceed
$50.0 million at any one time outstanding under this clause (d);
(e) Existing Indebtedness;
(f) Indebtedness represented by the New Notes or a Note Guarantee;
(g) Indebtedness (the "Refinancing Indebtedness") issued in exchange
for, or the proceeds of which are used to extend, refinance, renew,
replace, or refund Indebtedness incurred pursuant to clauses (a), (b), (c),
(e), (f), (k), (l) or this clause (g), provided that (1) the principal
amount of such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so extended, refinanced, renewed, replaced,
substituted or refunded (plus the amount of reasonable expenses incurred
and any premium paid in connection therewith), (2) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, substituted or refunded and
(3) if the Indebtedness being refinanced is subordinated, the Refinancing
Indebtedness shall be subordinate in right and priority of payment to the
New Notes and any Note Guarantee on terms at least as favorable to the
holders of New Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, substituted or
refunded;
(h) intercompany Indebtedness between or among the Company and any
Restricted Subsidiary, including any Subordinated Indebtedness owed to the
Mississippi Business Finance Corporation, provided that the Company or
Restricted Subsidiary holds the corresponding Indebtedness of the
Mississippi Business Finance Corporation;
(i) Hedging Obligations that are incurred (1) for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Senior Note Indenture to
be outstanding or (2) for the purpose of fixing or hedging currency
exchange rate risk with respect to any currency exchanges;
(j) Indebtedness represented by Capital Lease Obligations or purchase
money obligations or Non-Recourse Financing, in each case incurred for the
purpose of financing or refinancing all or any part of the purchase or
lease of personal or real property or equipment used in the business of the
Company or such Restricted Subsidiary and acquired after the date of the
Senior Note Indenture;
(k) Acquired Indebtedness or Disqualified Stock of any Person (other
than an Unrestricted Subsidiary) that becomes, or which merged into, a
Restricted Subsidiary after the date of the Senior Note Indenture, which
Acquired Indebtedness was outstanding at the time such Person becomes, or
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which merged into, a Restricted Subsidiary, provided (1) that such Acquired
Indebtedness was not incurred in contemplation of such Person becoming a
Restricted Subsidiary, and (2) none of the Company or any other Restricted
Subsidiary is required to guarantee or become liable for the repayment of
such Acquired Indebtedness; and
(l) Deemed Incurred Indebtedness permitted pursuant to clause (11) of
the second paragraph of the covenant entitled "Restricted Payments."
The Senior Note Indenture provides that the Company will not permit any of
its Unrestricted Subsidiaries to incur any Indebtedness (including Acquired
Indebtedness) or issue any shares of Disqualified Stock, other than Permitted
Unrestricted Subsidiary Indebtedness; provided that if any such Unrestricted
Subsidiary ceases to be an Unrestricted Subsidiary and becomes a Restricted
Subsidiary, such event shall be deemed to constitute the incurrence of the
Indebtedness in such Subsidiary by a Restricted Subsidiary.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described above, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that complies
with this covenant. Accrual of interest, the accretion of accreted value and the
payment of interest in the form of additional Indebtedness will not be deemed to
be an incurrence of Indebtedness for purposes of this covenant.
LIENS
The Senior Note Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Indebtedness, except Permitted Liens, on any asset owned as of the Issuance Date
or thereafter acquired by the Company or such Restricted Subsidiary, or any
income or profits therefrom, or assign or convey any right to receive income
therefrom.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Senior Note Indenture provides that the Company may not consolidate or
merge with or into or wind up into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions to, any Person unless:
(i) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof,
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made assumes all the obligations of the Company under the Senior Note
Indenture and all outstanding New Notes pursuant to a supplemental
indenture or other documents or instruments in form reasonably satisfactory
to the Trustee under the New Notes and the Senior Note Indenture;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) the Company or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made, will, at the
time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to any of clauses (a), (b) or (c) set forth in the
first paragraph of the covenant entitled "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock;" and
(v) such transactions would not require any holder of New Notes to
obtain a gaming license or be qualified under the law of any applicable
gaming jurisdiction, provided that such holder would not have
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been required to obtain a gaming license or be qualified under the laws of
any applicable gaming jurisdiction in the absence of such transactions.
TRANSACTIONS WITH AFFILIATES
The Senior Note Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless:
(a) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and
(b) the Company delivers to the Trustee (i) with respect to any
Affiliate Transaction involving aggregate payments in excess of $5.0
million, a resolution adopted by a majority of the disinterested
nonemployee directors of the Board of Directors approving such Affiliate
Transaction and set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (a) above and (ii) with respect
to any Affiliate Transaction that is a loan transaction involving a
principal amount in excess of $20.0 million or any other type of Affiliate
Transaction involving aggregate payments in excess of $20.0 million, an
opinion as to the fairness to the Company or such Restricted Subsidiary
from a financial point of view issued by an Independent Financial Advisor.
The restrictions contained in this covenant will not apply to the
following: (1) transactions between or among the Company and/or any of its
Restricted Subsidiaries; (2) Restricted Payments permitted by the provisions of
the Senior Note Indenture described above under the covenant "Restricted
Payments;" or (3) the transactions pursuant to the Stratosphere Agreements.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Senior Note Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any such Restricted
Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with
respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries (other than in respect of the subordination of such
Indebtedness to the Existing First Mortgage Notes, guarantees thereof, the
New Notes, the Note Guarantees or any permitted refinancing thereof, as the
case may be), or
(b) make loans or advances to the Company,
except (in each case) for such encumbrances or restrictions existing under
or by reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date and contractual encumbrances or restrictions contained in secured
Indebtedness permitted to be incurred under the Senior Note Indenture,
(2) the Senior Note Indenture, the New Notes and any Note Guarantees,
(3) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any Restricted Subsidiary as in effect at the
time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired,
(4) by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past practices,
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(5) purchase money obligations for property acquired in the ordinary
course of business or Permitted Liens that impose restrictions of the
nature discussed in clause (c) above on the property so acquired or to
which such Lien attaches,
(6) applicable law or any applicable rule or order of any Gaming
Authority, or
(7) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (6) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Company's Board of Directors, no more restrictive, taken as a whole,
with respect to such dividend and other payment restrictions than those
contained in the dividend or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
LINE OF BUSINESS
The Senior Note Indenture provides that for so long as any New Notes are
outstanding, the Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business or activity other than the Principal
Business.
INSURANCE
The Senior Note Indenture provides that, until the New Notes have been paid
in full, the Company will, and will cause its Restricted Subsidiaries to,
maintain insurance with responsible carriers against such risks and in such
amounts as is customarily carried by similar businesses with such deductibles,
retentions, self insured amounts and coinsurance provisions as are customarily
carried by similar businesses of similar size, including, without limitation,
property and casualty.
