UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO
________
COMMISSION FILE NO. 1-12030
STRATOSPHERE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0292318
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2000 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(702) 382-4446
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO ______
INDICATE THE NUMBER OF SHARES OUTSTANDING FOR EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 58,393,105.
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FORM 10-Q STRATOSPHERE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 29, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Operations for the nine months
ended September 29, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Operations for the three months
ended September 29, 1996 and September 30, 1995 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 29, 1996 and September 30, 1995 6-7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 3. Defaults Upon Senior Securities 14
Item 6. Exhibits and Reports on Form 8-K 15
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CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- -------------
(UNAUDITED)
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ASSETS
Current Assets:
Cash and cash equivalents $ 38,371,796 $ 92,595,770
Cash and cash equivalents-restricted 20,099,258 --
Accounts receivable 9,823,078 5,417,030
Other current assets 6,522,419 1,125,548
------------- -------------
Total Current Assets 74,816,551 99,138,348
------------- -------------
Property and Equipment, Net 435,681,686 194,908,237
------------- -------------
Other Assets:
Cash and cash equivalents-restricted -- 115,413,435
Securities available for sale 1,996,540 5,140,950
Debt issuance and deferred licensing costs-net 12,946,152 13,507,699
Pre-opening costs-net 4,051,922 5,796,862
------------- -------------
Total Other Assets 18,994,614 139,858,946
------------- -------------
TOTAL ASSETS $ 529,492,851 $ 433,905,531
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade $ 2,920,542 $ 338,745
Accounts payable-construction 36,094,517 33,523,612
Current installments of long-term debt and capital lease 10,800,000 --
Accrued interest 11,342,145 3,645,657
Accrued payroll and related expenses 3,648,236 166,485
Affiliate payable 5,771,773 803,865
Other accrued expenses 4,738,546 137,403
------------- -------------
Total Current Liabilities 75,315,759 38,615,767
------------- -------------
Long-term Liabilities:
Long-term debt and capital lease-less current installments 228,000,000 203,000,000
Note payable to affiliate 50,000,000 --
------------- -------------
Total Long-Term Liabilities 278,000,000 203,000,000
------------- -------------
TOTAL LIABILITIES 353,315,759 241,615,767
------------- -------------
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares
authorized; no shares issued and outstanding
Common stock, $.01 par value; authorized 100,000,000 shares;
issued and outstanding 58,393,105 and 56,361,117
at September 29, 1996 and December 31, 1995, respectively 583,931 563,611
Additional paid-in-capital 218,779,007 199,697,889
Accumulated deficit (43,185,846) (7,971,736)
------------- -------------
Total Shareholders' Equity 176,177,092 192,289,764
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 529,492,851 $ 433,905,531
============= =============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 29, 1996 1996 1995
AND SEPTEMBER 30, 1995 ------------ ------------
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REVENUES:
Casino $ 26,569,994 $ --
Hotel 12,036,486 --
Food and beverage 17,050,798 --
Tower, retail and other income 16,345,496 45,371
------------ ------------
Gross Revenues 72,002,774 45,371
Less: Promotional allowances 6,786,251 --
------------ ------------
NET REVENUES 65,216,523 45,371
------------ ------------
COSTS AND EXPENSES:
Casino 13,504,136 --
Hotel 4,747,348 --
Food and beverage 14,474,982 --
Other operating expenses 6,342,519 --
Depreciation and amortization 5,719,196 1,186,984
Pre-opening costs amortization 19,886,459 --
Selling, general and administrative 28,098,738 550,069
------------ ------------
Total Costs and Expenses 92,773,378 1,737,053
------------ ------------
LOSS FROM OPERATIONS (27,556,855) (1,691,682)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 3,665,175 4,779,559
Interest expense (11,322,430) (8,700,050)
Loss on sale of assets -- (166,815)
------------ ------------
Total Other Expense, net (7,657,255) (4,087,306)
------------ ------------
NET LOSS $(35,214,110) $ (5,778,988)
============ ============
LOSS PER COMMON SHARE $ (0.61) $ (0.17)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,047,766 34,797,939
============ ============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 29, 1996 1996 1995
AND SEPTEMBER 30, 1995 ------------ ------------
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REVENUES:
Casino $ 14,259,954 $ --
Hotel 7,031,268 --
Food and beverage 9,815,438 --
Tower, retail and other income 9,115,553 23,715
------------ ------------
Gross Revenues 40,222,213 23,715
Less: Promotional allowances 4,903,269 --
------------ ------------
NET REVENUES 35,318,944 23,715
------------ ------------
COSTS AND EXPENSES:
Casino 7,512,100 --
Hotel 2,627,149 --
Food and beverage 8,970,014 --
Other operating expenses 3,994,785 --
Depreciation and amortization 3,230,179 530,673
Pre-opening costs amortization 12,234,201 --
Selling, general and administrative 16,284,130 221,319
------------ ------------
Total Costs and Expenses 54,852,558 751,992
------------ ------------
LOSS FROM OPERATIONS (19,533,614) (728,277)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 363,176 1,875,857
Interest expense (6,855,271) (3,429,831)
------------ ------------
Total Other Expense, net (6,492,095) (1,553,974)
------------ ------------
NET LOSS $(26,025,709) $ (2,282,251)
============ ============
LOSS PER COMMON SHARE $ (0.45) $ (0.06)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,393,105 39,398,777
============ ============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 29, 1996 1996 1995
AND SEPTEMBER 30, 1995 ------------- -------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (35,214,110) $ (5,778,988)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,009,427 1,186,984
Amortization of pre-opening costs 19,886,459 --
Loss on sale or disposal of assets 307,520 166,815
Changes in operating assets and liabilities:
Other current assets (27,944,438) (297,960)
Accounts payable - trade 2,581,797 (550,444)
Accrued expenses and income taxes 15,779,382 16,499,515
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (17,593,963) 11,225,922
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to stockholder -- (4,411,798)
(Increase) decrease in cash and cash equivalents-restricted 95,162,455 (103,028,651)
(Increase) decrease in securities available for sale 3,144,410 (58,383,717)
Payments for property and equipment (226,024,500) (52,703,690)
Increase in other long-term assets -- (1,669,248)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (127,717,635) (220,197,104)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock-net 1,296,446 --
Proceeds from exercise of stock options/common stock
purchase warrants -- 10,935,056
Costs of secondary stock offering (248,046) --
Debt issuance costs and deferred financing costs (728,684) (10,195,344)
Proceeds from issuance of long-term debt and capital lease obligations 38,670,375 216,493,458
Payments on long-term debt and capital lease obligations (2,870,375) (3,737,763)
Increase in affiliate payable 4,967,908 --
Proceeds from issuance of debt to affiliate 50,000,000 1,900,000
Cash proceeds from sale of property and equipment -- 928,134
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 91,087,624 216,323,541
------------- -------------
Net increase (decrease) in cash and cash equivalents (54,223,974) 7,352,359
Cash and cash equivalents - beginning of period 92,595,770 516,479
------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 38,371,796 $ 7,868,838
============= =============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 29, 1996 1996 1995
AND SEPTEMBER 30, 1995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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Cash paid during the period for:
Interest-net of capitalized interest 7,001,580 --
Income taxes -- 275,877
Non-Cash Investing and Financing Activities:
Increase (decrease) in land and improvements and construction in progress
included in long-term debt and accounts payable-construction 2,570,905 (121,409)
Issuance of common stock in purchase of land 18,204,760 --
Issuance of common stock in payment of underwriting fees in connection
with First Mortgage Notes -- 4,000,000
Purchase of land, buildings, furniture and equipment from
stockholder (principally Vegas World assets) as follows:
Purchase price -- 1,000,000
Cash paid -- --
----------- -----------
Note payable to stockholder -- 1,000,000
Preferential distribution to
stockholder -- 1,226,841
----------- -----------
Predecessor cost of assets aquired for non-cash consideration -- 2,226,841
=========== ===========
Increase in furniture and equipment from
reduction in notes receivable from stockholder -- 80,000
Offering costs recognized as a reduction in additional paid-in capital
in connection with initial public offering of common stock -- 23,570
Issuance of preferred stock to parent in payment of notes payable -- 33,524,860
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The accompanying condensed consolidated financial statements present
the financial position, results of operations and cash flows of Stratosphere
Corporation and its wholly-owned subsidiaries, Stratosphere Gaming Corporation,
Stratosphere Land Corporation and Stratosphere Advertising Agency (collectively
the "Company"). The Company commenced operations on April 29, 1996, with an
integrated casino, hotel and entertainment facility and an 1,149 foot,
free-standing observation tower.
PRINCIPLES OF PRESENTATION
The condensed consolidated financial statements have been prepared in
accordance with the accounting policies described in the Company's 1995 Annual
Report on Form 10-K. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these financials be read in conjunction with the Notes to Condensed Consolidated
Financial Statements which appear in that report.
