<PAGE> 1
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 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______
COMMISSION FILE NO. 1-12030
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 AS OF NOVEMBER 7,
1997.
<PAGE> 2
STRATOSPHERE CORPORATION
(DEBTOR-IN-POSSESSION)
FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 28, 1997 AND DECEMBER 29, 1996 3
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UNAUDITED) 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UNAUDITED) 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UNAUDITED) 6-7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 11-14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
2
<PAGE> 3
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
BALANCE SHEET (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 29,
1997 1996
(UNAUDITED)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $19,134,503 $22,558,804
Cash and cash equivalents-restricted 3,244,486 2,678,344
Securities available for sale - 2,000,905
Accounts receivable, net 2,984,007 4,575,490
Other current assets 5,841,689 6,127,325
- -----------------------------------------------------------------------------------------
Total Current Assets 31,204,685 37,940,868
- -----------------------------------------------------------------------------------------
Property and Equipment, Net 123,859,676 130,000,000
- -----------------------------------------------------------------------------------------
Other Assets:
Deferred financing costs-net 676,925 12,339,097
Related party receivable-net 800,000 800,000
- -----------------------------------------------------------------------------------------
Total Other Assets 1,476,925 13,139,097
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $156,541,286 $181,079,965
=========================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable-trade $1,266,698 $1,250,786
Accounts payable-construction - 858,665
Current installments of long-term debt 702 429,103
Current installments of capital lease obligations - 8,684,360
Accrued interest 301,255 18,644,462
Accrued payroll and related expenses 3,844,817 5,005,047
Affiliate payable - 1,878,717
Other accrued expenses 6,866,609 9,231,792
- -----------------------------------------------------------------------------------------
Total Current Liabilities 12,280,081 45,982,932
- -----------------------------------------------------------------------------------------
Long-Term Liabilities:
Long-Term debt-less current installments - 203,000,000
Capital lease obligations-less current installments - 19,539,815
Note payable to affiliate - 50,000,000
- -----------------------------------------------------------------------------------------
Total Long-Term Liabilities - 272,539,815
- -----------------------------------------------------------------------------------------
Liabilities Subject to Compromise 301,395,519 -
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 313,675,600 318,522,747
- -----------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Deficit:
Preferred stock, $.01 par value; authorized 10,000,000 shares;
no shares issued and outstanding
Common stock, $.01 par value; authorized 100,000,000 shares;
issued and outstanding 58,393,105 at
September 28, 1997 and December 29, 1996 583,931 583,931
Additional paid-in-capital 218,546,069 218,787,643
Accumulated deficit (376,264,314) (356,814,356)
- -----------------------------------------------------------------------------------------
Total Shareholders' Deficit (157,134,315) (137,442,782)
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $156,541,286 $181,079,965
=========================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (DEBTORS-IN-POSSESSION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UNAUDITED) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $14,900,562 $ 14,259,954
Hotel 5,393,756 7,031,268
Food and beverage 8,004,569 9,815,438
Tower, retail and other income 8,186,223 9,115,553
- --------------------------------------------------------------------------------------------------
Gross Revenues 36,485,110 40,222,213
Less: Promotional allowances 3,416,804 4,903,269
- --------------------------------------------------------------------------------------------------
NET REVENUES 33,068,306 35,318,944
- --------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 6,716,606 7,512,100
Hotel 1,888,828 2,627,149
Food and beverage 6,094,671 8,970,014
Other operating expenses 3,154,912 3,994,785
Depreciation and amortization 2,106,084 3,230,179
Pre-opening costs amortization - 12,234,201
Selling, general and administrative 12,678,539 16,284,130
- --------------------------------------------------------------------------------------------------
Total Costs and Expenses 32,639,640 54,852,558
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 428,666 (19,533,614)
- --------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income - 363,176
Interest expense (Contractual Interest Estimated at $10,718,437) (642,938) (6,855,271)
Gain on sale of assets 15,376 -
- --------------------------------------------------------------------------------------------------
Total Other Expense, net (627,562) (6,492,095)
- --------------------------------------------------------------------------------------------------
LOSS BEFORE REORGANIZATION ITEMS AND INCOME TAXES (198,896) (26,025,709)
- --------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS: (1,687,512) -
LOSS BEFORE INCOME TAXES (1,886,408) (26,025,709)
- --------------------------------------------------------------------------------------------------
Provision for Income Taxes - -
- --------------------------------------------------------------------------------------------------
NET LOSS $(1,886,408) $(26,025,709)
==================================================================================================
LOSS PER COMMON SHARE $ (0.03) $ (0.45)
==================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,393,105 58,393,105
==================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (DEBTORS-IN-POSSESSION)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UANAUDITED) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $48,148,187 $26,569,994
Hotel 17,903,391 12,036,486
Food and beverage 25,050,251 17,050,798
Tower, retail and other income 23,286,929 16,345,496
- --------------------------------------------------------------------------------------------------
Gross Revenues 114,388,758 72,002,774
Less: Promotional allowances 10,092,154 6,786,251
- --------------------------------------------------------------------------------------------------
NET REVENUES 104,296,604 65,216,523
- --------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 21,438,920 13,504,136
Hotel 6,520,020 4,747,348
Food and beverage 19,728,461 14,474,982
Other operating expenses 8,829,450 6,342,519
Depreciation and amortization 5,901,429 5,719,196
Pre-opening costs amortization - 19,886,459
Selling, general and administrative 41,368,780 28,098,738
- --------------------------------------------------------------------------------------------------
Total Costs and Expenses 103,787,060 92,773,378
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 509,544 (27,556,855)
- --------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 47,674 3,665,175
Interest expense (Contractual Interest Estimated at $31,169,267) (4,985,782) (11,322,430)
Gain on sale of assets 14,186 -
- --------------------------------------------------------------------------------------------------
Total Other Expense, net (4,923,922) (7,657,255)
- --------------------------------------------------------------------------------------------------
LOSS BEFORE REORGANIZATION ITEMS AND INCOME TAXES (4,414,378) (35,214,110)
- --------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS: (15,035,580) -
LOSS BEFORE INCOME TAXES (19,449,958) (35,214,110)
- --------------------------------------------------------------------------------------------------
Provision for Income Taxes - -
- --------------------------------------------------------------------------------------------------
NET LOSS $(19,449,958) $(35,214,110)
==================================================================================================
LOSS PER COMMON SHARE $ (0.33) $ (0.61)
==================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,393,105 58,047,766
==================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOW (DEBTORS-IN-POSSESSION)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UNAUDITED) 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,449,958) $ (35,214,110)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,359,117 7,009,427