SEC REPORTS
Under the terms of the Senior Note Indenture, the Company and the
Guarantors will file with the Trustee and provide holders of New Notes, within
15 days after it files them with the SEC, copies of their annual reports and of
the information, documents and other reports (or copies of such portions of any
of the foregoing as the SEC may by rule or regulation prescribe) which the
Company and the Guarantors are required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act. Notwithstanding that the Company or the
Guarantors may not be required to remain subject to the reporting requirements
of Section 13 or 15 (d) of the Exchange Act or otherwise report on an annual and
quarterly basis on forms provided for such annual and quarterly reporting
pursuant to rules and regulations promulgated by the SEC, the Senior Note
Indenture requires the Company and the Guarantors to continue to file with the
SEC and provide the Trustee and holders with, without cost to each holder, (a)
within 90 days after the end of each fiscal year, annual reports on Form 10-K
(or any successor or comparable form) containing the information required to be
contained therein (or required in such successor or comparable form); (b) within
45 days after the end of each of the first three fiscal quarters of each fiscal
year, reports on Form 10-Q (or any successor or comparable form); and (c)
promptly from time to time after the occurrence of an event required to be
therein reported, such other reports on Form 8-K (or any successor or comparable
form) containing the information required to be contained therein (or required
in any successor or comparable form); provided that the Company and the
Guarantors shall not be so obligated to file such reports with the SEC if the
SEC does not permit such filings. The Company and the Guarantors will in all
cases, without cost to each recipient, provide copies of such information to the
holders of the New Notes and shall make available such information to
prospective purchasers and to securities analysts and broker-dealers upon their
written request. In addition, the Company and the Guarantors have agreed that,
for so long as any New Notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
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Not later than 15 days after the date of filing any quarterly or annual
report, the Company shall deliver to the Trustee an Officers' Certificate
stating that each Restricted Payment made in the prior fiscal quarter was
permitted and setting forth the basis upon which the calculations required by
the covenant relating to "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements at the
time of such Restricted Payment.
EVENTS OF DEFAULT AND REMEDIES
The Senior Note Indenture provides that each of the following constitutes
an Event of Default:
(i) default in payment when due and payable, upon redemption or
otherwise, of principal or premium, if any, on any Senior Note or under any
Note Guarantee;
(ii) default for 30 days or more in the payment when due of interest
on, or Liquidated Damages with respect to, any Senior Note or under any
Note Guarantee;
(iii) failure by the Company or any Guarantor to offer to purchase, or
to purchase the New Notes when required under an offer made pursuant to the
Senior Note Indenture;
(iv) failure by the Company or any Guarantor to comply with the
provisions described under the captions "Restricted Payments," "Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock," "Asset
Sales," or "Change of Control."
(v) failure by the Company or any Guarantor for 60 days after receipt
of written notice to comply with any of its other agreements in the Senior
Note Indenture, or the New Notes;
(vi) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or Guarantee now exists or is
created after the Issuance Date, which default (a) is caused by a failure
to pay when due principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity or would constitute a
default in the payment of such issue of Indebtedness at final maturity of
such issue and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which a Payment Default then exists or with respect to
which the maturity thereof has been so accelerated or that has not been
paid at maturity, aggregates $15.0 million or more;
(vii) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $15.0 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more
than 60 days;
(viii) material breach by the Company, any Guarantor or any of their
Subsidiaries of any representation or warranty set forth in any Note
Guarantee or default by the Company or any Guarantor in the performance of
any covenant set forth in any Note Guarantee which continues for 60 days
after notice thereof, or the repudiation by the Company, any Guarantor or
any of their Subsidiaries of its obligations under, or any judgment or
decree by a court or governmental agency of competent jurisdiction
declaring the unenforceability of, any Note Guarantee for any reason that
would materially impair the benefits to the Trustee or the holders of the
New Notes thereunder;
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any Guarantor that is a Significant Subsidiary of the Company or
any group of Guarantors that together would constitute a Significant
Subsidiary of the Company;
(x) revocation, termination, suspension or other cessation of
effectiveness of any Gaming License which results in the cessation or
suspension of gaming operations at any Existing Casino that results in
Consolidated Cash Flow at the end of any four consecutive fiscal quarters
being less than 80% of the
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Consolidated Cash Flow for the four consecutive fiscal quarters prior to
such revocation, termination, suspension or other cessation of
effectiveness of such Gaming License; or
(xi) prior to the approval of the Mississippi Gaming Commission of
this Offering of Notes, the transfer of equity securities of any
Mississippi Licensees.
If any Event of Default (other than by reason of bankruptcy or insolvency)
occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding New Notes may declare the principal,
premium, if any, interest and Liquidated Damages and any other monetary
obligations on all the New Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Guarantor, all outstanding New Notes will become due and payable without further
action or notice. Holders of the New Notes may not enforce the Senior Note
Indenture or the New Notes except as provided in the Senior Note Indenture.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding New Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from holders of New Notes notice of any
continuing Default or Event of Default (except a Default or Event relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest. In addition, the Trustee shall have no obligation to
accelerate the New Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the holders of the New Notes.
In the case of any Event of Default occurring on or after the First
Optional Redemption Date for New Notes of any series by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention and for the purpose of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the New
Notes pursuant to the optional redemption provisions of the Senior Note
Indenture, an equivalent premium shall also become and be immediately due and
payable on New Notes of such series to the extent permitted by law. If an Event
of Default occurs prior to the First Optional Redemption Date for New Notes of
any series, by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention and for the purpose of
avoiding the prohibition on redemption of the New Notes prior to the First
Optional Redemption Date, then the implied call premium set forth in the Senior
Note Indenture for an optional redemption on such date (as if an optional
redemption would have been permitted by the terms of the Senior Note Indenture)
shall also become immediately due and payable on New Notes of such series to the
extent permitted by law.
The holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Senior Note Indenture except a continuing Default or
Event of Default in the payment of interest on, premium or Liquidated Damages,
if any, or the principal of, any Senior Note held by a non-consenting holder.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Senior Note Indenture, and the Company is
required, within five Business Days, upon becoming aware of any Default or Event
of Default or any default under any document, instrument or agreement
representing Indebtedness of the Company, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Guarantors, as such, shall have any liability for any obligations of the
Company or the Guarantors under the New Notes, any Note Guarantee or the Senior
Note Indenture, as applicable, or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each holder of an Old Note by
accepting such Old Note waived and released all such liability. The waiver and
release are part of the consideration for issuance of the Old Notes and the Note
Guarantees. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors under the Senior Note
Indenture will terminate (other than certain obligations) upon payment in full
of all of the New Notes. The Company may, at its option and at any time, elect
to have all of its and any Guarantor's obligations discharged with respect to
the outstanding New Notes and any Note Guarantees ("Legal Defeasance") and cure
all then existing Events of Default except for (i) the rights of holders of
outstanding New Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such New Notes when such
payments are due solely out of the trust created pursuant to the Senior Note
Indenture, (ii) the Company's and any Guarantor's obligations with respect to
the New Notes concerning issuing temporary New Notes, registration of New Notes,
mutilated, destroyed, lost or stolen New Notes and the maintenance of an office
or agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
and any Guarantor's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Senior Note Indenture. In addition, the Company
may, at its option and at any time, elect to have the obligations of the Company
and any Guarantor released with respect to certain covenants that are described
in the Senior Note Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the New Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages
due on the outstanding New Notes on the stated maturity date or on the
applicable redemption date, as the case may be, of such principal, premium, if
any, or interest or Liquidated Damages on the outstanding New Notes; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and exclusions, (A) the
Company has received from, or there has been published by, the United States
Internal Revenue Service a ruling or (B) since the Issuance Date of the Senior
Note Indenture, there has been a change in the applicable U.S. federal income
tax law, in either case to the effect that, and based thereon such opinion of
counsel in the United States shall confirm that, subject to customary
assumptions and exclusions, the holders of the outstanding New Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such Legal Defeasance and will be subject to U.S. federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that, subject to customary assumptions and exclusions, the holders of the
outstanding New Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to such tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing with respect
to certain Events of Default on the date of such deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Senior Note Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel in the United
States to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under any
applicable United States law, state law and that the Trustee has a perfected
security interest in such trust funds for the ratable benefit of the holders of
New Notes; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of defeating, hindering, delaying or defrauding any creditors of the Company or
others; and (viii) the Company
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shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel in the United States (which opinion of counsel may be subject to
customary assumptions and exclusions) each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Senior Note
Indenture, the New Notes and the Note Guarantees may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
all of the New Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for New Notes), and any existing default
or compliance with any provision of the Senior Note Indenture, the New Notes or
the Note Guarantees may be waived with the consent of the holders of a majority
in principal amount of all of the then outstanding New Notes (including consents
obtained in connection with a tender offer or exchange offer for New Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any New Notes held by a nonconsenting holder of New Notes): (i)
reduce the principal amount of New Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter or waive the provisions with respect
to the redemption of the New Notes (other than provisions relating to the
covenants described under "Repurchase at the Option of Holders"), (iii) reduce
the rate of or change the time for payment of interest on any Senior Note, (iv)
waive a Default or Event of Default in the payment of principal of, premium, if
any, or interest or Liquidated Damages on the New Notes (except a rescission of
acceleration of the New Notes by the holders of at least a majority in aggregate
principal amount of the New Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Senior Note payable in money
other than that stated in the New Notes, (vi) make any change in the provisions
of the Senior Note Indenture relating to waivers of past Defaults or the rights
of holders of New Notes to receive payments of principal of or premium, if any,
or interest or Liquidated Damages on the New Notes or (vii) make any change in
the foregoing amendment and waiver provisions.
Without the consent of holders of at least 66 2/3% of the outstanding
principal amount of any New Notes then outstanding (including consents obtained
in a tender offer or exchange offer for such New Notes) regardless of whether
such New Notes were issued in one or more series, the Company may not amend,
alter or waive the provisions with respect to a "Change of Control."
Notwithstanding the foregoing, without the consent of any holder of New
Notes, the Company and the Trustee together may amend or supplement the Senior
Note Indenture, the New Notes or the Note Guarantees to cure any ambiguity,
defect or inconsistency, to comply with the covenant relating to mergers,
consolidations and sales of assets, to provide for uncertificated New Notes in
addition to or in place of certificated New Notes, to provide for the assumption
of the Company's or any Guarantor's obligations to holders of the New Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the New Notes (including
providing for additional Note Guarantees pursuant to the Senior Note Indenture),
or that does not adversely affect the legal rights under the Senior Note
Indenture of any such holder, to comply with requirements of the SEC in order to
effect or maintain the qualification of the Senior Note Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Senior Note Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Senior Note Indenture provides that in case an Event of
Default
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shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Senior
Note Indenture at the request of any holder of New Notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
GOVERNING LAW
The Senior Note Indenture and the New Notes are, subject to certain
exceptions, governed by and construed in accordance with the internal laws of
the State of New York, without regard to the choice of law rules thereof,
subject to certain requirements under the Mississippi gaming laws.
ADDITIONAL INFORMATION
Any holder of the New Notes or prospective investor may obtain a copy of
the Senior Note Indenture and the Registration Rights Agreement without charge
by writing to Grand Casinos, Inc., 130 Cheshire Lane, Minnetonka, Minnesota
55305, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially represented by a single Note in registered,
global form (collectively, the "Old Global Note"). The Old Global Note was
deposited upon issuance with the Trustee as custodian for DTC and registered in
the name of Cede & Co., DTC's nominee, for credit to any account of a direct or
indirect participant in DTC as described below.
Except as set forth below, the Global Note(s) may be transferred, in whole
and not in part, only to the Depositary or another nominee of the Depositary.
Investors may hold their beneficial interests in the Global Note(s) directly
through the Depositary if they are Participants (as defined herein) in such
system or indirectly through organizations that are Participants in such system.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon the issuance of the Global Note(s), the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Note(s) and (ii) ownership of the
New Notes evidenced by the Global Note(s) will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer New Notes evidenced by the
Global Note(s) will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Senior
Note, the Global Note Holder will be considered the sole Holder under the Senior
Note Indenture of any New Notes evidenced by the Global Note(s). Beneficial
owners of New Notes evidenced by the Global Note(s) will not be considered the
owners or Eligible Holders thereof under the Senior Note Indenture for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the
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Trustee will have any responsibility or liability for any aspect of the records
of the Depositary or for maintaining, supervising or reviewing any records of
the Depositary relating to the New Notes.
Payments in respect of the principal of, premium, if any, and Liquidated
Damages, if any, on any New Notes registered in the name of the Global Note
Holder on the applicable record date will be payable by the Trustee to or at the
direction of the Global Note Holder in its capacity as the registered Holder
under the Senior Note Indenture. Under the terms of the Senior Note Indenture,
the Company and the Trustee may treat the persons in whose names New Notes,
including the Global Note(s), are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of New Notes (including principal, premium, if any,
and Liquidated Damages, if any). The Company believes, however, that it is
currently the policy of the Depositary to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of New Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note(s) may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of New Notes in the form of Certificated Securities
under the Senior Note Indenture, then, upon surrender by the Global Note Holder
of its Global Note(s), New Notes in such form will be issued to each person that
the Global Note Holder and the Depositary identify as being the beneficial owner
of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of New
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
NEXT DAY SETTLEMENT AND PAYMENT
The Senior Note Indenture requires that payments in respect of the New
Notes represented by the Global Note(s) (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global Note Holder.
With respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available next day funds to the accounts specified by
the Eligible Holders thereof or, if no such account is specified, by mailing a
check to each such Holder's registered address. The Company expects that
secondary trading in the Certificated Securities will also be settled in
immediately available funds.