In the opinion of management, the accompanying financial statements
include all adjustments (of a normal recurring nature) which are necessary for a
fair presentation of the results for the interim periods presented. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations of the
Securities and Exchange Commission.
RECLASSIFICATIONS
Certain amounts in the 1995 condensed consolidated financial statements have
been reclassified to conform with the 1996 presentation. These reclassifications
had no effect on the Company's net income.
REVENUES AND EXPENSES
Casino revenue is the net win from gaming activities (the difference between
gaming wins and losses). Casino revenues are net of accruals for anticipated
payouts of progressive and certain other slot machine jackpots. Revenues include
the retail value of rooms, food and beverage, and other items that are provided
to customers on a complimentary basis. A corresponding amount is deducted as
promotional allowances. The costs of such complimentaries are included in hotel,
and food and beverage expenses in the accompanying Condensed Consolidated
Statements of Operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, except in the case of capitalized
lease assets, which are stated at the lower of the present value of the future
minimum lease payments or fair market value at the inception of the lease.
Expenditures for additions, renewals, and improvements are capitalized. Costs of
repairs and maintenance are expensed when incurred. Leasehold acquisition costs
are amortized over the shorter of their estimated useful lives or the term of
the respective leases once the assets are placed in service.
Depreciation and amortization of property and equipment is computed using the
straight-line method over the following estimated useful lives:
Building and Leasehold Improvements 30 years
Leasehold Acquisition Costs 30 years
Furniture and Equipment 3-15 years
Land Improvements 15 years
LOSS PER COMMON SHARE
Loss per common share was computed by dividing net loss by the weighted average
number of common shares outstanding for the period. Stock options and warrants
have not been included in these calculations as their impact would be
anti-dilutive.
(2) COMMITMENTS
On May 3, 1996, the Company consummated a $37.5 million capital lease
transaction of which $33.3 million had been advanced as of September 29, 1996.
Based upon the Company's results of operations for the third fiscal quarter the
Company does not meet certain financial covenants that it has made part of the
capital lease. Failure to meet such financial covenants constitutes an event of
default under the capital lease that gives the lender the right to accelerate
such indebtedness. The Company does not have the ability to repay such
indebtedness. The acceleration of such indebtedness will also constitute an
event of default under the Company's First Mortgage Note Indenture - (See
Subsequent Events Note-4).
Pursuant to the Completion Guarantee under the Indenture to the First Mortgage
Notes the Company has borrowed $50 million from Grand Casinos, Inc. as of
September 29, 1996. The loan is subordinate to the First Mortgage Notes and
capital lease obligations and accrues interest at the rate of 14.25%. The
interest will accrue but will not be paid until the Company meets certain
financial covenants pursuant to the Indenture under the First Mortgage Notes.
The loan has been utilized to fund the completion of Phase I of the project.
(3) CONTINGENCIES
On August 5, 1996, a complaint was filed in the United States District Court for
the District of Nevada (Michael Caesar, et al. v. Stratosphere Corporation, et
al.) against the Company, Lyle A. Berman (an officer and director of the Company
and Grand Casinos, Inc. ("Grand"), Robert E. Stupak (a former officer and
director of the Company), Bob Stupak Enterprises, David R. Wirshing (a former
officer and director of the Company), Thomas A. Lettero (an officer of the
Company), Thomas G. Bell (a director of the Company), Andrew S. Blumen (an
officer and director of the Company), and Grand. The complaint purports to seek
relief on behalf of a class of plaintiffs who purchased the Company's Common
Stock during the period from December 19, 1995, through July 22, 1996,
inclusive. The complaint alleges that the defendants made misrepresentations and
engaged in other wrong doing. The Company believes that the claims made in the
complaint are without merit. The Company plans to vigorously defend such claims.
In addition to the Caesar case, additional cases making the same claims against
the same defendants have been filed by the following plaintiffs: Mitchel Gordon
on October 7, 1996; Robert Johnson on September 19, 1996; Regina Peltz on August
13, 1996; and Ronald Stengel on August 13, 1996. The court is currently
considering a motion to consolidate these cases with the Caesar case. These
complaints purport to seek relief on behalf of a class of plaintiffs who
purchased the Company's Common Stock during the period from December 19, 1995,
through July 22, 1996, inclusive. The complaints allege that the defendants made
misrepresentations and engaged in other wrong doing. The Company believes that
the claims made in the complaint are without merit. The Company plans to
vigorously defend such claims.
On August 16, 1996, a complaint was filed in District Court , Clark County,
Nevada (Victor Opitz et al. v. Stratosphere Corporation et al.) against the
Company, Grand Casinos ("Grand"), Robert Stupak (a former officer and director
of the Company), Lyle Berman (an officer and director of the Company and Grand
Casinos) and Stanley Taube (a director of the Company and Grand Casinos). The
complaint purports to seek relief on behalf of a class of plaintiffs who
purchased stock during the period from December 19, 1995, to July 22, 1996. The
complaint alleges the defendants made misrepresentations and engaged in other
wrong doing. The Company believes that the claims made in this complaint are
without merit. The Company plans to vigorously defend such claims.
See the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, and the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1996 and June 30, 1996, for information regarding other
pending legal proceedings.
(4) SUBSEQUENT EVENTS
On October 24, 1996, the Company announced that it is continuing to seek
additional financing and is discussing restructuring both its existing First
Mortgage Note indebtedness and capital lease obligation. Based on its current
and projected cash position, the Company does not plan to make the First
Mortgage Note interest payment of $14.5 million that is due November 15, 1996.
Failure to make such payment will result in an event of default that gives the
note holders the right to accelerate such indebtedness. This right does not vest
until the expiration of the 30 day right to cure this default by the Company.
The Company does not currently have the ability to repay the indebtedness. It is
likely that negotiations with creditors, whether successful or not at arriving
at a restructuring, will involve a bankruptcy filing as a means of formalizing
and approving a consensual or nonconsensual restructuring. If the Company cannot
restructure its existing indebtedness, there will be serious doubt as to whether
or not the Company will be able to continue as a going concern.
On October 30, 1996, the Company executed a Standstill Agreement with the
lenders associated with the capital lease obligation. The Standstill will remain
in place for the period up until the earlier of a bankruptcy filing or payment
default. The agreement required the Company to make the scheduled payment due on
October 30, 1996, of $3.2 million. The payment was made on October 31, 1996. In
addition, the agreement provided that $4.2 million in funds yet to be advanced
from the escrow would be used to reduce the principal payment on a pro rata
basis to the balance of the capital lease obligation. The application to
principal of the remaining funds was completed October 30, 1996.
As a result of the announced restructuring plans and the subsequent loss of
certain management, as well as the concern of further losses due to the opening
of other new hotel casinos, the Company has entered into agreements with
various key personnel, wherein these employees agreed to remain employed by the
Company for a period of one year in exchange for the promise of severance pay
should the employee be terminated as a result of the restructuring or change in
management or board of directors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company commenced operations on April 29, 1996, with a 1,149 foot, free
standing observation tower with an integrated casino, hotel and entertainment
complex. Prior to opening, the Company was in the development stage and did not
have any historical operating income as there were no operating revenues.
Expenses consisted primarily of interest and amortization of costs and expenses
relating to the First Mortgage Notes issued in March 1995. Due to the short
operating period, historical results may not be indicative of future operating
results.
THREE MONTHS ENDED SEPTEMBER 29, 1996
The third-quarter was the first full period of operations producing gross
revenues of $40.2 million. Casino revenue represented 35% of gross revenue,
hotel 18%, food and beverage 24%, and tower, retail and other revenue 23%.
Revenues generated from slot machines represented 66% of total casino revenue.
The net loss for the quarter was $26.0 million inclusive of amortization of
pre-opening expenses of $12.2 million. The loss per common share was $0.45
consisting of $0.24 from operations and $0.21 from the amortization of
pre-opening expenses.
The Company experienced hotel occupancy of 90.9% at an average daily rate of $59
for the quarter. Tower visitation totaled 881,861 for the period inclusive of
guests dining at the Top of The World revolving restaurant. The average weekly
visitation dropped from 79,113 during the second fiscal quarter to 67,835 for
the third fiscal quarter.
NINE MONTHS ENDED SEPTEMBER 29, 1996
As indicated above, the Company began operations April 29, 1996. The nine month
period ended September 29, 1996, represents only five months of operations. The
Company generated net revenues of $65.2 million for the period. The net loss was
$35.2 million inclusive of amortization of pre-opening expense of $19.9 million.
The loss per common share was $0.61 consisting of $0.27 from operations and
$0.34 from the amortization of pre-opening costs.
OTHER FACTORS AFFECTING EARNINGS
The Company's policy is to fully amortize pre-opening costs over a six-month
period following commencement of operations. Approximately $4.1 million remains
to be amortized during the fourth quarter.