Amortization of pre-opening costs - 19,886,459
Reorganization Items :
Write-off of debt issuance costs 11,210,108 -
Professional Fees 4,000,000 -
Management Retention Expense 421,000 -
Interest Earned on Accumulated Cash During
Chapter 11 Proceedings (595,528) -
Provision for doubtful accounts 408,670 -
(Gain) loss on sale or disposal of assets (14,186) 307,520
Changes in operating assets and liabilities:
Accounts receivable 1,351,511 -
Other current assets 285,636 (27,944,438)
Accounts payable - trade (pre-petition) 331,397 -
Accounts payable - trade (post-petition) 29,331 2,581,797
Other accrued expenses (pre-petition) (3,220,768) -
Other accrued expenses (post-petition) 3,337,916 15,779,382
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities
Before Reorganization Items 4,454,246 (17,593,963)
- -----------------------------------------------------------------------------------------------------------------
Increases (decreases) to Cash Resulting from Reorganization Items:
Professional fees paid (1,241,498) -
Interest Earned on Accumulated Cash During
Chapter 11 Proceedings 595,528 -
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Reorganization Items (645,970) -
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,808,276 (17,593,963)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in cash and cash equivalents-restricted (807,716) 95,162,455
Change in securities available for sale 2,000,905 3,144,410
Payments for property and equipment (1,332,121) (226,024,500)
Change in construction payables (544,133) -
Increase in related party receivable and other (168,698) -
Cash proceeds from sale of property and equipment 1,585,827 -
- -----------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES 734,064 (127,717,635)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock-net - 1,296,446
Costs of secondary stock offering - (248,046)
Debt issuance and deferred financing costs (6,250) (728,684)
Proceeds from issuance of long-term debt and capital lease obligations - 38,670,375
Payments on long-term debt (428,401) (2,870,375)
Payments on capital lease obligations subject to compromise (8,095,670)
Increase in affiliate payable 563,680 4,967,908
Proceeds from the issuance of debt to affiliate - 50,000,000
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,966,641) 91,087,624
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,424,301) (54,223,974)
Cash and cash equivalents - beginning of period 22,558,804 92,595,770
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 19,134,503 $ 38,371,796
=================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (DEBTORS-IN-POSSESSION)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (UNAUDITED) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest-net of capitalized interest $ 1,661,911 $ 7,001,580
Income taxes $ - $ -
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
Issuance of common stock in purchase of land $ - $18,204,760
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS (UNAUDITED) (DEBTORS-IN-POSSESSION )
(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 Corp.,
Stratosphere Land Corporation, Stratosphere Advertising Agency and 2000 Las
Vegas Boulevard Retail Corporation (collectively the "Company"). The Company
commenced operations on April 29, 1996, with an integrated casino, hotel and
entertainment facility and a 1,149 foot, free-standing observation tower.
On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada
("Bankruptcy Court") assumed jurisdiction over the assets of Debtors. Debtors
are acting as debtors-in-possession on behalf of their respective bankrupt
estates, and are authorized as such to operate their business subject to
Bankruptcy Court supervision. The Condensed Consolidated Financial Statements
have been prepared assuming that the Company will continue as a going concern.
These Condensed Consolidated Financial Statements do not include any
adjustments that might result if the Company is unable to successfully emerge
from bankruptcy.
Principles of Presentation
The Condensed Consolidated Financial Statements have been prepared in
accordance with the accounting policies described in the Company's 1996 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 financial statements be read in conjunction with the Notes to the
Consolidated Financial Statements which appear in that report.
In addition, as a result of the restructuring (see Note 2), the Company has
implemented the guidance provided by Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" in the
preparation of the accompanying September 28, 1997, Condensed Consolidated
Financial Statements.
In the opinion of management, the accompanying Condensed Consolidated Financial
Statements include all adjustments (consisting 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. Interim
results are not necessarily indicative of results to be expected for any future
interim period or for the entire fiscal year. Significant intercompany
accounts and transactions have been eliminated.
Inventories
Inventories consisting primarily of food and beverage, retail and operating
supplies are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Inventories totaled $2.8 million and $3.3
million as of September 28, 1997, and December 29, 1996, respectively.
8
<PAGE> 9
Reclassifications
Certain amounts in the 1996 Condensed Consolidated Financial Statements have
been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on the Company's net income.
(2) RESTRUCTURING
On October 9, 1997, Grand Casinos, Inc. notified the Company that it has no
present intention to participate in any plan of reorganization. The Company
continued negotiations with High River Limited Partnership, American Real
Estate Partners, L.P. and Grace Brothers Limited with respect to finalization
of a consensual restructuring plan. High River Limited Partnership, American
Real Estate Partners, L.P. and Grace Brothers Limited have advised the Company
that they collectively own approximately 86% of the original issue of the $203
million outstanding Stratosphere First Mortgage Notes. Negotiations have not
resulted in the finalization of a consensual plan of reorganization.
On November 7, 1997, the Company filed a second amended plan of reorganization
("Second Amended Plan") with the Bankruptcy Court. Under the Second Amended
Plan, the secured portion of the Company's outstanding First Mortgage Notes
would be converted into one hundred percent (100%) of the equity of reorganized
Stratosphere, and all currently outstanding common stock of the Company and all
other existing equity interests of the Company would be canceled.
The Company expenses reorganization items as incurred (see Note 4). These
items include professional fees, management retention compensation, interest
income earned and any other costs and expenses deemed to have resulted from
reorganization efforts since the Petition Date. All professional fees require
approval by the Bankruptcy Court prior to the Company making payment.
Under Chapter 11 Reorganization, actions to enforce claims against the Debtors
or Debtors' property are stayed pending further order of the Bankruptcy Court
if those claims arose, or are based on events that occurred, on or before the
Petition Date, and such claims can not be paid or restructured prior to the
conclusion of the Chapter 11 proceedings or approval of the Bankruptcy Court.
Other liabilities may arise or be subject to compromise as a result of
rejection of executory contracts, including leases, or the Bankruptcy Court's
resolution of claims for contingencies and other disputed amounts. Liabilities
subject to compromise included in the accompanying consolidated condensed
balance sheets represent the Company's estimate of the Debtors' pre-petition
liabilities which are subject to compromise (see Note 3).
(3) LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise under reorganization proceedings consist of
the following as of September 28, 1997 (in thousands):
<TABLE>
<S> <C>
Accounts Payable Trade $ 345
Accrued Payroll and Related Expenses 71
Affiliate Payable 2,442
Other Accrued Expenses 4,748
Capital Lease Obligations 20,129
14 1/4% First Mortgage Notes - Including accrued interest through 1/27/97 223,661
Note Payable to Affiliate 50,000
--------
Total Liabilities Subject to Compromise $301,396
========
</TABLE>
The Company ceased accruing interest on the 14 1/4% First Mortgage Notes and
the note payable to affiliate as of the Petition Date. Although classified as
a liability subject to compromise, the Company anticipates the continuation of
payments on its capital lease obligations pursuant to a pre-petition standstill
agreement and an order entered by the Bankruptcy Court on March 4, 1997,
approving a stipulation for adequate protection.