Because of time-zone differences, the securities account of a "Member
Organization" purchasing an interest in a Global Note from a Participant that is
not a Member Organization will be credited during the securities settlement
processing day (which must be a business day for Euroclear or Cedel Bank, as the
case may be) immediately following the Depositary settlement date. Transactions
in interests in a Global Note settled during any securities settlement
processing day will be reported to the relevant Member Organization on the same
day. Cash received in Euroclear or Cedel Bank as a result of sales of interests
in a Global Note by or through a Member Organization to a Participant that is
not a Member Organization will be received with value on the Depositary
settlement date, but will not be available in the relevant Euroclear or Cedel
Bank cash account until the business day following settlement at the Depositary.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Note
Indenture. Reference is made to the Senior Note Indenture for a full disclosure
of all such terms, as well as any other capitalized terms used herein for which
no definition is provided. For purposes of the Senior Note Indenture, unless
otherwise specially indicated the term "consolidated" with respect to any Person
refers to such Person consolidated with its Restricted Subsidiaries, and
excludes from such consolidation any Unrestricted Subsidiary as if such
Unrestricted Subsidiary were not an Affiliate of such Person.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided that
beneficial ownership of 15% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
"disposition") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than (a) a disposition of inventory or goods
held for sale in the ordinary course of business, (b) the disposition of all or
substantially all of the assets of the Company in a manner permitted pursuant to
the provisions described above under "Merger, Consolidation or Sale of Assets"
or any disposition that constitutes a Change of Control pursuant to the Senior
Note Indenture, (c) any disposition that is a Restricted Payment or that is a
dividend or distribution permitted under the covenant described above under
"Restricted Payments" or any Investment that is not prohibited thereunder or any
disposition of cash or Cash Equivalents, (d) any disposition pursuant to the
settlement of litigation or court order, and (e) any single disposition, or
related series of dispositions, of assets with an aggregate fair market value
(as determined in good faith by the Company) of less than $10.0 million.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized and reflected as a liability on the
balance sheet in accordance with GAAP.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of 12 months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding 12 months and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $300 million, (iv) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated A-1
or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each
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case maturing within one year after the date of acquisition and (vi) investment
funds investing solely in securities of the types described in clauses (ii)
through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease or transfer, in one or a series of transactions, of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, other than to the Permitted Holder and its Related Parties; (ii) the
Company becomes aware of (by way of a report or any other filing pursuant to
Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the
acquisition by any person or group (within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act, or any successor provision), including any
group acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the
Permitted Holder and its Related Parties, in a single transaction or in a
related series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of
the total voting power of the Voting Stock of the Company, or (iii) the first
day within any two-year period on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Company" means Grand Casinos, Inc., a Minnesota corporation, until a
successor to Grand Casinos, Inc. as the Company is appointed under the Senior
Note Indenture, and thereafter, means such successor.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) an amount
equal to an extraordinary or nonrecurring loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing Consolidated Net Income), plus (b) provision for taxes based on income
or profits of such Person for such period, to the extent such provision for
taxes was included in computing Consolidated Net Income, plus (c) Consolidated
Interest Expense of such Person for such period to the extent such Consolidated
Interest Expense was deducted in computing Consolidated Net Income, plus (d)
Consolidated Depreciation and Amortization Expense of such Person for such
period to the extent such depreciation and amortization were deducted in
computing Consolidated Net Income, in each case, on a consolidated basis for
such Person and its Restricted Subsidiaries (without any adjustment as a result
of minority interests in any Restricted Subsidiaries) and otherwise determined
in accordance with GAAP, plus (e) any noncash compensation relating to stock
options or other equity compensation or payment arrangements.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash charges (excluding any noncash item that represents an
accrual, reserve or amortization of a cash expenditure for a past, present or
future period) of such Person and its Restricted Subsidiaries for such period on
a consolidated basis and otherwise determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the sum
of (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount and deferred financing fees, non-cash
interest payments, the interest component of Capital Lease Obligations, and net
payments (if any) pursuant to Hedging Obligations, excluding amortization of
deferred financing fees), (b) commissions, discounts and other fees and charges
paid or accrued with respect to letters of credit and bankers' acceptance
financing, and (c) to the extent not included above, the maximum amount of
interest which would have to be paid by such Person or its Restricted
Subsidiaries under any Deemed Incurred Indebtedness; in each case of such Person
and its Restricted Subsidiaries on a consolidated basis and otherwise determined
in accordance with GAAP.
"Consolidated Net Debt to Cash Flow Ratio" means, with respect to any
Person at any date, the ratio of (i) the aggregate principal amount of
Indebtedness of such Person and its Restricted Subsidiaries outstanding on a
consolidated basis as of such date minus the amount of unrestricted cash and
unrestricted Cash Equivalents of such Person and its Restricted Subsidiaries
outstanding on a consolidated basis as of such date (excluding any cash and cash
equivalents resulting from the proceeds of the Indebtedness proposed to be
incurred) to (ii) Consolidated Cash Flow of such Person for the four fiscal
quarters most recently completed
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for which internal financial statements are available. The Consolidated Net Debt
to Cash Flow Ratio will be calculated on a pro forma basis in the same manner as
described in the definition of "Fixed Charge Coverage Ratio."
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
(without deductions for minority interests in any Restricted Subsidiaries) for
such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; provided that (i) the Net Income for such period of any Person that
is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for
by the equity method of accounting, shall be included only to the extent of the
amount of dividends or distributions or other payments paid in cash (or to the
extent converted into cash) to the referent Person or a Wholly Owned Subsidiary
thereof in respect of such period, and (ii) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Secured Debt to Cash Flow Ratio" means, with respect to
any Person at any date, the ratio of (i) the aggregate principal amount of
Indebtedness of such Person and its Restricted Subsidiaries outstanding on a
consolidated basis as of such date that is secured by assets that are or would
be Note Collateral (as defined in the First Mortgage Note Indenture and related
collateral documents without amendment, whether or not any First Mortgage Notes
are then outstanding) minus the amount of unrestricted cash and unrestricted
Cash Equivalents of such Person and its Restricted Subsidiaries outstanding on a
consolidated basis as of such date (excluding any cash and cash equivalents
resulting from the proceeds of the Indebtedness proposed to be incurred) to (ii)
Consolidated Cash Flow of such Person for the four fiscal quarters most recently
completed for which internal financial statements are available. The
Consolidated Net Secured Debt to Cash Flow Ratio will be calculated on a pro
forma basis in the same manner as described in the definition of "Fixed Charge
Coverage Ratio."
"Consolidated Net Worth" means, with respect to any Person at any time, the
sum of the following items, as shown on the consolidated balance sheet of such
Person and its Restricted Subsidiaries as of such date, and otherwise as
determined in accordance with GAAP, (i) the common equity of such Person and its
Restricted Subsidiaries; (ii) (without duplication), (a) the aggregate
liquidation preference of Preferred Stock of such Person and its Restricted
Subsidiaries (other than Disqualified Stock), and (b) any increase in
depreciation and amortization resulting from any purchase accounting treatment
from an acquisition or related financing; and (iii) less any goodwill incurred
subsequent to the Issuance Date; and (iv) less any write up of assets (in excess
of fair market value) after the Issuance Date, in each case on a consolidated
basis for such Person and its Restricted Subsidiaries, determined in accordance
with GAAP.