Construction of the facility continued during the third quarter and the Company
capitalized interest of $2.5 million for the three months ended September 29,
1996, and $13.7 million for the nine months ended September 29, 1996. A portion
of interest will be capitalized through the period ending when construction of
Phase II ceased.
The Company completed the partial remodel and reconfiguration of the casino
floor and launched a new casino marketing campaign on October 1, 1996. The
campaign and casino changes position the casino product as the best gaming value
in Las Vegas by offering favorable rules on table games and liberal pay backs on
slot machines. Gaming revenue has increased 73.9% to $7.6 million for the period
September 30, 1996, through October 27, 1996, as compared to the same number of
days during the prior month. Revenues generated by slot machines grew to 74.5%
of total casino revenue. The Company estimates that earnings before interest,
taxes, depreciation and amortization will be $2.2 million (15% of net revenues)
for the month ended October 27, 1996. There can be no assurance that this
improvement will continue or be indicative of future trends.
Since opening, the roller coaster at the top of the tower has only operated for
parts of 28 days. Its shutdown negatively impacted tower visitation.
Modifications to the roller coaster were completed October 28, 1996, at which
point full-time operation commenced. There can also be no assurance that the
modified roller coaster will increase visitation and gaming levels.
As the Company continues to seek additional financing and negotiations continue
regarding the restructuring of existing indebtedness, such restructuring
activities may unfavorably impact earnings due to the additional administrative
costs associated with professional fees and the financial statement impact of
any changes to the Company's capital structure resulting from the outcome of
such restructuring.
The Company currently employs 2,800 full-time Associates, which is a decrease
of approximately 400 since opening. Management continues to implement
cost-containment programs and expects additional efficiencies as the Company's
operations mature.
LIQUIDITY AND CAPITAL RESOURCES
On May 3, 1996, the Company consummated a $37.5 million capital lease
transaction of which $33.3 million had been advanced to the Company as of
September 29, 1996. Based upon the Company's third fiscal quarter results, it
was determined that the Company would not meet certain financial covenants which
would constitute an event of default under the capital lease that would give the
lender the right to accelerate the maturity of the capital lease. On October 30,
1996, the Company entered a Standstill Agreement with the lenders that will
remain in effect until the earlier of a bankruptcy filing or payment default.
Pursuant to the agreement, the Company made its scheduled payment on October 31,
1996, of $3.2 million. In addition, the agreement requires the return of $4.2
million (including interest) remaining in the escrow account to the lenders to
be applied to the principal balance on a pro rata basis. The amount was applied
to the principal balance on October 30, 1996. In the event the Standstill
Agreement is terminated for reasons mentioned and lenders accelerate the capital
lease indebtedness, the Company would not have the ability to repay such
indebtedness. The acceleration of such capital lease indebtedness would also
constitute an event of default under the Company's First Mortgage Note Indenture
by reason of a cross default provision included in such Indenture.
Pursuant to the Completion Guarantee under the Indenture to the First Mortgage
Notes the Company has borrowed $50 million from Grand Casinos, Inc. as of
September 29, 1996. The loan is subordinate to the First Mortgage Notes and
capital lease obligations and accrues interest at the rate of 14.25%. The
interest will accrue but will not be paid until the Company meets certain
financial covenants pursuant to the Indenture under the First Mortgage Notes.
The loan has been utilized to fund the completion of Phase I of the project.
On October 10, 1996, the Company paid $2.3 million to Grand Casinos, Inc.
("Grand") pursuant to the Management and Development Agreement entered into on
July 1, 1994. Grand has agreed to either refund the $2.3 million to the Company
or advance the amount as a loan by November 5, 1996. As of November 13, 1996,
such amount has not been paid to the Company. In addition, the Company has
purchased certain equipment from a wholly-owned subsidiary of Grand in the
approximate amount of $3.7 million. As of November 13, 1996, approximately $2.5
million of such amount remained unpaid. The Company has accrued this cost and
intends to pay such amount as part of the final funding of Phase I.
As of September 29, 1996, the Company has completed construction of Phase I and
has remaining funding requirements of $19.0 million all of which is included in
the construction payable caption on the balance sheet as of September 29, 1996.
The Company has ceased construction of Phase II due to its inability to fund
further construction. The Company anticipates construction costs associated with
Phase II up to and including the time of shut down will be approximately $76.0
million of which $43.0 million has been spent, $17.0 million is included in
construction payables as of September 29, 1996, and $16.0 million is expected to
be billed subsequently. The Company estimates the total cost of Phase II to be
approximately $142.0 million. The Company estimates that the completion of Phase
II will take approximately seven months once resumed and cost an estimated
additional $66 million. The Company believes that the completion of Phase II is
critical to its long-term viability.
Cash on hand and internally generated funds will not be sufficient to fund the
cash requirements of the Company's existing operations, current trade and
construction payables and debt service. The Company does not plan to make its
regularly scheduled interest payment on its First Mortgage Notes due on November
15, 1996, of $14.5 million. Failure to make such interest payment will
constitute an event of default under the Company's First Mortgage Note Indenture
which could result in the lenders acceleration of the notes which include the
face amount plus any accrued interest. The Company does not have the ability to
repay such indebtedness. The Company is continuing to seek additional financing
and is discussing restructuring the First Mortgage Notes. There can be no
assurance that additional financing will be available to the Company or that if
available, will be on terms favorable to the Company. In addition, it is highly
likely that negotiations with its creditors, whether successful or not at
arriving at a restructuring, will involve a bankruptcy filing as a means of
formalizing and approving either a consensual or nonconsensual restructuring. If
the Company cannot restructure its existing indebtedness, there will be serious
doubt as to whether or not the Company will be able to continue as a going
concern.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contains statements that
are forward-looking, such as statements relating to plans for future expansion,
future construction costs and other business development activities as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 5, 1996, a complaint was filed in the United States District Court for
the District of Nevada (Michael Caesar, et al. v. Stratosphere Corporation, et
al.) against the Company, Lyle A. Berman (an officer and director of the Company
and Grand Casinos, Inc. ("Grand"), Robert E. Stupak (a former officer and
director of the Company), Bob Stupak Enterprises, David R. Wirshing (a former
officer and director of the Company), Thomas A. Lettero (an officer of the
Company), Thomas G. Bell (a director of the Company), Andrew S. Blumen (an
officer and director of the Company), and Grand. The complaint purports to seek
relief on behalf of a class of plaintiffs who purchased the Company's Common
Stock during the period from December 19, 1995, through July 22, 1996,
inclusive. The complaint alleges that the defendants made misrepresentations and
engaged in other wrong doing. The Company believes that the claims made in the
complaint are without merit. The Company plans to vigorously defend such claims.
In addition to the Caesar case, additional cases making the same claims against
the same defendants have been filed by the following plaintiffs: Mitchel Gordon
on October 7, 1996; Robert Johnson on September 19, 1996; Regina Peltz on August
13, 1996; and Ronald Stengel on August 13, 1996. The court is currently
considering a motion to consolidate these cases with the Caesar case. These
complaints purport to seek relief on behalf of a class of plaintiffs who
purchased the Company's Common Stock during the period from December 19, 1995,
through July 22, 1996, inclusive. The complaints allege that the defendants made
misrepresentations and engaged in other wrong doing. The Company believes that
the claims made in the complaint are without merit. The Company plans to
vigorously defend such claims.
On August 16, 1996, a complaint was filed in District Court , Clark County,
Nevada (Victor Opitz et al. v. Stratosphere Corporation et al.) against the
Company, Grand Casinos ("Grand"), Robert Stupak (a former officer and director
of the Company), Lyle Berman (an officer and director of the Company as Grand
Casinos) and Stanley Taube (a director of the Company and Grand Casinos). The
complaint purports to seek relief on behalf of a class of plaintiffs who
purchased stock during the period from December 19, 1995, to July 22, 1996. The
complaint alleges the defendants made misrepresentations and engaged in other
wrong doing. The Company believes that the claims made in this complaint are
without merit. The Company plans to vigorously defend such claims.
See the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, and the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996, for information regarding other pending legal proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Based upon the third quarter results, the Company determined that it would not
meet certain financial covenants which would constitute an event of default
under the capital lease that would give the lender the right to accelerate
maturity. On October 30, 1996, the Company entered a Standstill Agreement with
the lenders that will remain in effect until the earlier of the bankruptcy
filing or payment default. Pursuant to the agreement, the Company made its
scheduled payment on October 31, 1996, of $3.2 million. In addition, the
agreement required the return of $4.2 million (including interest) remaining in
the escrow account to the lenders to be applied to the principal balance on a
pro rata basis. The amount was applied to the principal balance on October 30,
1996, reducing it to a total of $28.3 million. In the event the Standstill
Agreement is terminated for reasons mentioned and the lenders accelerate the
capital lease indebtedness, the Company would not have the ability to repay such
indebtedness. The acceleration of such capital lease indebtedness would also
constitute an event of default under the Company's First Mortgage Note Indenture
by reason of a cross default provision included in such Indenture.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No.