9
<PAGE> 10
(4) REORGANIZATION ITEMS
Reorganization items consisted of the following for the nine month period ended
September 28, 1997 (in thousands):
<TABLE>
<S> <C>
Write-off of Debt Issuance Costs $11,210
Professional Fees 4,000
Interest Earned on Accumulated Cash During Chapter 11 Proceedings (595)
Management Retention Compensation 421
-------
Net Reorganization Items $15,036
=======
</TABLE>
Cash interest earned since the Petition Date was $609,283.
(5) COMMITMENTS
On July 30, 1997, the Bankruptcy Court approved management retention agreements
("Retention Agreements") for eleven of the Company's executives. The
executives are divided into two groups for purposes of computing retention
compensation pursuant to the Retention Agreements. Group one consists of nine
individuals who will receive additional monthly retention compensation of 5% of
their annual salary effective May 1, 1997. The first three months of retention
compensation is placed in escrow for the executive and is payable on the
earlier of (i) an involuntary termination and, (ii) ninety days after a sale of
the Company or confirmation of a plan of reorganization by the Bankruptcy
Court. After the initial three month period, the amount of continuing
retention compensation is accrued monthly and paid quarterly until the earlier
of the termination of the executive, the sale of the Company or confirmation of
a plan of reorganization by the Bankruptcy Court. In addition, the executive
is entitled to receive three months base salary upon an involuntary termination
or if the executive's title or job responsibilities are substantially
diminished upon conclusion of a change in ownership.
The group two executives (two individuals) will have an amount equal to 75% of
their annual compensation placed in escrow as additional compensation payable
on the earlier of (i) an involuntary termination and, (ii) ninety days after a
sale of the Company or confirmation of a plan of reorganization by the
Bankruptcy Court. An amount equal to an additional 25% of their annual
compensation will be paid if a plan of reorganization is confirmed prior to
March 1, 1998. Consistent with group one, the executives are not entitled to
the compensation upon a voluntary termination.
The Company began reflecting the costs associated with the Retention Agreements
in its consolidated financial statements beginning July 30, 1997, at which time
the Company believes the benefits of such agreements began to be realized.
(6) CONTINGENCIES
On July 25, 1997, the U.S. District Court for the District of Nevada ("District
Court") amended its May 21, 1997 order dismissing a purported class action
lawsuit brought by shareholders of the Company against various defendants
including Stratosphere Corporation and certain officers and directors of the
Company. The May 21, 1997 order included the District Court's findings that
the plaintiffs' complaint failed to specifically allege facts supporting claims
made by the plaintiffs' in connection with certain documents issued and certain
public statements made by the Company.
After the District Court dismissed the plaintiffs' complaint, the plaintiffs
asked the District Court to reconsider its dismissal order. By order dated
July 18, 1997, the District Court amended its dismissal order to provide the
plaintiffs with the opportunity to submit an amended complaint. The plaintiffs
filed an amended complaint with the District Court on August 22, 1997. The
defendants named in the amended complaint filed a response to such amended
complaint on September 30, 1997, and awaits the District Court's findings.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company commenced operations on April 29, 1996, with a 1,149 foot, free
standing observation tower with an integrated casino, hotel and retail
entertainment center. Prior to opening, the Company was in the development
stage and did not have any historical operating income as there were no
operating revenues. Until opening, expenses consisted primarily of interest
and amortization of costs and expenses relating to the 14 1/4% First Mortgage
Notes issued in March 1995.
On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. (collectively the "Debtors")
filed voluntary petitions for Chapter 11 Reorganization pursuant to the United
States Bankruptcy Code. As of that date, the United States Bankruptcy Court
for the District of Nevada ("Bankruptcy Court") assumed jurisdiction over the
assets of the Debtors. The Debtors are acting as debtors-in-possession on
behalf of their respective bankrupt estates, and are authorized as such to
operate their business subject to Bankruptcy Court supervision.
On October 9, 1997, Grand Casinos, Inc. notified the Company that it has no
present intention to participate in any plan of reorganization. The Company
continued negotiations with High River Limited Partnership, American Real
Estate Partners, L.P. and Grace Brothers Limited with respect to finalization
of a consensual restructuring plan. High River Limited Partnership, American
Real Estate Partners, L.P. and Grace Brothers Limited have advised the Company
that they collectively own approximately 86% of the original issue of the $203
million outstanding Stratosphere First Mortgage Notes. Negotiations have not
resulted in the finalization of a consensual plan of reorganization.
On November 7, 1997, the Company filed a second amended plan of reorganization
("Second Amended Plan") with the Bankruptcy Court. Under the Second Amended
Plan, the secured portion of the Company's outstanding First Mortgage Notes
would be converted into one hundred percent (100%) of the equity of reorganized
Stratosphere and all currently outstanding common stock of the Company and all
other existing equity interests of the Company would be canceled.
Due to the short operating period during fiscal year 1996, historical result
comparisons have been omitted for the nine month periods ended September 28,
1997, and September 29, 1996, from the following discussion regarding the
results of operations as such information would not be indicative of future
trends.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1997,
AND SEPTEMBER 29, 1996
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE THIRD QUARTER ENDED 1997 1996
(Dollars in thousands, except per share and other information)
- ---------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $14,901 $14,260
Hotel 5,394 7,031
Food and beverage 8,005 9,815
Tower, retail and other income 8,186 9,116
- ---------------------------------------------------------------------------------
Gross Revenues 36,485 40,222
Less: Promotional allowances 3,417 4,903
- ---------------------------------------------------------------------------------
NET REVENUES 33,068 35,319
- ---------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
FOR THE THIRD QUARTER ENDED 1997 1996
(Dollars in thousands, except per share and other information)
<S> <C> <C>
- ---------------------------------------------------------------------------------
Earnings (Loss) Before Interest, Taxes, Depreciation,
Amortization, Pre-opening Expenses and Reorganization Items 2,535 (4,070)
- ---------------------------------------------------------------------------------
Net Loss (1,886) (26,025)
Loss per Common Share (0.03) (0.45)
- ---------------------------------------------------------------------------------
Other Information:
Tower visitation (including Top of The World Dining) 698,179 881,861
Hotel occupancy percentage 89.58% 86.98%
Average rate per guest room 45.57 62.09
- ----------------------------------------------------------------------------------
</TABLE>
The Company reported a 1997 third quarter net loss of $1.9 million or $0.03 per
common share as compared to the 1996 third quarter net loss before the
amortization of pre-opening costs of $13.8 million or $0.24 per common share.
Revenues
Despite the increased competition experienced with the opening of the Monte
Carlo and New York New York mega resorts, casino revenue increased
approximately 4.5% from $14.3 million for the 1996 third quarter to $14.9
million for the 1997 third quarter.
Hotel revenues declined approximately 23% due to a decrease in the average
daily guest room rate from $62.09 for the 1996 third quarter to $45.57 for the
1997 third quarter. Management attributes the decline in the average daily
guest room rate to additional room capacity in the marketplace and an increased
reliance on tour and travel wholesalers. Food and beverage revenues declined
approximately 18% from $9.8 million for the 1996 third quarter to $8.0 million
for the 1997 third quarter. The decline is the result of reducing menu pricing
to support casino marketing promotions and closure of the Top of The World
restaurant during lunch.