"Contingent Restricted Investment" means, with respect to any Person (the
"Guarantor Party"), (i) any Guarantee by such Guarantor Party of Indebtedness of
another Person (the "Guaranteed Party") or (ii) any enforceable obligation or
commitment of the Guarantor Party to make any Investment in any other Person
(the "Guaranteed Party") (whether or not the obligation or commitment to make
such Investment is subject to conditions or contingencies) if:
(i) such Guarantee or obligation or commitment would be required to be
disclosed as a contingent obligation in the footnotes to the consolidated
financial statements of the Guarantor Party and its Restricted Subsidiaries
prepared in accordance with GAAP, and
(ii) the funding or payment upon such Guarantee or obligation or
commitment would constitute a Restricted Investment in the Guaranteed
Party.
For purposes of this definition, the Stratosphere Agreements shall
constitute Contingent Restricted Investments made by the Company.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
Issuance Date or (ii) was nominated for election or elected to such Board of
Directors with, or whose election to such Board of Directors was approved by,
the affirmative vote of a majority of the Continuing Directors who were members
of such Board of Directors at the time of such nomination or election.
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"Deemed Incurred Indebtedness" means Indebtedness that is deemed to be
incurred pursuant to the covenant entitled "Restricted Payments" in respect of
any guarantee, and shall be deemed to carry an interest rate equal to the
interest rate on the New Notes.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any Capital Stock into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the last
stated maturity of any of the New Notes then outstanding; other than a
redemption or maturity that is expressly subject to treating such event as a
Restricted Payment and compliance with the Senior Note Indenture.
"Equipment" means any gaming, restaurant, hotel, theater, sports or
recreation furniture, fixtures, vehicles and equipment or any furniture,
fixtures, vehicles or equipment ancillary or related thereto.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Casinos" means Grand Casino Gulfport, Grand Casino Biloxi, Grand
Casino Tunica and if the Stratosphere Corporation becomes a Restricted
Subsidiary, the Stratosphere Tower, Hotel and Casino.
"Existing First Mortgage Note Indenture" means the Indenture, dated as of
November 30, 1995, among the Company, the guarantors party thereto and American
Bank National Association, as trustee, with respect to the Company's Existing
First Mortgage Notes.
"Existing First Mortgage Notes" means the Company's 10 1/8% First Mortgage
Notes due 2003, issued pursuant to the Existing First Mortgage Note Indenture.
"Existing Indebtedness" means all Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issuance Date, plus interest
accruing thereon, after application of the net proceeds of sale of the Old
Notes, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
Preferred Stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of Preferred Stock, as if the same had occurred at the
beginning of the applicable four-quarter period. For purposes of making the
computation referred to above, acquisitions, dispositions and discontinued
operations (as determined in accordance with GAAP) that have been made by the
Company or any of its Restricted Subsidiaries, including all mergers,
consolidations and dispositions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be calculated on a pro forma basis assuming that all such acquisitions,
dispositions, discontinued operations, mergers, consolidations (and the
reduction of any associated fixed charge obligations resulting therefrom) had
occurred on the first day of the four-quarter reference period.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (a) Consolidated Interest Expense of such Person for such period and all
capitalized interest paid or accrued during such period by such Person and (b)
the product of (i) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Restricted Subsidiary) on any series of Preferred
Stock of such Person, times (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory income tax rate of such Person, expressed as a decimal. in
each case, on a consolidated basis of such Person and its Restricted
Subsidiaries, and otherwise in accordance with GAAP.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Senior Note Indenture, the term "consolidated" with respect to any Person shall
mean such Person consolidated with its Restricted Subsidiaries, and shall not
include any Unrestricted Subsidiary.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or foreign government, any state, province or any city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including without limitation, the Mississippi Gaming Commission, the
National Indian Gaming Commission and any other agency with authority to
regulate any gaming operation (or proposed gaming operation) owned, managed or
operated by the Company or any of it Subsidiaries.
"Gaming License" means every license, franchise registration,
qualification, finding of suitability or other authorization required to own,
lease, operate or otherwise conduct gaming activities of the Company or any of
its Subsidiaries, including without limitation, all such licenses granted by any
Gaming Authority, and the regulations promulgated pursuant thereto, and other
applicable federal, state, foreign or local laws.
"Gaming Support Business" means any Person or entity engaged in or which
proposes to engage in a business related to, in support of, or useful to, any
part of the Principal Business operated by or proposed to be operated by the
Company or its Restricted Subsidiaries but will exclude any Person or entity
engaged in, or whose subsidiaries are engaged in, the casino gaming business.
"Global Notes" means one or more permanent global notes that are deposited
with and registered in the name of the Depositary or its nominee, representing a
series of New Notes sold in reliance on Rule 144A.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
Government Security or a specific payment of principal of or interest on any
such Government Security held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Security or the specific payment of principal of or
interest on the Government Securities evidenced by such depository receipt.
"Grand Casino Tunica" means that certain resort located in Tunica County,
Mississippi known as Grand Casino Tunica.
"Grand Controlled Entities" means (i) any Unrestricted Subsidiary of the
Company, (ii) any other Person at least 33% of the common equity of which is
owned by the Company, a Restricted Subsidiary of the Company or a Guarantor, and
whose day-to-day operations are managed by the Company, a Restricted Subsidiary
of the Company or a Guarantor pursuant to a contractual arrangement or (iii) any
casino operated by an Indian tribe under the Indian Gaming Regulatory Act of
1988, as amended, any other Indian tribe legally authorized to conduct gaming
and for which the Company, a Restricted Subsidiary of the Company, Guarantor, or
a subsidiary of a Guarantor is the manager pursuant to a contract approved or
subject to approval by the National Indian Gaming Commission (or by a foreign
government or foreign regulatory agency if such approval is legally required).
"Guarantee" means with respect to any Person a guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including
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without limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of an Indebtedness of another Person, or any
enforceable commitment to make an Investment in such other Person.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under such derivative securities as (i) currency exchange or
interest rate swap agreements, currency exchange or interest rate cap agreements
and currency exchange or interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange or interest rates.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iii) representing the
balance deferred and unpaid of the purchase price of any property (including
Capital Lease Obligations), except any such balance that constitutes an accrued
expense or trade payable, or (iv) representing any Hedging Obligations, if and
to the extent any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, (b) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business) if such obligation would be a contingent obligation that is required
to be described in the footnotes to the financial statements of such Person in
accordance with GAAP, (c) to the extent not otherwise included, Indebtedness of
another Person secured by a Lien on any asset owned by such Person (whether or
not such Indebtedness is assumed by such Person) and (d) any Deemed Incurred
Indebtedness of such Person. For purposes of this definition, the term
"Indebtedness" shall not include any amount of the liability in respect of an
operating lease that at such time would not be required to be capitalized and
reflected as a liability on the balance sheet in accordance with GAAP.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, (i) qualified to perform the task
for which it has been engaged and (ii) disinterested and independent with
respect to the Company and all of the Subsidiaries, each Affiliate of the
Company, and the Permitted Holder and its Related Parties.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans or
Guarantees, advances or capital contributions (excluding commission, travel,
relocation, loans to purchase equity in the Company and other advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions by such Person for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issuance Date" means the closing date for the sale and original issuance
of the first series of New Notes issued under the Senior Note Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" shall have the meaning set forth in the Registration
Rights Agreement.