10.01 Standstill and Amendment Agreement dated as October 30, 1996, by and
among Stratosphere Corporation, Stratosphere Gaming Corp., First
Security Trust Company of Nevada, Bank of Scotland, Wells Fargo Bank,
National Association, Societe Generale, Credit Lyonnais, Los Angeles
Branch, BA Leasing & Capital Corporation.
10.02 Funding Agreement dated as of September 27, 1996, by and among Grand
Casinos, Inc., Stratosphere Corporation, and Stratosphere Gaming Corp.
10.03 Letter Agreement dated as of September 27, 1996, by and among Grand
Casinos, Inc., Stratosphere Corporation and Stratosphere Gaming Corp.
10.04 Senior Executive Severance Agreement dated September 27, 1996, by and
between Andrew Blumen and Stratosphere Corporation.
10.05 Senior Executive Severance Agreement dated September 30, 1996, by and
between Thomas Lettero and Stratosphere Corporation.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarterly period
ended September 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
STRATOSPHERE CORPORATION
Date: November 13, 1996 By: /s/ Richard J. Schuetz
Name: Richard J. Schuetz
Title: President & CEO
By: /s/ Thomas A. Lettero
Name: Thomas A. Lettero
Title: Chief Financial Officer
EXHIBIT INDEX
STRATOSPHERE CORPORATION
Exhibit
No.
10.01 Standstill and Amendment Agreement dated as October 30, 1996, by and
among Stratosphere Corporation, Stratosphere Gaming Corp., First
Security Trust Company of Nevada, Bank of Scotland, Wells Fargo Bank,
National Association, Societe Generale, Credit Lyonnais, Los Angeles
Branch, BA Leasing & Capital Corporation.
10.02 Funding Agreement dated as of September 27, 1996, by and among Grand
Casinos, Inc., Stratosphere Corporation, and Stratosphere Gaming Corp.
10.03 Letter Agreement dated as of September 27, 1996, by and among Grand
Casinos, Inc., Stratosphere Corporation and Stratosphere Gaming Corp.
10.04 Senior Executive Severance Agreement dated September 27, 1996, by and
between Andrew Blumen and Stratosphere Corporation.
10.05 Senior Executive Severance Agreement dated September 30, 1996, by and
between Thomas Lettero and Stratosphere Corporation.
27 Financial Data Schedule
[EXECUTION COPY]
This Standstill and Amendment Agreement (this "Agreement"), dated as of
October 30, 1996, is entered into by and among STRATOSPHERE GAMING CORP., a
Nevada corporation, as Lessee; STRATOSPHERE CORPORATION, a Delaware corporation,
as Guarantor; FIRST SECURITY TRUST COMPANY OF NEVADA, a Nevada trust company,
not in its individual capacity, except as expressly stated herein, but solely as
Lessor and Trustee; the persons listed on Schedule II hereto, as Lenders; BANK
OF SCOTLAND, WELLS FARGO BANK, NATIONAL ASSOCIATION (successor by merger to
FIRST INTERSTATE BANK OF NEVADA), and SOCIETE GENERALE, as Co-Agents; CREDIT
LYONNAIS, LOS ANGELES BRANCH, as Lead Manager; and BA LEASING & CAPITAL
CORPORATION, a California corporation, as Arranger and Agent.
W I T N E S S E T H:
WHEREAS, Lessee, Guarantor, Trustee (both in its individual and trust
capacities), the Lenders and Agents are parties to a Participation Agreement
dated as of April 29, 1996 (the "Original Participation Agreement"), pursuant to
which the Lenders made term loans to the Trustee on the Advance Date (such term,
and all other capitalized terms used herein shall have the meanings ascribed to
them in Part I) in the aggregate original principal amount of $37,500,000 of
which $35,000,000 (without giving effect to any October 30, 1996 payment due
under the Loan Agreement) is currently outstanding (the "Existing Term Loans");
WHEREAS, the Trustee used the proceeds of the Loans on the Advance Date
to purchase certain equipment described on Schedule I attached hereto in an
aggregate amount of $14,627,072.37 and deposited the remaining proceeds of the
Loans into the Account;
WHEREAS, the Equipment acquired by the Trustee on the Advance Date was
immediately leased to the Lessee pursuant to the Lease;
WHEREAS, subsequent to the Advance Date withdrawals in the amount of
$18,725,828.63 were made from the Account to purchase additional items of
Equipment (described on Schedule I attached hereto) for lease to the Lessee
under the Lease;
WHEREAS, as of the date hereof there is remaining in the Account
$4,259,200 (the "Deposited Amount"), which represents proceeds from the Loans
and interest earned thereon from time to time;
WHEREAS, Lessee is not in compliance with its obligations under
Sections 5.5, 5.16(a), (b) and (c) of the Original Participation Agreement and
is in default under Sections 10.1(f) (to the extent it has admitted in writing
its inability to make the payment due November 15, 1996 under the Indenture),
10.1(j) and 10.1(m) of the Lease ("Existing Events of Default"), but otherwise
has not violated any covenant, condition, representation, warranty or agreement
contained in any Operative Document;
WHEREAS, Lessee desires that during the Standstill Period, the Lenders
refrain from exercising, or instructing, authorizing or allowing any other
Person to exercise, any right, power or remedy under the Loan Agreement, the
Lease or any other Operative Document as a result of the Existing Events of
Default; and
WHEREAS, the Lenders are willing to refrain from exercising, or
instructing, authorizing or allowing any other Person to exercise, any right,
power or remedy under the Loan Agreement, the Lease or any other Operative
Document during the Standstill Period in exchange for the consent of Lessee to
the application of the funds in the Account to the partial repayment of the
Existing Term Loans in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual terms and conditions
herein contained, the parties hereto agree as follows:
PART I
DEFINITIONS
Subpart 1.1. Certain Definitions. Unless otherwise defined in Appendix
I to the Original Participation Agreement, capitalized terms used in this
Agreement without definition shall have the following meanings:
"Agreement" is defined in the preamble to this Agreement.
"Deposited Amount" is defined in the fifth recital to this
Agreement.
"Effective Date" means the first date on which all of the conditions
precedent set forth in Subpart 5.1 of this Agreement shall be satisfied or
waived by all of the Lenders, but in no event shall such date be later than
October 31, 1996.
"Existing Events of Default" is defined in the sixth recital of this
Agreement.
"Existing Term Loans" is defined in the first recital to this
Agreement.
"Funding Request" means the certificate delivered by Lessee to the
Agent on September 25, 1996 under Section 2.14 of the Original Participation
Agreement.
"Insolvency Event" means the occurrence of any condition, event or
happening described in Section 10.1(f) or (g) of the Lease (other than any event
arising from the Parent's admission in writing of its inability to make the
payment due November 15, 1996 under the Indenture).
"Original Participation Agreement" is defined in the first recital of
this Agreement.
"Standstill Period" means the period commencing on the Effective Date
of this Agreement and ending on the earliest of (x) January 30, 1997, (y) the
occurrence of an Insolvency Event and (z) the occurrence or continuation of an
Event of Default (other than Existing Events of Defaults).
PART II
AMENDMENT TO ORIGINAL PARTICIPATION AGREEMENT
Effective on (and subject to the occurrence of) the Effective Date, the
Original Participation Agreement is hereby amended in accordance with this Part
II.
Subpart 2.1. Amendment to Article II. Article II of the Original
Participation Agreement is amended as set forth in this Subpart 2.1.
(a) Section 2.12 of the Original Participation Agreement is
hereby amended to read in its entirety as follows:
"Section 2.12. Amortization Schedule. Schedule III attached to
the Standstill and Amendment Agreement, dated October 30, 1996 among the parties
to the Participation Agreement (the "Standstill Agreement") sets forth the
mandatory principal amortization schedule for the Loans (the "Amortization
Schedule"). Trustee, as agent of the Agent under Section 7.1 of the Loan
Agreement, shall distribute all mandatory principal amortization payments in
accordance with Section 3.2 of the Loan Agreement."
PART III
AMENDMENTS TO THE LOAN AGREEMENT
Effective on (and subject to the occurrence of) the Effective Date, the
Loan Agreement is hereby amended in accordance with this Part III.
Subpart 3.1. Article II of the Loan Agreement is amended as set forth
in this Subpart 3.1.
(a) A new Section 2.4(e) is hereby added to the Loan Agreement
to read in its entirety as follows:
"(e) Notwithstanding Section 2.4(c), upon the Effective Date,
Borrower shall withdraw the Deposited Amount from the Account and apply such
proceeds in partial prepayment of the Loans in accordance with Section 3.2.
Borrower acknowledges receipt of proper instructions to make the withdrawal and
distributions required by this Section 2.4(e)."
Subpart 3.2. Article III of the Loan Agreement is amended as set forth
in this Subpart 3.2.