Tower, retail and other income declined approximately 10.0% from $9.1 million
for the 1996 third quarter to $8.2 million for the 1997 third quarter due
primarily to a reduction in visitation from 881,861 for the third quarter 1996
to 698,179 for the 1997 third quarter. Management believes the decline is
primarily due to increased competition with the new mega resorts located at the
south end of the Las Vegas Strip.
Costs and Expenses
Management has reevaluated several promotion programs in an effort to more
efficiently target potential customers. Through these efforts promotional
allowances have been reduced from $4.9 million for the 1996 third quarter to
$3.4 million for the 1997 third quarter.
Profit enhancement programs, designed to increase operational efficiency, have
been implemented in all operating departments during the past twelve months.
These program have resulted in a $5.2 million (23%) reduction in operating
expenses from $23.1 million for the 1996 third quarter to $17.9 million for the
1997 third quarter.
Similar programs have been implemented in the selling, general and
administrative departments resulting in a $3.6 million (23%) reduction in
selling, general, and administrative expenses from $16.3 million for the 1996
third quarter to $12.7 million for the 1997 third quarter.
As a result of the above, earnings before interest, taxes, depreciation,
amortization, pre-opening expenses, and reorganization items increased to $2.5
million for the 1997 third quarter from a loss of $4.1 million for the 1996
third quarter.
12
<PAGE> 13
Other Factors Affecting Earnings
There were no pre-opening costs amortized during the 1997 third quarter.
Pre-opening costs amortized during the 1996 third quarter totaled $12.2
million.
Interest expense was $0.6 million for the 1997 third quarter and $6.9 million
for the 1996 third quarter. The Company ceased accruing interest on the 14
1/4% First Mortgage Notes and the note payable to affiliate as of the Petition
Date.
The Company expenses reorganization items as incurred. Such costs were $1.7
million during the 1997 third quarter and included professional fees,
management retention compensation and interest earned since the Petition Date.
There were no reorganization costs during the 1996 third quarter.
NINE MONTHS ENDED SEPTEMBER 28, 1997
The Company produced gross revenues of $114.4 million during the nine months
ended September 28, 1997. Casino revenue represented 42% of gross revenue,
hotel 16%, food and beverage 22%, and tower, retail and other revenue 20%. The
net loss for the nine months ended September 28, 1997, was $19.5 million or
$0.33 per common share.
The Company experienced hotel occupancy of 89% at an average daily rate of $51
for the period. Tower visitation totaled 2,127,163 for the period inclusive of
guests dining at the Top of The World restaurant.
Other Factors Affecting Earnings
Interest expense was approximately $5.0 million and $11.3 million for the nine
months ended September 28, 1997, and September 29, 1996, respectively. The
Company ceased accruing interest on the 14 1/4% First Mortgage Notes and the
note payable to affiliate as of the Petition Date.
The Company expenses reorganization items as incurred. These items include
professional fees, management retention compensation, interest income earned
since the Petition Date and any other costs and expenses deemed to be resulting
from reorganization efforts. During the nine months ended September 28, 1997,
such costs included an $11.2 million write-off of unamortized deferred debt
issuance costs as of the Petition Date.
As of November 1, 1997, the Company employs approximately 1,990 full time
equivalents. The collective bargaining agreement between the Company and the
Culinary Workers' Union, Local 226 and Bartenders Local 165 expired on June 1,
1997. Since that time, all parties have agreed to honor the terms and
conditions of that contract until such time as a new agreement is reached. The
Company does not anticipate any disruption of its business during negotiation
with these unions.
On November 5, 1997, the Operating Engineers, Local 501 petitioned the National
Labor Relations Board for a representation election seeking certification as
the exclusive collective bargaining representative for the Company's employees
in their respective units. These units include facilities engineers and ride
engineers. The Company does not anticipate any disruption of its business as
a result of the potential campaign and election process.
LIQUIDITY AND CAPITAL RESOURCES
The Company had unrestricted cash balances of approximately $19.1 million as of
September 28, 1997. The Company relies on its ability to generate funds from
operations and current cash balances to continue its operations during the term
of the bankruptcy proceedings as the Company does not have the availability of
working capital credit lines. The Company generated cash from operating
activities of approximately $3.8 million during the nine months ended September
28, 1997.
13
<PAGE> 14
On July 17, 1997, the Company reduced its Capital Lease obligations by an
additional $1.6 million. The funds were generated by the sale of 410
warehoused slot machines which were not needed to conduct the Company's
operations. The amount of payment was applied to future principal payments
(pursuant to the terms of the lease agreement) on a pro rata basis. The
Company remains current on the capital lease payment obligation as of September
28, 1997, and expects to continue such required payments in the future.
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). See the Company's Annual
Report on Form 10-K for the fiscal year ended 1996 for certain other factors
that could impact future results.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 25, 1997, the U.S. District Court for the District of Nevada
("District Court") amended its May 21, 1997 order dismissing a purported class
action lawsuit brought by shareholders of the Company against various
defendants including Stratosphere Corporation and certain officers and
directors of the Company. The May 21, 1997 order included the District Court's
findings that the plaintiffs' complaint failed to specifically allege facts
supporting claims made by the plaintiffs' in connection with certain documents
issued and certain public statements made by the Company.
After the District Court dismissed the plaintiffs' complaint, plaintiffs asked
the District Court to reconsider its dismissal order. By order dated July 18,
1997, the District Court amended its dismissal order to provide the plaintiffs
with the opportunity to submit an amended complaint. The plaintiffs have since
filed an amended complaint with the District Court. The defendants named in
the amended complaint have again filed a motion to dismiss complaint.
See the Company's Annual Report on Form 10-K for the fiscal year ended December
29, 1996, for information regarding other pending legal proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company defaulted on its 14 1/4% interest payment obligation of
approximately $14.5 million which was due on November 15, 1996, to holders of
the First Mortgage Notes. The Company does not anticipate meeting future
payment obligations during the term of the bankruptcy proceedings. The total
principal and interest accrued as of September 28, 1997, was approximately
$223.7 million. Interest has not been accrued since the Petition Date.
The Company is also in default on its capital lease obligations due to its
inability to meet certain financial covenants. The Company anticipates it will
continue payment on this obligation during the term of the bankruptcy
proceedings. The Company was current on this payment obligation as of
September 28, 1997. The balance of principal and accrued interest as of
September 28, 1997, was $20.1 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99.1 Disclosure Statement to Accompany Debtor's Second Amended
Plan of Reorganization
15
<PAGE> 16
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 12, 1997 By: /s/ Thomas A. Lettero
--------------------------------
Name: Thomas A. Lettero
--------------------------------
Title: Chief Financial Officer
--------------------------------
16
<PAGE> 17
EXHIBIT INDEX
STRATOSPHERE CORPORATION
<TABLE>
<S> <C>
Exhibit
No.