"Make-Whole Premium" means, with respect to any Senior Note, an amount
equal to the greater of (i) the premium above the principal amount if such
Senior Note were redeemed on the First Optional Redemption Date and (ii) the
excess of (a) the present value of all remaining interest, premium and principal
payments due on such Senior Note as if such Senior Note were redeemed on the
First Optional Redemption Date, computed using a discount rate equal to the
Treasury Rate plus 75 basis points, over (b) the outstanding principal amount of
such Senior Note.
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"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries, and (ii) excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien (other than the New Notes) on
the asset or assets that are the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets.
"Non-Recourse Financing" means Indebtedness incurred in connection with the
purchase or lease of personal or real property useful in the Principal Business
and (i) as to which the lender upon default may seek recourse or payment only
through the return or sale of the property or equipment so purchased or leased
and (ii) may not otherwise assert a valid claim for payment on such Indebtedness
against the Company or any Restricted Subsidiary or any other property of the
Company or any Restricted Subsidiary.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of the Company
or a Guarantor, as the case may be, by two Officers of the Company or a
Guarantor, as the case may be, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company or a Guarantor, as the case may be, that meets
the requirements set forth in the Senior Note Indenture.
"Permitted Holder" means Lyle Berman.
"Permitted Investments" means (a) any Investments in the Company or in any
Guarantor; (b) any Investments in Cash Equivalents; and (c) Investments by the
Company or any Restricted Subsidiary of the Company in a Person, if as a result
of such Investment (i) such Person becomes a Guarantor or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Guarantor.
"Permitted Liens" means:
(a) Liens in favor of or by the Company or a Guarantor;
(b) Liens on property of a Person existing at the time such Person is
merged into or consolidated with or into, or wound up into, the Company or
any Restricted Subsidiary of the Company or at the time such Person becomes
a Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation or
winding up, or such Person becoming a Restricted Subsidiary, and do not
extend to any other assets other than those of such Person;
(c) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such acquisition;
(d) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business or in the construction of
projects and which obligations are not expressly prohibited by the Senior
Note Indenture;
(e) Liens on assets that are or would be Note Collateral (as defined
in the First Mortgage Note Indenture and related collateral documents
without amendment, whether or not any First Mortgage
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Notes are then outstanding) securing obligations in respect of the Existing
First Mortgage Note Indenture and the Existing First Mortgage Notes or any
guarantee thereof or other Indebtedness permitted to be incurred under the
Senior Note Indenture which may be incurred under paragraphs (c) and (d)
under the covenant entitled "Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock" or refinancings of secured Indebtedness
permitted thereunder;
(f) Liens and leases existing on the Issuance Date;
(g) (1) Liens for taxes, assessments or governmental charges or claims
or (2) statutory Liens of landlords, and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business or in the construction of any
project, in the case of each of (1) and (2), with respect to amounts that
either (A) are not yet delinquent or (B) are being contested in good faith
by appropriate proceedings as to which appropriate reserves or other
provisions have been made in accordance with GAAP;
(h) easements, rights-of-way, navigational servitudes, restrictions,
defects or irregularities in title and other similar charges or
encumbrances which do not interfere in any material respect with the
ordinary conduct of business of the Company and its Restricted
Subsidiaries;
(i) Liens securing purchase money or lease obligations otherwise
permitted by the Senior Note Indenture incurred or assumed in connection
with the acquisition, purchase or lease of real or personal property to be
used in the Principal Business of the Company or any of its Restricted
Subsidiaries; provided that such Lien does not extend to any property or
assets of the Company or any Restricted Subsidiary other than the property
or assets so purchased or leased or any proceeds therefrom, replacements
thereof or accessions thereto.
(j) a leasehold mortgage in favor of a party financing the lessee's
development of improvements on property leased to lessee; provided that
neither the Company nor any Restricted Subsidiary is liable for the payment
of any principal of, or interest or premium on, such financing;
(k) Liens on assets that are not or would not be Note Collateral (as
defined in the First Mortgage Note Indenture and related collateral
documents without amendment, whether or not any First Mortgage Notes are
then outstanding) to secure obligations under any Indebtedness permitted to
be incurred by the Senior Note Indenture that is not expressly subordinated
to the New Notes;
(l) Liens for workers' compensation, unemployment insurance and other
types of social security benefits;
(m) attachment or judgment liens not giving rise to an Event of
Default;
(n) leases and subleases granted to or by the Company or its
Restricted Subsidiaries that do not interfere with the ordinary conduct of
the business of the Company and its Restricted Subsidiaries;
(o) Liens imposed by operation of law that do not materially affect
the Company's or any Guarantor's ability to perform its respective
obligations under the Senior Note Indenture; provided that any such Liens
do not secure Indebtedness; and
(p) Liens securing extensions, refinancings, renewals, replacements
and refunding of the obligations secured by Liens referred to in clauses
(a), (e), (i), (j) and (k) above.
"Permitted Unrestricted Subsidiary Indebtedness" means Indebtedness or
Disqualified Stock, as the case may be, or that portion of Indebtedness or
Disqualified Stock, as the case may be, (a) as to which neither the Company nor
any of its Restricted Subsidiaries (i) provides credit support pursuant to any
undertaking, agreement or instrument that would constitute Indebtedness or
Disqualified Stock, as the case may be, or (ii) is directly or indirectly
liable, and (b) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness or Disqualified Stock, as the case may be, of the Company or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or Disqualified Stock, as the case may be, or cause the payment
thereof to be accelerated or payable prior to its
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stated maturity; provided that the Company or a Restricted Subsidiary may
guarantee Permitted Unrestricted Subsidiary Indebtedness if such Guarantee is
permitted as a Restricted Payment.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principal Business" means the casino gaming and resort business and any
activity or business incidental, directly related or similar thereto, or any
business or activity that is a reasonable extension, development or expansion
thereof or ancillary thereto, including any hotel, theme park, observation
tower, golf course, entertainment, recreation or other activity or business
designed to promote, market, support, develop, complement, construct or enhance
the casino gaming or resort business operated by the Company or its Restricted
Subsidiaries.
"Related Parties" means any Person controlled by the Permitted Holder, any
member of the immediate family or descendant of the Permitted Holder, any trust
for the benefit of the Permitted Holder or any member of the immediate family or
descendant of the Permitted Holder.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a holder's New Notes pursuant to the covenants described under
the covenants entitled "Change of Control" and "Asset Sales."
"Restricted Investment" means (i) an Investment other than a Permitted
Investment or (ii) any sale, conveyance, lease, transfer or other disposition of
assets at less than fair market value to an Unrestricted Subsidiary, provided
that the amount of such Restricted Investment under this clause (iii) shall be
such difference in value.
"Restricted Subsidiary" means, at any time, any Subsidiary of the Company
that is not then an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"New Notes" means the Company's New Notes to be issued pursuant to the
Senior Note Indenture.
"Senior Secured Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary that is secured by assets of the Company or any Restricted
Subsidiary that is permitted to be incurred by the Senior Note Indenture.