(a) Section 3.2(a), second, of the Loan Agreement shall be
amended by inserting the following phrase after "second" as follows:
"in the case of a mandatory prepayment required by Section
2.4(b)," and inserting "and" at the end of such sentence.
(b) A new Section 3.2(a), third, is hereby added in
its entirety to read as follows:
"third, in the case of a mandatory prepayment required by
Section 2.4(e), the Deposited Amount shall be distributed and paid to the
Lenders pro rata, without priority of one Lender over the other, in proportion
that the unpaid principal amount of the Notes held by each Lender bears to the
aggregate unpaid principal amount of the Notes."
(c) A new Section 3.2(c) is hereby added to the Loan Agreement
to read in its entirety as follows:
"(c) Each mandatory prepayment distributed pursuant to Section
2.4(c) or Section 2.4(e) shall be applied by each holder of the Notes to the
remaining scheduled mandatory amortization payments listed in Schedule III to
the Standstill Agreement (or as revised pursuant to this Section 3.2(c)) in the
proportion that each scheduled mandatory prepayment bears to the aggregate
outstanding amortization payments so listed."
PART IV
WITHDRAWALS, CONSENTS AND WAIVERS
The following actions and consents shall be effective on (and subject
to the occurrence of) the Effective Date.
Subpart 4.1. Withdrawal. Lessee hereby withdraws its Funding Request
and hereby agrees that the Trustee may withdraw the Deposited Amount from the
Account for distribution to the Lenders in accordance with Section 3.2 (a) of
the Loan Agreement.
Subpart 4.2. Waiver. Each Lender hereby waives any Additional Costs
that may be owed by the Trustee as a result of the prepayment pursuant to
Sections 2.4(e) and 3.2(a) of the Loan Agreement.
Subpart 4.3. Standstill. Each Lender, the Agent, the Co- Agents and the
Trustee during the Standstill Period shall not exercise or instruct, authorize
or allow any other Person to exercise, any right, remedy, power or privilege
under the Lease, the Loan Agreement or any other Operative Document as a result
of Existing Events of Default; provided, however, that such agreement shall not
constitute or operate as a waiver thereof by any Lender, the Agent, the
Co-Agents or the Trustee; nor shall the failure of any Lender, the Agent, the
Co-Agents or the Trustee to exercise any right, remedy, power or privilege
during the Standstill Period preclude any right, remedy, power or privilege upon
the termination for any reason of the Standstill Period.
PART V
CONDITIONS TO THE EFFECTIVENESS OF PARTS II, III AND IV
Subpart 5.1. Effective Date. Subparts II, III, and IV shall be and
become effective upon the prior or concurrent satisfaction of each of the
conditions precedent set forth in this Subpart 5.1.
Subpart 5.1.1. Execution of Counterparts. Agent shall have received
counterparts of this Agreement duly executed by the Trustee, Agent, Lenders, the
Co-Agents, the Lead Manager, and the Trustee (or evidence thereof satisfactory
to the Agent).
Subpart 5.1.2. Resolutions, Incumbency, etc.. Agent shall have received
a certificate, dated the date hereof, of the Secretary or Assistant Secretary of
each of the Lessee and Guarantor, respectively, as to
(i) resolutions of the Board of Directors of such
Person then in full force and effect authorizing the execution, delivery and
performance of this Agreement,
(ii) the incumbency and signatures of those officers
of such Person authorized to act with respect to this Agreement, and
(iii) the Articles or Certificate of Incorporation of
such Person as in effect on the date hereof, certified by the Secretary of State
or similarly applicable Governmental Authority) of its state of incorporation as
of a recent date and the by-laws of such Person as in effect on the date hereof,
upon which certificates each Lender may conclusively rely until it shall have
received a further certificate of the Secretary of the Lessee or the Guarantor,
as the case may be, cancelling or amending such prior certificate, and
Subpart 5.1.3. Fees and Expenses. All reasonable fees and expenses of
Mayer, Brown & Platt in connection with the execution and delivery of this
Agreement shall have been paid in full.
Subpart 5.1.4. Opinions of Counsel. Agent shall have received an
opinion, dated as of the date hereof and addressed to the Agent, the Lenders and
the Trustee, from Gordon & Silver, counsel to the Lessee and Guarantor, in form
and substance acceptable to the Agent.
Subpart 5.1.5. Accuracy of Representations of Warranties. On the
Effective Date, Agent shall have received (with copies for the Trustee and each
Lender) certificates of the Secretary or Assistant Secretary of Guarantor and
Lessee stating that all of the representations and warranties of the Lessee and
Guarantor contained in the Participation Agreement (other than the
representations contained in Section 4.1(d)(ii), (f), (u) (as to Existing Events
of Default only), (v) and (aa), as to which no representation or warranty shall
be made) shall be true and correct on and as of the Effective Date in all
material respects as though made on and as of that date.
Subpart 5.1.6. No Payment Defaults. There shall exist no event
described in Section 10.1(a) of the Lease (without taking in to account any
grace period thereunder).
Subpart 5.1.7. Instructions to Trustee. Each Lender shall have signed
the Letter of Instructions to the Trustee attached hereto as Exhibit A.
Subpart 5.2. Limitation. Except as expressly provided hereby, all other
representations, warranties, terms, covenants and conditions of the Loan
Agreement, the Original Participation Agreement and any other Operative Document
shall remain unamended and unwaived, and shall continue to be, and shall remain
in full force and effect in accordance with their respective terms. The
amendments, modifications and consents set forth herein shall be limited
precisely as provided for herein and shall not be deemed to be a waiver of,
amendment of, consent to or modification of any other term or provision of the
Loan Agreement, the Original Participation Agreement or any term or provision of
any other Operative Document, or of any transaction or further or future action
on the part of the Trustee, Lessee or any other Person which would require the
consent of the Agent or any of the Lenders under the Loan Agreement or any other
Operative Document.
PART VI
MISCELLANEOUS
Subpart 6.1. Cross-References. References in this Amendment to any Part
or Subpart are, unless otherwise specified, to such Part or Subpart of this
Agreement.
Subpart 6.2. Agreement is an Operative Document. This Agreement is an
Operative Document executed in accordance with the Participation Agreement and
Trust Agreement.
Subpart 6.3. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Subpart 6.4. Counterparts, etc.. This Agreement may be executed by the
parties hereto in several counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
Subpart 6.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
Subpart 6.6. Guarantor Affirmation and Consent. By its signature below,
Guarantor under the Guaranty hereby acknowledges and consents to this Agreement
and the amendments to the Loan Agreement and the Original Participation
Agreement as amended hereby, and the terms and provisions hereof and
acknowledges that this Agreement, among other things, results in a prepayment
through the application of Collateral of the outstanding Existing Term Loans to
the Lenders in an aggregate principal amount equal to the Deposited Amount.
Guarantor hereby reaffirms as of the Effective Date its covenants and agreements
contained in the Guaranty, including as such covenants and agreements may be
modified by this Agreement, and further confirms that as of the Effective Date
(both before and after giving effect to the effectiveness to this Agreement),
the Guaranty is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects except that upon the effectiveness of
this Agreement, all references in the Guaranty to the "Operative Documents",
"Participation Agreement", the "Loan Agreement", "thereunder", "thereof", or
words of like import shall mean the Loan Agreement or the Original Participation
Agreement, as the case may be, as in effect and amended by this Agreement.
Subpart 6.7. Lender Confirmation. Execution and delivery to the Agent
by a Lender of a counterpart to this Agreement shall be deemed confirmation by
such Lender that (i) all conditions precedent in Subpart 5.1 have been fulfilled
to the satisfaction of such Lender and (ii) the decision of such Lender to
execute and deliver to the Agent an executed counterpart to this Agreement was
made by such Lender independently and without reliance on the Agent or any other
Lender as to the satisfaction of any condition precedent set for in Subpart 5.1.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
STRATOSPHERE GAMING CORP.,
as Lessee
By:/s/
Name: Thomas A. Lettero
Title: Vice President-Administration/
Chief Financial Officer
STRATOSPHERE CORPORATION,
as Guarantor
By:/s/
Name: Thomas A. Lettero
Title: Vice President-Administration/
Chief Financial Officer
FIRST SECURITY TRUST
COMPANY OF NEVADA, not in
its individual capacity
except as expressly stated
herein, but solely as
Lessor and Trustee
By:/s/
Name: Nancy M. Dahl
Title: Vice President
BA LEASING & CAPITAL CORPORATION, as
Agent and Lender
By:/s/
Name: Nick Falzone
Title: Vice President
BA LEASING & CAPITAL CORPORATION, as
Agent and Lender
By:/s/
Name: Sonia T. Delen
Title: Assistant Vice President
BANK OF SCOTLAND, as Co-Agent and as
Lender
By:/s/
Name: Catherine M. Oniffrey
Title: Vice President
WELLS FARGO BANK, NATIONAL ASSOCIATION
(successor by merger to FIRST INTERSTATE
BANK OF NEVADA), as Co-Agent and as
Lender
By:/s/
Name: Melanie K. Foster
Title: Vice President/Principal
SOCIETE GENERALE, as Co-Agent and as
Lender
By:/s/
Name: Donald L. Schubert
Title: Vice President
CREDIT LYONNAIS, LOS ANGELES BRANCH, as
Lead Manager and as Lender
By:/s/
Name: Alan Sidrane
Title: First Vice President
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Lender
By:/s/
Name: Thomas L. Addata
Title: E.X.P.