- -------
27 Financial Data Schedule
99.1 Disclosure Statement to Accompany Debtor's Second Amended Plan
of Reorganization
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-END> SEP-28-1997
<CASH> 19,134,503
<SECURITIES> 0
<RECEIVABLES> 6,559,507
<ALLOWANCES> (429,115)
<INVENTORY> 2,768,054
<CURRENT-ASSETS> 5,841,689
<PP&E> 140,666,455
<DEPRECIATION> 16,806,780
<TOTAL-ASSETS> 156,541,286
<CURRENT-LIABILITIES> 12,280,081
<BONDS> 0
0
0
<COMMON> 583,931
<OTHER-SE> (157,718,246)
<TOTAL-LIABILITY-AND-EQUITY> 156,541,286
<SALES> 104,296,604
<TOTAL-REVENUES> 114,388,758
<CGS> 13,614,328
<TOTAL-COSTS> 84,624,989
<OTHER-EXPENSES> 19,162,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,985,782
<INCOME-PRETAX> (19,449,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,414,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,414,378)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99.1
GORDON & SILVER, LTD.
GERALD M. GORDON, ESQ.
Nevada Bar No. 229
THOMAS H. FELL, ESQ.
Nevada Bar No. 3717
3800 Howard Hughes Parkway
14th Floor
Las Vegas, Nevada 89109
Tel: (702) 796-5555
Counsel to STRATOSPHERE RE CORPORATION
and STRATOSPHERE GAMING CORP.,
Debtors-In-Possession
RECEIVED
AND FILED
NOV 7 313PM '97
UNITED STATES
BANKRUPTCY COURT
PATRICIA GRAY
CLERK
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEVADA
In re: )
) In Proceedings Under Chapter 11
STRATOSPHERE CORPORATION, )
a Delaware corporation, ) CASE NO. 97-20554 GWZ
)
Debtor. ) (Joint Administration Only)
)
________________________________)
In re: ) CASE NO. 97-20555 GWZ
)
STRATOSPHERE GAMING CORP., )
a Nevada corporation, )
)
Debtor. )
)
________________________________)
DISCLOSURE STATEMENT TO ACCOMPANY
DEBTORS' SECOND AMENDED PLAN OF REORGANIZATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. INTRODUCTION..................................................................................... 2
II. INFORMATION REGARDING THE SECOND AMENDED PLAN AND DISCLOSURE STATEMENT........................... 3
III.REPRESENTATIONS.................................................................................. 4
IV. SUMMARY OF VOTING PROCESS........................................................................ 5
A. Who May Vote to Accept or Reject the Second Amended Plan........................................ 5
B. Summary of Voting Requirements.................................................................. 5
V. GENERAL OVERVIEW OF THE SECOND AMENDED PLAN....................................................... 6
A. New Capital Structure........................................................................... 12
B. Holders of the Original First Mortgage Notes.................................................... 12
C. Completion of Phase II.......................................................................... 12
D. Heller Capital Lease Claims and Capital Lease Claims............................................ 13
E. Administrative Claims........................................................................... 14
F. Miscellaneous Secured Claims.................................................................... 15
G. Allowed General Unsecured Claims................................................................ 16
H. Reliable Steel Lien Claim....................................................................... 17
I. Equity Interest and Equity Interest-Related Claims.............................................. 17
VI. DESCRIPTION OF THE DEBTORS....................................................................... 18
A. Stratosphere.................................................................................... 18
B. Gaming Corp..................................................................................... 19
C. Other Entities owned by Stratosphere............................................................ 19
1. Stratosphere Land Corporation................................................................. 19
2. Stratosphere Advertising Agency............................................................... 20
3. Stratosphere-Nevada Corporation............................................................... 20
4. 2000 South Las Vegas Boulevard Retail Corporation dba Stratosphere Retail..................... 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
VII. OFFICERS AND DIRECTORS OF THE DEBTORS AND REORGANIZED........................................... 21
A. Board of Directors of Stratosphere.............................................................. 21
1. Thomas G. Bell............................................................................... 21
2. Andrew S. Blumen............................................................................. 21
3. Thomas A. Lettero............................................................................ 22
4. Robert A. Maheu.............................................................................. 22
5. Thomas A. Hantges............................................................................ 22
B. Officers and Directors of Gaming Corp.......................................................... 23
2. Andrew S. Blumen............................................................................. 23
3. Thomas A. Lettero............................................................................ 23
C. Officers and Directors of the Reorganized Debtors............................................... 23
VIII. EVENTS LEADING UP TO THE FILING OF THE BANKRUPTCY CASES........................................ 24
A. Agreements with Mr. Stupak...................................................................... 24
B. Issuance of Stratosphere's First Mortgage Notes................................................. 24
C. Capital Lease Facility.......................................................................... 25
D. The 1995 Second Stratosphere Public Offerings................................................... 26
E. Pending Litigation Matters...................................................................... 28
1. The Securities Litigation.................................................................... 28
(a) The 1994 Securities Action............................................................... 28
(b) The Federal District Court Litigation.................................................... 28
(c) The State Court Litigation............................................................... 29
2. Other Actions................................................................................ 31
(a) J. O. Winfrey One Partnership v. Kellogg, Case No. A363750............................... 31
(b) Vegas Market Place, Inc. v. Stupak, Vegas World Hotel and Casino;
Stratosphere Corporation Et Al and Tower Merchandise Management, LLC,
Intervenor Defendant, Case No. A353930....................................................... 31
(c) Sandra Blumen v. Stratosphere, et al, Case No. A356658................................... 32
3. Owner Participation Agreement................................................................ 32
4. Reliable Steel and Various Mechanic's Liens.................................................. 34
F. Stratosphere's Pre-Bankruptcy Financial Results................................................. 35
G. The Workout and Bankruptcy Filing............................................................... 37
1. The Initial Restructuring.................................................................... 37
2. Stratosphere's Failure To Meet Grand's Conditions............................................ 38
3. First Amended Plan Of Reorganization......................................................... 39
4. Second Amended Plan.......................................................................... 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
IX. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES................................................... 40
A. First Day Motions............................................................................... 40
1. General Ex Parte Applications................................................................ 40
2. Motions for Authorization to Use Cash Collateral............................................. 42
3. Motion to Shorten Time For Periodic Interim Allowances of Fees
and Expenses of Professionals................................................................ 43
B. Extension of Bar Date........................................................................... 44
C. Motion For Order Approving Senior Executive Retention Agreements................................ 44
D. Debtors' First Motion To Extend Exclusivity And Acceptance Periods.............................. 46
E. Adequate Protection Stipulations................................................................ 47
1. Adequate Protection Stipulation with the Capital Lease Bank Group............................ 47
2. Adequate Protection Stipulation with Heller.................................................. 49
F. Class Certification Proceedings Regarding Vacation Package Holders.............................. 49
G. CDS Lift Stay Motion............................................................................ 52
H. Motion Of Official Committee Of Noteholders For (1) Standing To Request
Assumption On Behalf Of Debtors' Estates, Of Standby Equity Commitment
With Grand Casinos, Inc. And (2) An Order Authorizing