"Series B Notes" shall have the meaning set forth in the Registration
Rights Agreement.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the Issuance Date.
"Stratosphere Agreements" means the Completion Guarantee (or otherwise to
complete the development of Stratosphere that, in combination with the
Completion Guarantee, does not exceed $50 million in the aggregate), the Standby
Equity Commitment, outstanding warrants and the other documents and agreements
in existence on the Issuance Date between the Company or any of its Subsidiaries
and Stratosphere Corporation.
"Stratosphere Corporation" means the Stratosphere Corporation, a Delaware
corporation.
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to the New Notes or any Note Guarantee.
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"Subsidiary" means, with respect to any Person, (i) any corporation.
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership of
which more than 50% of the partnership's capital accounts, distribution rights
or general or limited partnership interests are owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person or a combination thereof. A Subsidiary of the Company shall be either a
Restricted Subsidiary or an Unrestricted Subsidiary, but not both.
"Substantially Undeveloped Land" means any real estate that does not have
any building other than any building whose fair market value is less than $1
million and does not have any substantial improvement other than roads, utility,
water and sewage connections, paved or cleared parking areas or other
significant improvement necessary for the operation of the Existing Casinos.
"Treasury Rate" means the yield to maturity at the time of the computation
of the United States Treasury securities with a constant maturity (as complied
by and published in the most recent Federal Reserve Statistical Release
H.15(519)), which has become publicly available at least two business days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly
equal to the then remaining average life to the First Optional Redemption Date;
provided, however, that if the average life of such Senior Note is not equal to
the constant maturity of the United States Treasury security for which weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the average life of such Mortgage Notes is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means a Subsidiary that has been designated as an
"Unrestricted Subsidiary" in accordance with the provisions of the Senior Note
Indenture and any Subsidiary of such entity, so long as it remains an
Unrestricted Subsidiary in accordance with the terms of the Senior Note
Indenture.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (x) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
REGISTRATION RIGHTS
Eligible Holders of New Notes (other than as set forth below) are not
entitled to any registration rights with respect to the New Notes. Pursuant to
the Registration Rights Agreement, Eligible Holders of Old Notes are entitled to
certain registration rights. Under the the Registration Rights Agreement, the
Company has agreed for the benefit of holders of the Old Notes to (i) to file an
Exchange Offer Registration Statement with the SEC on or prior to 30 days after
the issuance of the Old Notes; (ii) use its best efforts to have the Exchange
Offer Registration Statement declared effective by the SEC on or prior to 120
days after the
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issuance of the Old Notes; (iii) unless the Exchange Offer would not be
permitted by applicable law or SEC policy, to commence the Exchange Offer and
use its best efforts to issue on or prior to 30 business days after the date on
which the Exchange Offer Registration Statement was declared effective by the
SEC, New Notes in exchange for all Old Notes tendered prior thereto in the
Exchange Offer and (iv) if obligated to file the Shelf Registration Statement
(as defined in the Registration Rights Agreement), to use its best efforts to
file the Shelf Registration Statement with the SEC on or prior to 30 days after
such filing obligation arises and to cause the Shelf Registration to be declared
effective by the SEC on or prior to 120 days after such obligation arises. The
Registration Statement of which this Prospectus is a part constitutes the
Exchange Offer Registration Statement.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Eligible Holders of Transfer Restricted Securities
pursuant to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for New Notes.
If (i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy or (ii) any Holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (A) it is prohibited by law or
SEC policy from participating in the Exchange Offer or (B) that it may not
resell the New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or (C)
that it is a broker-dealer and owns New Notes acquired directly from the Company
or an affiliate of the Company, the Company will file with the SEC a Shelf
Registration Statement to cover resales of the New Notes by the Eligible Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Old Note until (i) the date on which such Old Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of an Old Note
for a New Note, the date on which such New Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Old Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Old Note is distributed to the public pursuant to Rule
144 under the Act.
If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the SEC on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date"), or (c) the Company fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $.05 per week per $1,000 principal amount of New Notes held
by such Holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount of New Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of New Notes. All accrued Liquidated Damages will be paid by
the Company on each Interest Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Eligible Holders of Certificated Securities by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
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Eligible Holders of Old Notes will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Old Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will eliminate
all rights of the holders of Old Notes eligible to participate in the Exchange
Offer to receive Liquidated Damages that would have been payable if such actions
had not occurred.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Company has received from Maslon Edelman Borman & Brand, LLP, such
firm's opinion, dated December 19, 1997, that, based upon and subject to certain
facts, representations and assumptions set forth therein, the following
discussion, except as otherwise indicated, represents such firm's opinion as to
the material United States Federal income tax consequences of the Exchange Offer
under applicable law in effect as of such date.
The following is a discussion of certain United States Federal income tax
considerations associated with the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by Holders who acquire the New Notes
pursuant to the Exchange Offer. This discussion is based upon existing United
States Federal income tax law, which is subject to change, possibly
retroactively. This discussion does not describe all relevant aspects of United
States Federal income taxation that may be important to particular Holders in
light of their individual investment circumstances or certain types of Holders
subject to special tax rules (e.g., financial institutions, insurance companies,
broker-dealers, or tax-exempt organizations) or to persons that hold or will
hold the Notes as a position in a "straddle" or as part of a "hedging" or
"conversion" transaction, all of whom may be subject to tax rules that differ
significantly from those described below. In addition, this discussion does not
described any foreign, state, or local tax considerations. This discussion deals
only with Old Notes and New Notes held by initial purchasers of Old Notes as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). For
purposes of this discussion, a "U.S. Holder" is (i) an individual citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate that is subject to United States
Federal income taxation without regard to the source of its income, or (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States fiduciaries who have the
authority to control all substantial decisions of the trust. For purposes of
this discussion, a "Non-U.S. Holder" is any Holder who is not a U.S. Holder.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE PARTICULAR TAX CONSEQUENCES OF ACQUIRING, OWNING, AND
DISPOSING OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
EXCHANGE OFFER
The consummation of the Exchange Offer will not be a taxable event for
United States Federal income tax purposes. Accordingly, a Holder receiving New
Notes pursuant to the terms of the Exchange Offer will
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have the same adjusted tax basis and holding period in New Notes, for United
States Federal income tax purposes, as such Holder had in the Old Notes tendered
in exchange therefor.
U.S. HOLDERS
Interest payable on the New Notes will be includible in the income of a
Holder in accordance with such Holder's normal method of accounting. Except in
the case of an Old Note purchased at a discount to its original issue price, a
Holder will recognize capital gain or loss upon the sale or other disposition of
a New Note in an amount equal to the difference between the amount realized from
such disposition and his tax basis in the New Note. Under recently-enacted
legislation, net capital gain (i.e., generally, capital gain in excess of
capital loss) recognized by an individual Holder upon the disposition of New
Notes that have been held for more than 18 months will generally be subject to
tax at a rate not to exceed 20%. Net capital gain recognized by a Holder upon
the disposition of New Notes that have been held for more than 12 months but for
not more than 18 months will continue to be subject to tax at a rate not to
exceed 28% and net capital gain from the disposition of New Notes that have been
held for 12 months or less will continue to be subject to tax at ordinary income
tax rates. In addition, capital gain recognized by a corporate Holder will
continue to be subject to tax at the ordinary income tax rates applicable to
corporations.