UNITED STATES NATIONAL BANK OF OREGON,
as Lender
By:/s/
Name: Dale Parshall
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF BOSTON, as
Lender
By:/s/
Name: Reginald T. Dawson
Title: Director
IMPERIAL BANK, as Lender
By:/s/
Name: Steven K. Johnson
Title: Senior Vice President
TRUSTMARK NATIONAL BANK, as Lender
By:/s/
Name: John W. Ray, Jr.
Title: Vice President
FIRST SECURITY BANK, N.A., as Lender
By:/s/
Name: David P. Williams
Title: Vice President
Exhibit A to the Agreement
Authorization Letter
October 31, 1996
First Security Trust Company of Nevada, as Trustee
c/o First Society Bank
530 Las Vegas Boulevard, South
Las Vegas, N.V. 89101
Attention: Corporate Trust Department
Re: Stratosphere Gaming Corp./Capital Lease
Pursuant to Article 7 of the Loan Agreement, dated as of April 29,
1996, among First Security Trust Company of Nevada, as Borrower (in its trust
capacity), BA Leasing & Capital Corporation, as Agent, Bank of Scotland, Wells
Fargo Bank National Association (successor by merger to First Interstate Bank of
Nevada), and Societe Generale, as Co-Agents, Credit Lyonnais, Los Angeles Branch
as Lead Manager and the persons named therein on Schedule I thereto as Lenders
(the "Loan Agreement"), the Lenders each do hereby instruct the Agent (i) to
direct the Trustee in its trust capacity, to sign the Agreement to which a
specimen of this letter is attached and (ii) to direct the Trustee to withdraw
the Deposited Amount from the Account and apply the proceeds in accordance with
Section 3.2(a) of the Loan Agreement.
Pursuant to Section 4.3 of the Trust Agreement, Agent hereby instructs
the Trustee to sign the Agreement to which a specimen of this letter is attached
and further instructs the Trustee to withdraw the Deposited Amount from the
Account and to apply such funds in accordance with Section 3.2 of the Loan
Agreement.
The parties hereto agree that all actions taken by the Agent or the
Trustee in connection with this authorization is covered by the indemnification
provisions set forth in Section 7.7 of the Loan Agreement and Section 5.1 of the
Trust Agreement, respectively.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Loan Agreement.
This authorization and direction letter may be executed by the parties
hereto in separate counterparts, each of which shall be an original and all of
which when taken together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
BA LEASING & CAPITAL CORPORATION,
as Agent
By:
Name:
Title:
BA LEASING & CAPITAL CORPORATION,
as Lender
By:
Name:
Title:
BANK OF SCOTLAND, as Co-Agent and
as Lender
By:
Name:
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION (successor by merger to
FIRST INTERSTATE BANK OF NEVADA),
as Co-Agent and as Lender
By:
Name:
Title:
SOCIETE GENERALE, as Co-Agent and
as Lender
By:
Name:
Title:
CREDIT LYONNAIS, LOS ANGELES
BRANCH, as Lead Manager and as
Lender
By:
Name:
Title:
THE CIT GROUP/EQUIPMENT FINANCING,
INC.,
as Lender
By:
Name:
Title:
UNITED STATES NATIONAL BANK OF
OREGON,
as Lender
By:
Name:
Title:
BANK OF BOSTON, as Lender
By:
Name:
Title:
IMPERIAL BANK, as Lender
By:
Name:
Title:
TRUSTMARK NATIONAL BANK, as Lender
By:
Name:
Title:
FIRST SECURITY BANK OF UTAH, N.A.,
as Lender
By:
Name:
Title:
SCHEDULE II
BA LEASING & CAPITAL CORPORATION
BANK OF SCOTLAND
WELLS FARGO BANK, NATIONAL ASSOCIATION (successor by merger to
FIRST INTERSTATE BANK OF NEVADA)
SOCIETE GENERALE
CREDIT LYONNAIS, LOS ANGELES BRANCH
THE CIT GROUP/EQUIPMENT FINANCING, INC.
UNITED STATES NATIONAL BANK OF OREGON
THE FIRST NATIONAL BANK OF BOSTON
IMPERIAL BANK
TRUSTMARK NATIONAL BANK
FIRST SECURITY BANK, N.A.
FUNDING AGREEMENT
UNDER NOTES COMPLETION GUARANTEE
This FUNDING AGREEMENT dated as of September 27, 1996 (this
"Agreement") is by and among GRAND CASINOS, INC., a Minnesota corporation
("Grand"), STRATOSPHERE CORPORATION, a Delaware corporation ("Stratosphere"),
and STRATOSPHERE GAMING CORP., a Nevada corporation ("Gaming Corp." and,
together with Stratosphere, the "Obligors").
RECITALS
WHEREAS, pursuant to that certain Indenture dated as of March
9, 1995 by and among Stratosphere, Gaming Corp. and American Bank National
Association, a national banking association (the "Trustee"), as trustee
thereunder, Stratosphere has issued $203,000,000 principal amount of its 14-1/4%
First Mortgage Notes due 2002 With Contingent Interest (the "Notes");
WHEREAS, the Obligors have entered into the Indenture and
issued the Notes to finance, in part, the completion of the Resort (as defined
in the Indenture);
WHEREAS, Stratosphere and Gaming Corp. have entered into that
certain Disbursement and Escrow Agreement dated as of March 9, 1995 (the "Escrow
Agreement") among First Interstate Bank of Nevada, N.A., a national banking
association, Lawyers Title of Nevada, Inc., a Nevada corporation, the Trustee,
Stratosphere and Gaming Corp.
WHEREAS, Grand is the beneficial owner of a substantial equity
interest in Stratosphere and has executed that certain Notes Completion
Guarantee dated as of March 9, 1995 (the "Guarantee") for the benefit of the
holders of the Notes from time to time (the "Holders"), pursuant to which Grand
has agreed, subject to the terms and conditions therein set forth, to guarantee
(i) the Obligors' obligations to complete the construction of the Resort so that
the Resort is Operating (as defined in the Indenture) in accordance with the
terms of the Indenture and the Escrow Agreement and (ii) the payment of all
Amounts Required For Completion (as defined in the Guarantee) payable by the
Obligors on or prior to the date on which the Resort becomes Operating or the
occurrence of a Terminating Event (as defined in the Guarantee);
WHEREAS, the amount of Grand's obligations under the Guarantee
are limited to $50,000,000 in the aggregate;
WHEREAS, any amounts advanced or paid by Grand under the
Guarantee constitute loans to Stratosphere from Grand and accrue interest at the
rate of 14-1/4% per annum;
WHEREAS, due to increases in the Project Budget, the amount of
Available Funds (as defined in the Escrow Agreement) from the proceeds of the
issuance of the Notes was not sufficient to allow Stratosphere to complete
construction of the Resort in accordance with the terms of the Escrow Agreement;
WHEREAS, Grand has previously advanced $18,551,902 under the
Guarantee; and,
WHEREAS, Grand and Stratosphere are entering into this
Agreement to acknowledge application of amounts previously advanced by Grand
under the Guarantee and to evidence certain understandings regarding the funding
of Grand's remaining obligations under the Guarantee.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby covenant and agree as follows:
1. Costs of Completing Resort. Stratosphere represents and
warrants that Schedule I hereto is a true and correct schedule of all costs
which Stratosphere has incurred in connection with the development,
construction, equipping and opening of the Resort and of all such amounts which
Stratosphere expects to incur in order for the Resort to become Operating (as
defined in the Indenture) on or before September 30, 1996.
2. Prior Advances. Stratosphere and Grand acknowledge and
agree that Grand has previously advanced an aggregate of $18,551,902 under the
Guarantee and that such amounts have been paid by Grand in partial satisfaction
of the Obligations (as defined in the Guarantee). The parties acknowledge that
all funds advanced by Grand under the Guarantee have been applied by
Stratosphere either to pay costs incurred for the Resort to become Operating (as
defined in the Indenture) or to pay certain Amounts Required For Completion (as
defined in the Guarantee) payable by the Obligors on or prior to the date on
which the Resort becomes Operating, all of which costs and amounts are described
on Schedule I hereto.