Such Assumption Pursuant To Section 365 Of The Bankruptcy Code.................................. 53
I. Changes on Stratosphere's Board of Directors.................................................... 54
X. DETAILED DESCRIPTION OF THE SECOND AMENDED PLAN................................................... 54
A. Classification and Treatment of Claims and Equity Interests Under the Second Amended Plan..... 54
B. Means for Implementation of the Second Amended Plan............................................. 57
1. New Capital Structure........................................................................ 57
2. Satisfaction and Cancellation of Original First Mortgage Notes............................... 58
3. Interim Management Agreement................................................................. 58
4. Phase II..................................................................................... 59
5. Alternative Transaction Proposal............................................................. 59
C. Conditions to Confirmation and Effectiveness of the Second Amended Plan......................... 60
1. Conditions to Confirmation................................................................... 61
2. Conditions to Effectiveness.................................................................. 61
XI. RISK FACTORS..................................................................................... 63
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
A. Risk of Non-Payment............................................................................. 63
B. Competition..................................................................................... 65
C. Las Vegas Economy............................................................................... 67
D. Potential Liquidity of Securities Issued Pursuant to the Second Amended Plan.................... 68
E. Gaming Control Act.............................................................................. 68
F. Risk of Increases in Gaming Taxes............................................................... 72
G. Dependence Upon Cash Flow From Subsidiaries..................................................... 72
H. Potential Effect of Bankruptcy.................................................................. 72
I. Risk of Non-Confirmation of the Second Amended Plan............................................ 73
XII. POST CONFIRMATION DATE OPERATIONS AND PROJECTIONS............................................... 73
A. Summary of Title to Property and Dischargeability............................................... 73
1. Revesting of Assets........................................................................... 73
2. Discharge..................................................................................... 74
3. Injunction.................................................................................... 75
4. Exculpation................................................................................... 76
B. Summary of Certain Material Documents of the Second Amended Plan............................... 77
1. Projections................................................................................... 77
2. Phase II Budget............................................................................... 78
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................................ 79
A. Scope And Limitations........................................................................... 79
B. Tax Consequences To Reorganized Stratosphere.................................................... 81
1. Discharge of Indebtedness Income.............................................................. 81
3. Stock-for-Debt................................................................................ 84
4. Cancellation of Old Common Stock.............................................................. 84
5. Recapitalization.............................................................................. 84
6. Limitation On Net Operating Losses............................................................ 85
C. Tax Consequences To Creditors................................................................... 88
1. Definition of Security for Tax Purposes....................................................... 89
2. Claims Constituting Securities................................................................ 89
a. Recognition of Gain........................................................................ 90
b. Tax Basis and Holding Period of Property Received.......................................... 91
3. Claims Not Constituting Securities............................................................ 91
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
XIV. SECURITIES LAW CONSIDERATION.................................................................... 92
A. Issuance of Securities.......................................................................... 92
B. Resale Considerations........................................................................... 93
XV. GAMING REGULATION AND LICENSING.................................................................. 96
XVI. CONFIRMATION OF THE SECOND AMENDED PLAN......................................................... 105
A. Confirmation Hearing............................................................................ 105
B. Objections to Confirmation of the Second Amended Plan........................................... 106
1. Best Interests of Creditors and Liquidation Analysis......................................... 106
2. Feasibility.................................................................................. 111
3. Accepting Impaired Class..................................................................... 112
4. Confirmation over Dissenting Class ("Cram Down")............................................. 112
5. Allowed Claims............................................................................... 113
6. Impaired Claims and Equity Interests......................................................... 114
7. Voting Procedures............................................................................ 114
a. Submission of Ballots..................................................................... 114
b. Incomplete Ballots........................................................................ 115
c. Withdrawal of Ballots..................................................................... 115
d. Questions and lost or damaged Ballots..................................................... 115
XVII. ALTERNATIVES TO THE SECOND AMENDED PLAN........................................................ 116
A. Alternative Plans of Reorganization............................................................. 116
B. Liquidation Under Chapter 7..................................................................... 117
C. Preferences and Adversary Actions............................................................... 118
1. Grand Casinos, Inc........................................................................... 119
2. Adversary Action Against Mr. Robert Stupak................................................... 120
XVIII. RECOMMENDATION AND CONCLUSION................................................................. 123
</TABLE>
v
<PAGE> 7
APPENDIX
EXHIBIT "A" SECOND AMENDED PLAN OF REORGANIZATION
EXHIBIT "B" PROJECTED CASH FLOW
EXHIBIT "C" LIQUIDATION ANALYSIS
EXHIBIT "D" RELIABLE STEEL LIEN CLAIM STIPULATION AND AGREEMENT
vi
<PAGE> 8
I. INTRODUCTION
On January 27, 1997 (the "Petition Date"), Stratosphere
Corporation, a Delaware corporation ("Stratosphere") and its wholly owned
subsidiary Stratosphere Gaming Corp., a Nevada corporation ("Gaming Corp.,"
and together with Stratosphere, the "Debtors") filed petitions for relief (the
"Petitions") under Title 11, Chapter 11 of the United States Code (the
"Bankruptcy Code"). Concurrent with the filing of the Petitions, the Debtors
jointly filed a Motion for Joint Administration which was granted by order
entered on January 29, 1997.
The Debtors have prepared this Disclosure Statement (this "Disclosure
Statement") in connection with the solicitation of votes on the Second Amended
Plan of Reorganization dated October 31, 1997 (the "Second Amended Plan")
proposed by the Debtors to treat the Claims of Creditors of Debtors and the
Persons holding Equity Interests in Debtors. Capitalized terms not otherwise
defined herein will have the same meanings as are ascribed to such terms in
the Second Amended Plan.
The various exhibits to this Disclosure Statement included in the
Appendix are incorporated into and are a part of this Disclosure Statement. The
Second Amended Plan is included as Exhibit A in the Appendix. The Plan
Supplement is incorporated into and is a part of the Second Amended Plan as if
fully set forth therein. Any interested party desiring further information
should contact:
Gordon & Silver, Ltd.
3800 Howard Hughes Parkway, 14th Floor
Las Vegas, Nevada 89109
Telephone Number: (702) 796-5555
Facsimile Number: (702) 369-2666
Attn: Thomas H. Fell, Esq.
2
<PAGE> 9
II. INFORMATION REGARDING THE SECOND AMENDED PLAN AND DISCLOSURE
STATEMENT
The objective of a Chapter 11 case is the confirmation (i.e.,
approval by the bankruptcy court) of a plan of reorganization. A plan
describes in detail (and in language appropriate for a legal contract) the
means for satisfying the claims against, and equity interests in, a debtor.