In the case of a Holder who has purchased a New Note at a discount to its
original issue price in excess of a statutorily defined de minimis amount and
has not elected to include such discount in income on a current basis, (i) any
gain recognized on the disposition of a New Note will be subject to tax as
ordinary income, rather than capital gain, to the extent of accrued market
discount and (ii) a portion of the interest expense on indebtedness incurred or
maintained to purchase or carry such note may not be deducted until the note is
disposed of in a taxable transaction.
NON-U.S. HOLDERS
Under present United States Federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:
(a) payments of interest on the New Notes to any Non-U.S. Holder
generally will not be subject to United States Federal income or
withholding tax, provided that (1) the Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of The Company entitled to vote, (2) the Holder is not a
controlled foreign corporation that is related to The Company through stock
ownership, and (3) such interest payments are not effectively connected
with the conduct of a United States trade or business of the Holder;
(b) a Holder who is a Non-U.S. Holder generally will not be subject to
the United States Federal income tax on gain realized on the sale, exchange
or other disposition of a New Note, unless (1) such Holder is an individual
who is present in the United States for 183 days or more during the taxable
year and certain other requirements are met, or (2) the gain is effectively
connected with the conduct of a United States trade or business of the
Holder; and
(c) if interest on the New Notes is exempt from withholding of United
States Federal income tax under the rules above, the New Notes will not be
included in the estate of a deceased Non-U.S. Holder for United States
Federal estate tax purposes.
The certification referred to above may be made on an Internal Revenue
Service ("IRS") Form W-8 or substantially similar substitute form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder of the New Notes may be subject to information reporting and to
backup withholding at a rate of 31 percent of certain amounts paid to the Holder
unless such Holder (a) is a corporation or comes within certain other exempt
categories and, when required, provides proof of such exemption or (b) provides
a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and
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otherwise complies with applicable requirements of the backup withholding rules.
Under current regulations, information reporting and backup withholding do not
apply to interest payments made at an address outside the United States to a
Holder of the New Notes that is not a U.S. Holder if the beneficial owner of the
New Notes (a) provides a statement in which such owner certifies, under
penalties of perjury, that such owner is not a United States person and provides
such owner's name and address or (b) otherwise establishes an exemption;
provided that The Company or its paying agent, as the case may be, does not have
actual knowledge that the Holder is a U.S. Holder.
Under current regulations, payment of the proceeds from the sale of the New
Notes to or through a foreign office of a "broker" (as defined in applicable
Treasury regulations) will not be subject to information reporting or backup
withholding, except that if the broker is a United States person, a controlled
foreign corporation for United States Federal income tax purposes or a foreign
person 50 percent or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment was effectively connected with a United States trade or business,
information reporting (but not backup withholding) may apply to such payments
unless the broker has in its records documentary evidence that the Holder of the
New Notes is not a United States person and certain conditions are met or the
Holder of the New Note otherwise establishes an exemption. Payment of the
proceeds from a sale of the New Notes to or through the United States office of
a broker is subject to information reporting and backup withholding unless the
Holder certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules are not additional
tax and may be credited against the U.S. Holder's United States Federal income
tax liability, provided that the required information is furnished to the IRS.
Recently, the Treasury Department promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements described above but unify current
certification procedures and forms and clarify reliance standards. The final
regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business on the 90th day following
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998 (90 days from the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers or any other persons. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold form time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging
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that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an 'underwriter' within the meaning of the Securities
Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to its performance of, or compliance with, the Registration Rights
Agreement and will indemnify the Eligible Holders (including any broker-dealers)
and certain parties related to the Eligible Holders against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and the guaranty thereof by the Guarantors
has been passed upon for the Company by Maslon Edelman Borman & Brand, LLP,
Minneapolis, Minnesota. Neil I. Sell, a director of the Company, is a partner in
the law firm of Maslon Edelman Borman & Brand, LLP. Mr. Sell beneficially owns
1,297,198 shares of Common Stock, which include 1,242,000 shares beneficially
owned as trustee. Mr. Sell has disclaimed beneficial ownership of all shares
beneficially owned as trustee. No other partners of Maslon Edelman Borman &
Brand, LLP own any shares of Common Stock.
EXPERTS
The audited consolidated financial statements of the Company as of December
29, 1996 and December 31, 1995 and for each of the years in the two-year period
ended December 29, 1996, incorporated by reference in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports. The consolidated financial
statements of the Company for the year ended January 1, 1995 incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by KPMG Peat Marwick LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
The consolidated financial statements of Stratosphere as of December 29,
1996 and December 31, 1995 and for each of the years in the two-year period
ended December 29, 1996, incorporated by reference in this Prospectus and
elsewhere in the Registration Statement through the filing, as an exhibit to the
Company's Form 10-K for the fiscal year ended December 29, 1996, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto (which contains an explanatory paragraph with
respect to substantial doubt about Stratosphere's ability to continue as a going
concern), and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said reports. The consolidated
financial statements of Stratosphere for the year ended December 31, 1994
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement through the filing, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 29, 1996, have been audited by KPMG Peat Marwick LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports.
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GRAND CASINOS, INC.
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, MN 55101-1860
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the
accompanying Letter of Transmittal, and, if given or made, such information or
representations must not be relied upon as having been authorized. Neither this
Prospectus nor the accompanying Letter of Transmittal nor both together
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which the Prospectus relates or an offer
to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus or the Letter of Transmittal or both together nor
any exchange made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date.
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EXHIBIT 8
[MASLON EDELMAN BORMAN & BRAND LETTERHEAD]
December 19, 1997
Grand Casinos, Inc.
130 Chesire Lane
Minnetonka, MN 55305
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted on behalf of Grand Casinos, Inc. (the "Company") in
connection with a Registration Statement on Form S-4, as amended (File No.
333-39009) (the "Registration Statement"), originally filed with the Securities
and Exchange Commission on October 29, 1997, relating to an offer to exchange
all of the Company's outstanding 9% Series A Senior Notes Due 2004 for the
Company's 9% Series B Senior Notes Due 2004.
Our opinion is based upon existing law and currently applicable
Treasury Department regulations, current published administrative positions of
the Internal Revenue Service contained in revenue rulings and revenue
procedures, and judicial decisions, all of which are subject to change
prospectively and retroactively.
We have participated in the preparation of the discussion set forth
under the heading "Certain Federal Income Tax Considerations" in the Prospectus
that is part of the Registration Statement. Such discussion represents our
opinion as to the material federal income tax consequences of the Exchange
Offer under currently applicable law and such discussion is specifically
incorporated by reference in this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Certain Federal Income Tax Considerations" and elsewhere in the Prospectus
that is part of the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Sincerely,
/s/ MASLON EDELMAN BORMAN & BRAND, LLP