3. Additional Advances. Contemporaneously with or subsequent
to the execution hereof, Grand will advance an additional $31,448,098 in
complete satisfaction of its remaining obligations under the Guarantee. The
funds paid by Grand shall be applied by Stratosphere to pay costs incurred for
the Resort to become Operating (as defined in the Indenture) on or before
September 30, 1996 or to pay Amounts Required For Completion (as defined in the
Guarantee) which are payable by the Obligors on or prior to the date on which
the Resort becomes Operating, and the funds paid directly to Stratosphere will
constitute reimbursement for such costs and amounts funded by Stratosphere into
the Escrow Account, all of which costs and amounts are described on Schedule I
hereto. Upon the advance by Grand of such funds as described herein, Grand shall
have advanced an aggregate of $50,000,000 pursuant to the Guarantee, and
Stratosphere acknowledges and agrees that such advance discharges and satisfies
in full all obligations and liabilities of Grand under the Guarantee. In
accordance with the Guarantee, funds advanced by Grand pursuant to the Guarantee
will constitute loans to Stratosphere and will be evidenced by one or more
promissory notes bearing interest at the rate of 14-1/4% per annum, will mature
one year after the maturity of the Notes, and will be subordinated to the full
repayment in cash of all principal, premium (if any), interest and other
payments under the Notes.
4. Completion of Resort. Stratosphere represents and warrants
that upon payment by Grand in Section 3 hereof, sufficient funds will be
available to pay in full (a) all costs remaining to be incurred in order for the
Resort to become Operating (as defined in the Indenture) on or before September
30, 1996 and (b) all Amounts Required For Completion (as defined in the
Guarantee) payable by the Obligors on or prior to the date on which the Resort
becomes Operating. On or before September 30, 1996, Stratosphere shall take all
actions necessary to ensure that the Resort is Operating (as defined in the
Indenture) by that date.
5. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, including the
Gaming Control Act and the regulations promulgated thereunder, without giving
effect to the principles of conflict of laws thereof.
(b) No provision of this Agreement or right granted
hereunder may be amended or waived in whole or in part, except by a writing duly
executed by authorized officers of each of Stratosphere and Grand, and no other
consents or approvals (of any additional beneficiaries or otherwise) shall be
required.
(c) This Agreement is intended only for the benefit
of Stratosphere and Grand and is not intended to benefit any other third party,
including the Trustee, the Holders or any other creditor of Stratosphere.
(d) Should any term, covenant, condition or provision
of this Agreement be determined to be invalid or unenforceable, it is the intent
of the parties that all other terms, covenants, conditions and provisions hereof
shall nonetheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Funding Agreement as of the date first above written.
STRATOSPHERE CORPORATION
By: /s/ Andrew Blumen
Title: Executive Vice President
STRATOSPHERE GAMING CORP.
By: /s/ Andrew Blumen
Title: Executive Vice President
GRAND CASINOS, INC.
By: /s/ Timothy Cope
Title: Chief Financial Officer
SCHEDULE I
The Company will provide a copy of Schedule I to the Commission upon request.
Grand Casinos, Inc. Letterhead
September 27, 1996
STRATOSPHERE CORPORATION
2000 Las Vegas Boulevard South
Las Vegas, Nevada 89104
Attn: Andrew S. Blumen
Gentlemen:
This letter sets forth certain understandings between Grand Casinos,
Inc. ("Grand") and Stratosphere Corporation ("Stratosphere") regarding amounts
owed by Stratosphere to Grand and amounts which will be loaned or refunded by
Grand to Stratosphere.
Stratosphere hereby acknowledges that an aggregate of $2,318,873.43 is
currently due and owing from Stratosphere to Grand and payable at this time
under that certain Management and Development Agreement dated July 1, 1994, as
amended and modified from time to time (the "Management Agreement"), consisting
of consulting fees in the amount of $526,999.37 and reimbursement for expenses
in the amount of $1,791,874.06. In accordance with the Management Agreement,
Grand has demanded execution of this Letter Agreement by 10:00 a.m. (P.D.T.)
September 27, 1996 and timely payment of the amounts currently due thereunder.
In addition, Stratosphere has requested that Grand provide a loan to
Stratosphere in the amount of $2,300,000 to fund certain working capital
deficits that are expected to occur from the date hereof through December 31,
1996. In consideration for the payment by Stratosphere to Grand of the amounts
currently due and owing under the Management Agreement, Grand agrees to make a
loan to Stratosphere or to refund to Stratosphere the sum of $2,300,000. If
Grand elects to make the loan rather than refund the $2,300,000, and unless
other terms are negotiated by Grand and the Ad Hoc Committee (as defined below),
such loan shall include the following terms: (i) such loan shall be subordinated
in right of payment pursuant to the terms and conditions set forth in that
certain Completion Guarantor Subordination Agreement dated as of March 9, 1995;
(ii) such loan shall have a maturity of no earlier than May 15, 2002 (provided
that principal and interest may be prepaid, without premium, so long as such
prepayment is permitted pursuant to Section 4.07 of Stratosphere's Indenture
dated as of March 9, 1995 (the "Indenture") and no Event of Default (as defined
therein) shall have occurred and be continuing or would occur as a consequence
thereof); and (iii) no payment with respect to such loan shall be payable at any
time a default or Event of Default has occurred and is continuing under the
Indenture. The applicable rate of interest on the loan will be mutually
agreeable to Stratosphere and Grand, and in no event greater than 14 1/4%. In
the event Grand elects to refund the sum of $2,300,000, Stratosphere
acknowledges that Grand shall have a valid and enforceable claim under the
Management Agreement against Stratosphere for payment of such amount.
Grand will either refund the sum of $2,300,000 or advance the proceeds
of the loan to Stratosphere on the earliest to occur of the following: (i) Grand
shall reach an agreement with the informal committee of the holders of a
majority of the First Mortgage Notes (the "Ad Hoc Committee") regarding the
funding of such loan, the terms and conditions of which shall be
reasonably satisfactory to Grand and Stratosphere; (ii) Stratosphere shall
demonstrate to Grand's reasonable satisfaction that such funds are needed by
Stratosphere for current working capital purposes; or (iii) November 5, 1996.
To permit Grand to have a meaningful opportunity to negotiate the terms
of the loan with the Ad Hoc Committee, Stratosphere agrees that the existence of
this document and the loan or refund (as applicable) which is the subject
hereof, and all information and details relating thereto (collectively the
"Information"), shall be kept strictly confidential, except as required by law,
regulation or debt covenants in any existing financing instrument of
Stratosphere, and except that Information may be disclosed to officers,
directors, employees and advisors of Stratosphere provided that such persons
agree to keep the Information confidential. If Stratosphere is requested or
believes that it is otherwise obligated to disclose the Information,
Stratosphere agrees to give Grand five (5) business days notice of such request
or obligation to disclose during which time Stratosphere shall not disclose the
Information.
In addition, Stratosphere has purchased certain equipment from
affiliates of Grand in the approximate amount of $3,600,000. In connection
therewith, Stratosphere acknowledges to Grand and its affiliates that: (a) the
debt owing from Stratosphere to Grand and its affiliates for such equipment is a
transaction in the ordinary course of Stratosphere's business; (b) the payment
by Stratosphere of the amounts owed to Grand and its affiliates in respect of
such equipment as required hereunder is in the ordinary course of Stratosphere's
business; and (c) such payment is an arm's length transaction between Grand, its
affiliates and Stratosphere and is made according to ordinary business terms.
Within ten (10) days following execution hereof, Stratosphere shall pay
or cause to be paid to Grand the sum of $2,318,873.43 due and owing under the
Management Agreement and the sum of $3,600,000 for the equipment purchase.
If the foregoing correctly sets forth our understandings with respect
to the matters contained herein, please so indicate by signing below.
Very truly yours,
GRAND CASINOS, INC.
By: /s/ Timothy Cope
Title: Chief Financial Officer
Acknowledged as agreed as of
October 2, 1996
STRATOSPHERE CORPORATION
By: /s/ Andrew Blumen
Title: Executive Vice President
SENIOR EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT, by and between STRATOSPHERE CORPORATION, a
Delaware corporation (the "Corporation'), and ANDREW S. BLUMEN (the
"Executive"),
WITNESSETH:
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the Executive is a key executive of the Corporation
and/or one or more of its Subsidiaries and it is the desire of the Board to
assure itself of the availability of the services of the Executive and to
provide assurances to the Executive of employment in the event of a financial
restructuring or reorganization or in the event of a change in control of the
Board (collectively an "Event");
WHEREAS, in the event that there occurs an Event, the Board
believes it imperative that the Corporation and the Board be able to rely upon
the Executive to continue in his position and, if required, to assess any
proposal or transaction which would cause an Event and advise management and the
Board as to whether such proposal or transaction would be in the best interest
of the Corporation and its stockholders, free from concern that his
recommendations may adversely affect his continued employment:
NOW, THEREFORE, to assure the Corporation that it will have
the continued dedication of the Executive and the availability of his advice and
counsel notwithstanding the possibility, threat or occurrence of an Event and to
induce the Executive to remain in the employ of the Corporation and/or one or
more of its Subsidiaries, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the
Corporation and the Executive agree as follows:
1. Services During Certain Events. In the event that any steps
are taken which may constitute the possibility, threat or occurrence of an
Event, the Executive agrees that he will not voluntarily leave the employ of the
Corporation or any of its Subsidiaries and will continue to render services to
the Corporation and its Subsidiaries until, in the opinion of the Board, either
efforts to effect an Event have been abandoned or terminated or until one (1)
year after an Event has occurred. Any decision by the Board that efforts to
effect an Event have been abandoned or terminated shall be conclusive and
binding on the Executive.