After a plan has been filed, the holders of such claims and equity interests
which are impaired (as defined in Bankruptcy Code Section 1124) are permitted
to vote to accept or reject the plan. Before a debtor or other plan proponent
can solicit acceptances of a plan, Bankruptcy Code Section 1125 requires the
debtor or other plan proponent to prepare a disclosure statement containing
adequate information of a kind, and in sufficient detail, to enable those
parties entitled to vote on the plan to make an informed judgment about the
plan and whether they should accept or reject the plan.
The purpose of this Disclosure Statement is to provide sufficient
information about the Debtors and the Second Amended Plan to enable Creditors to
make an informed decision in exercising their rights to accept or reject the
Second Amended Plan. This Disclosure Statement will be used to solicit
acceptances of the Second Amended Plan only after the Bankruptcy Court has found
that this Disclosure Statement provides adequate information in accordance with
Bankruptcy Code Section 1125 and has entered an order approving this Disclosure
Statement. Approval by the Bankruptcy Court is not an opinion or ruling on the
merits of this Disclosure Statement and it does not mean that the Second Amended
plan itself has been or will be approved by the Bankruptcy Court.
After this Disclosure Statement has been approved by the Bankruptcy
Court and the appropriate Persons have voted on whether to accept or reject the
Second Amended Plan, there
3
<PAGE> 10
will be a hearing on the Second Amended Plan to determine whether it should be
confirmed. At the Confirmation Hearing, the Bankruptcy Court will consider
whether the Second Amended Plan satisfies the various requirements of the
Bankruptcy Code. The Bankruptcy Court will also receive and consider a Ballot
summary which will present a tally of the votes of Classes accepting or
rejecting the Second Amended Plan cast by those entitled to vote. Once
confirmed, the Second Amended Plan will be treated essentially as a contract
binding on all Creditors, holders of Equity Interests and other parties in
interest in the Chapter 11 Cases.
THIS DISCLOSURE STATEMENT IS NOT THE SECOND
AMENDED PLAN. FOR THE CONVENIENCE OF CREDITORS AND
HOLDERS OF EQUITY INTERESTS, THE SECOND AMENDED PLAN
IS SUMMARIZED IN THIS DISCLOSURE STATEMENT. ALL
SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THE
SECOND AMENDED PLAN ITSELF. IN THE EVENT OF ANY
INCONSISTENCY BETWEEN THIS DISCLOSURE STATEMENT AND
THE SECOND AMENDED PLAN, THE AMENDED PLAN WILL
CONTROL.
III. REPRESENTATIONS
The information in this Disclosure Statement has not been subject to
audit. Instead, this Disclosure Statement was prepared from information
compiled from records maintained in the ordinary course of the Debtors'
businesses. The Debtors have attempted to be accurate in the preparation of
this Disclosure Statement.
Other than as stated in this Disclosure Statement, the Debtors have not
authorized any representations or assurances concerning the Debtors and their
operations or the value of their respective assets. Therefore, in deciding
whether to accept or reject the Second Amended Plan, you should not rely on any
information relating to the Debtors or the Second Amended Plan other than that
contained in this Disclosure Statement or in the Second Amended Plan itself.
4
<PAGE> 11
IV. SUMMARY OF VOTING PROCESS
A. WHO MAY VOTE TO ACCEPT OR REJECT THE SECOND AMENDED PLAN
Generally, holders of allowed claims or equity interests that are
"impaired" under a plan are permitted to vote on a second plan. A claim is
defined by the Bankruptcy Code to include a right to payment from the Debtors;
an equity interest represents an ownership stake in the Debtors. In order to
vote, a Creditor must first have an Allowed Claim. The solicitation of votes on
the Second Amended Plan will be sought only from those holders of Allowed Claims
whose Claims are impaired and which will receive property or rights under the
Second Amended Plan. As explained more fully below, to be entitled to vote, a
Claim must be both "Allowed" and "Impaired." HOLDERS OF EQUITY INTERESTS AND
EQUITY INTEREST-RELATED CLAIMS WILL NEITHER RECEIVE NOR RETAIN ANY PROPERTY OR
RIGHTS UNDER THE SECOND AMENDED PLAN. AS SUCH, ALL SUCH HOLDERS ARE DEEMED TO
HAVE NOT ACCEPTED THE SECOND AMENDED PLAN AND THE DEBTORS WILL NOT SOLICIT THEIR
VOTES.
B. SUMMARY OF VOTING REQUIREMENTS
In order for the Second Amended Plan to be confirmed, the Second
Amended Plan must be accepted by at least one non-insider, impaired Class of
Claims. A class of claims is deemed to have accepted a plan when allowed votes
representing at least two-thirds (2/3) in amount and a majority in number of the
claims of the class actually voting cast votes in favor of the plan. A class of
equity interests has accepted a plan when votes representing at least two-thirds
(2/3) in amount of the outstanding equity interests of the class actually voting
cast votes in favor of a plan. The Debtors are soliciting votes from holders of
Allowed Claims in the following Classes
5
<PAGE> 12
which are impaired under the Second Amended Plan; but are not soliciting the
votes of holders of Equity Interests or Equity Interest-Related Claims who are
deemed to have not accepted the Second Amended Plan.
Class Description
- ----- -----------
Class 6 Original First Mortgage Note Claims
Class 7 Heller Capital Lease Claims
Class 8 Capital Lease Claims
Class 9 General Unsecured Claims
Class 10 Reliable Steel Lien Claim
The Debtors will have the right to supplement this Disclosure Statement as to
additional impaired Classes, if any. The treatment of each Class is described
in the Second Amended Plan and is summarized generally in Article V of this
Disclosure Statement and with more detail in Article X of this Disclosure
Statement.
A VOTE FOR ACCEPTANCE OF THE SECOND AMENDED PLAN
BY THOSE HOLDERS OF CLAIMS WHO ARE ENTITLED TO VOTE IS
MOST IMPORTANT. THE DEBTORS ASSERT THAT THE
TREATMENT OF CREDITORS UNDER THE SECOND AMENDED
PLAN IS THE BEST ALTERNATIVE FOR CREDITORS AND THE
DEBTORS RECOMMEND THAT THE HOLDERS OF ALLOWED
CLAIMS VOTE IN FAVOR OF THE SECOND AMENDED PLAN.
V. GENERAL OVERVIEW OF THE SECOND AMENDED PLAN
The following is a general overview of the provisions of the Second
Amended Plan. This overview is qualified in its entirety by reference to the
provisions of the Second Amended Plan. For a more detailed description of the
terms and the provisions of the Second Amended Plan, see Article X hereof and
the Second Amended Plan.
The Debtors filed their original Joint Plan of Reorganization ("Joint
Plan") with Grand Casinos Inc., a Minnesota corporation ("Grand") as co-
proponent on the Petition Date following substantial negotiations among the
Debtors, an ad-hoc committee of holders of a majority in face
6
<PAGE> 13
amount of the Original First Mortgage Notes ("Ad Hoc Committee") and Grand.