2. Severance Payments. In the event that the Corporation
terminates the Executive's employment or materially either diminishes or reduces
his title, compensation, authority, responsibility, functions or duties with the
Corporation and its Subsidiaries within one (1) year after an Event for any
reason other than "for cause" (as defined herein) or as a consequence of his
death or disability, then, within thirty (30) days after such termination of
employment, the Corporation shall pay to the Executive as compensation for
services rendered to the Corporation and its Subsidiaries cash in an amount
equal to six (6) months of his aggregate base salary (excluding bonus or
options) for the six (6) month period immediately preceding the date of
termination plus any and all accrued salary and accrued vacation pay.
3. Definitions.
(a) "Change of control of Board" means Grand Casino Inc. for
whatever reason not being able to elect a majority of the members of the Board
of the Corporation.
(b) "For cause" shall mean (1) the commission of fraud,
embezzlement or theft against the Corporation or any of its Subsidiaries or
against any employee, customer or business associate of the Corporation or any
of its Subsidiaries or (2) a conviction of, or guilty plea to, a felony.
(c) "Person" shall have the same meaning as such term has
under section 13(d) of the Act and the regulations promulgated thereunder.
(d) "Subsidiary" shall mean any domestic or foreign
corporation, partnership or entity, a majority of whose equity securities is
owned directly or indirectly by the Corporation or by other Subsidiaries.
4. Indemnification. If litigation shall be brought to enforce
or interpret any provision contained herein or to recover from the Executive any
moneys paid pursuant to this Agreement, the Corporation, to the extent permitted
by applicable law and the Corporation's Articles of Incorporation hereby agrees
to indemnify the Executive for his or her reasonable attorneys' fees and
disbursements incurred in such litigation, and hereby agrees to pay any money
judgment obtained from the Executive and prejudgment interest on any money
judgment obtained from the Executive.
5. Payment Obligations Absolute. The Corporation's obligation
to pay the Executive the compensation and to make the arrangements provided for
herein shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against him or
anyone else. All amounts payable by the Corporation hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the
Corporation shall be final, and the Corporation will not seek to recover all or
any part of such payment from the Executive or from whosoever may be entitled
thereto, for any reason whatsoever. The Executive shall not be obligated to seek
other employment in mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Corporation's obligations to make
the payments and arrangements required to be made under this Agreement.
6. Continuing Obligations. The Executive shall retain in
confidence any confidential information known to him concerning the Corporation
and its Subsidiaries and their respective businesses so long as such information
is not publicly disclosed.
7. Successors. This Agreement shall be binding upon and inure
to the benefit of the Executive and his estate and the Corporation and any
successor of the Corporation, but neither this Agreement nor any rights arising
hereunder may be assigned or pledged by the Executive.
8. Severability. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9. Prior Agreements. This Agreement supersedes any prior
severance agreement between the Executive and the Corporation, which shall be of
no further force and effect whatsoever.
10. Controlling Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Nevada.
11. Termination. This Agreement shall terminate if the Board
determines that the Executive is no longer a key executive and so notifies the
Executive; except that such determination shall not be made, and if made shall
have no effect within one (1) year after the effectuation of an Event.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 27th day of September, 1996.
STRATOSPHERE CORPORATION
By /s/ Richard Schuetz
RICHARD SCHUETZ
Its: President
EXECUTIVE
By /s/ Andrew S. Blumen
ANDREW S. BLUMEN
SENIOR EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT, by and between STRATOSPHERE CORPORATION, a
Delaware corporation (the "Corporation'), and THOMAS A. LETTERO the
"Executive"),
WITNESSETH:
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the Executive is a key executive of the Corporation
and/or one or more of its Subsidiaries and it is the desire of the Board to
assure itself of the availability of the services of the Executive and to
provide assurances to the Executive of employment in the event of a financial
restructuring or reorganization or in the event of a change in control of the
Board (collectively an "Event");
WHEREAS, in the event that there occurs an Event, the Board
believes it imperative that the Corporation and the Board be able to rely upon
the Executive to continue in his position and, if required, to assess any
proposal or transaction which would cause an Event and advise management and the
Board as to whether such proposal or transaction would be in the best interest
of the Corporation and its stockholders, free from concern that his
recommendations may adversely affect his continued employment:
NOW, THEREFORE, to assure the Corporation that it will have
the continued dedication of the Executive and the availability of his advice and
counsel notwithstanding the possibility, threat or occurrence of an Event and to
induce the Executive to remain in the employ of the Corporation and/or one or
more of its Subsidiaries, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the
Corporation and the Executive agree as follows:
1. Services During Certain Events. In the event that any steps
are taken which may constitute the possibility, threat or occurrence of an
Event, the Executive agrees that he will not voluntarily leave the employ of the
Corporation or any of its Subsidiaries and will continue to render services to
the Corporation and its Subsidiaries until, in the opinion of the Board, either
efforts to effect an Event have been abandoned or terminated or until one (1)
year after an Event has occurred. Any decision by the Board that efforts to
effect an Event have been abandoned or terminated shall be conclusive and
binding on the Executive.
2. Severance Payments. In the event that the Corporation
terminates the Executive's employment or materially either diminishes or reduces
his title, compensation, authority, responsibility, functions or duties with the
Corporation and its Subsidiaries within one (1) year after an Event for any
reason other than "for cause" (as defined herein) or as a consequence of his
death or disability, then, within thirty (30) days after such termination of
employment, the Corporation shall pay to the Executive as compensation for
services rendered to the Corporation and its Subsidiaries cash in an amount
equal to six (6) months of his aggregate base salary (excluding bonus or
options) for the six (6) month period immediately preceding the date of
termination plus any and all accrued salary and accrued vacation pay.
3. Definitions.
(a) "Change of control of Board" means Grand Casino Inc. for
whatever reason not being able to elect a majority of the members of the Board
of the Corporation.
(b) "For cause" shall mean (1) the commission of fraud,
embezzlement or theft against the Corporation or any of its Subsidiaries or
against any employee, customer or business associate of the Corporation or any
of its Subsidiaries or (2) a conviction of, or guilty plea to, a felony.
(c) "Person" shall have the same meaning as such term has
under section 13(d) of the Act and the regulations promulgated thereunder.
(d) "Subsidiary" shall mean any domestic or foreign
corporation, partnership or entity, a majority of whose equity securities is
owned directly or indirectly by the Corporation or by other Subsidiaries.
4. Indemnification. If litigation shall be brought to enforce
or interpret any provision contained herein or to recover from the Executive any
moneys paid pursuant to this Agreement, the Corporation, to the extent permitted
by applicable law and the Corporation's Articles of Incorporation hereby agrees
to indemnify the Executive for his or her reasonable attorneys' fees and
disbursements incurred in such litigation, and hereby agrees to pay any money
judgment obtained from the Executive and prejudgment interest on any money
judgment obtained from the Executive.
5. Payment Obligations Absolute. The Corporation's obligation
to pay the Executive the compensation and to make the arrangements provided for
herein shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against him or
anyone else. All amounts payable by the Corporation hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the
Corporation shall be final, and the Corporation will not seek to recover all or
any part of such payment from the Executive or from whosoever may be entitled
thereto, for any reason whatsoever. The Executive shall not be obligated to seek
other employment in mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Corporation's obligations to make
the payments and arrangements required to be made under this Agreement.
6. Continuing Obligations. The Executive shall retain in
confidence any confidential information known to him concerning the Corporation
and its Subsidiaries and their respective businesses so long as such information
is not publicly disclosed.
7. Successors. This Agreement shall be binding upon and inure
to the benefit of the Executive and his estate and the Corporation and any
successor of the Corporation, but neither this Agreement nor any rights arising
hereunder may be assigned or pledged by the Executive.
8. Severability. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9. Prior Agreements. This Agreement supersedes any prior
severance agreement between the Executive and the Corporation, which shall be of
no further force and effect whatsoever.
10. Controlling Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Nevada.
11. Termination. This Agreement shall terminate if the Board
determines that the Executive is no longer a key executive and so notifies the
Executive; except that such determination shall not be made, and if made shall
have no effect within one (1) year after the effectuation of an Event.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 30th day of September, 1996.
STRATOSPHERE CORPORATION
By /s/ Richard Schuetz
RICHARD SCHUETZ
Its: President
EXECUTIVE
By /s/ Thomas A. Lettero
THOMAS A. LETTERO
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