However, the feasibility of the Joint Plan, and Grand's obligation to
participate therein, was dependent upon, among other things, Debtors' meeting
certain financial and operating conditions. Post- petition, the Debtors'
financial and operational difficulties continued, and the Debtors were unable
to maintain cash flow levels sufficient to meet the conditions obligating
Grand's participation and the requirements necessary for feasibility of the
Joint Plan.
A post-petition market value appraisal report was prepared by Deloitte
and Touche, LLP ("Deloitte and Touche" and "Deloitte and Touche Appraisal"), at
the request of Debtors. Using both the income approach and the sales
comparison approach in conformance with the guidelines of the Uniform Standards
of Professional Appraisal Practice, Deloitte and Touche determined that the
estimated "as is" market value range of the Stratosphere Hotel and Casino
(including the real and personal property) is from One Hundred Five Million
Dollars ($105,000,000) to One Hundred Thirty Million Dollars ($130,000,000) and
concluded that the estimated "as is" market value is One Hundred Twenty Million
Dollars ($120,000,000). Debtors' schedules were amended on June 23, 1997 to
reflect the appraised values.
Based upon the post-petition financial results and the Deloitte and
Touche Appraisal, Debtors and Grand revisited the Joint Plan in an effort to
satisfy realistic operational projections and otherwise provide appropriate
treatment to the various classes of Creditors and Equity Interests in light of
this information. Grand proposed a modified plan to be memorialized in a
Restated Investment and Reorganization Agreement and an amended Joint Plan.
Debtors sought
- -------------------
(1) After the Petittion Date, upon application of the AD Hoc Committee, the
Bankruptcy Court authorized the appointment of an Official Committee of
Noteholders ("Noteholders Committee), comprised of the members of the Ad Hoc
Committee.
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the involvement of that the Noteholders Committee in this process, but, the
Noteholders Committee ignored Debtors' request to participate in negotiations.
As a result, the Debtors had no alternative at the time but to proceed with
negotiations with Grand which culminated in the preparation and execution of a
Restated Investment and Reorganization Agreement and First Amended Plan of
Reorganization ("Amended Plan").
The Amended Plan was filed on June 20, 1997. The Amended Plan provided
for restated first mortgage notes in the principal sum of One Hundred Ten
Million Dollars ($110,000,000) with interest at eight and one-half percent
(81/2%) the first two (2) years after issuance and twelve and one-half percent
(12 1/2%) thereafter, all due and payable seven (7) years from issuance.
Furthermore, the holders of the Original First Mortgage Notes were to receive
approximately ten percent (10%) of the equity interests and voting power of
Reorganized Stratosphere (with the exact amount to be determined depending on
whether such holders elected fully secured status under Section 1111(b)(1)(A)(i)
of the Bankruptcy Code ("1111(b) Election"). Grand agreed to purchase the
remaining 90% of the new common stock of Reorganized Stratosphere for Fifty
Million Dollars ($50,000,000) and to purchase up to an additional Twenty-Five
Million Dollars ($25,000,000) in restated first mortgage notes, which cash
proceeds from the sale of the new common stock and restated first mortgage notes
were to be used to complete the Phase II construction. Unsecured Creditors were
to receive their Pro Rata share of up to Five Million Dollars ($5,000,000) Cash
on or about the Effective Date. In addition, Grand would have been fully
released and discharged from the Standby Equity Commitment.
On July 3, 1997, the Noteholders Committee filed The Official Committee
of Noteholders' Plan of Reorganization For Stratosphere Corporation and Gaming
Corp.
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("Noteholders' Plan"). Debtors disputed the feasibility and confirmability of
the Noteholders' Plan, and are further informed and believe that the
Noteholders Committee does not intend to proceed with confirmation of the
Noteholders' Plan.
Recognizing that there may be third-parties willing to infuse more
capital than Grand (as contemplated under the Amended Plan) to gain control of
the Debtors (and thus potentially provided a greater return to Creditors), the
Amended Plan provided for the Debtors' solicitation and acceptance of
competitive proposals from third-parties up and until confirmation of the
Amended Plan. In the event such a competitive proposal was economically more
advantageous to Creditors and the Estate, the Debtors had the right to modify
the Amended Plan and proceed to confirmation with such competitive proposal.
On or about July 15, 1997, Debtors received such a competitive proposal
from High River Limited Partnership and American Real Estate Partners, LP,
(collectively "High River"), entities controlled and managed by New York
financier, Carl Icahn. Stratosphere's Board of Directors determined that High
River's proposal was economically more advantageous to Creditors and Debtors'
estates and contained less contingencies to effectuation than the Amended Plan
and thereafter proceeded to negotiate the terms of High River's proposal. As a
result, Debtors notified Grand that they were not proceeding with the Amended
Plan, and that Debtors intended to incorporate the High River's proposal in the
Second Amended Plan. Although High River's proposal has not been incorporated
into the Second Amended Plan, Debtors believe that the exchange of the New
Common Stock of Reorganized Stratosphere for one hundred percent (100%) of the
Allowed Secured Claims of the holders of the Original First Mortgage Notes as
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<PAGE> 16
more fully set forth below and in the Second Amended Plan will simplify the
necessary approvals from the Gaming Authorities.
The Second Amended Plan followed substantial negotiation among the
Debtors, High River and Grace Bros. Ltd. (the remaining Original Holder of First
Mortgage Notes serving on the Noteholders Committee). High River and Grace
Bros. Ltd. did not reach agreement amongst themselves on the terms of a plan of
reorganization which they would find to be mutually acceptable. Rather than
wait for the outcome of protracted negotiations between High River and Grace
Bros. Ltd., with no guarantee that such negotiations would result in a proposal
acceptable to such parties and to Debtors, Debtors are filing the Second Amended
Plan without obtaining the prior approval of High River and Grace Bros. Ltd.
More than two (2) months have passed since receipt of High River's proposal and
it does not presently appear that High River and Grace Bros. Ltd. will reach a
consensual agreement. The Debtors further believe that, through the Second
Amended Plan, each Class of Creditors entitled to vote will obtain a greater
recovery than would be available if the assets of the Debtors were liquidated in
a case under Chapter 7 of the Bankruptcy Code as shown by the liquidation
analysis in Section XVII(b). The Debtors believe that the Second Amended Plan
will afford the Debtors the opportunity and the ability to continue in business
as viable going concerns, thereby benefiting Creditors, the Debtors' employees,
other parties in interest and the general public.
The Debtors believe that the Second Amended Plan provides the greatest
possible return to Creditors while permitting the Debtors to reorganize
successfully. However, recognizing that there may be third parties willing to
infuse more capital than High River to gain control of the Debtors (and thus
potentially providing a greater return to Creditors), the Second Amended Plan
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<PAGE> 17
specifically provides for the Debtors' solicitation and acceptance of
competitive proposals (an "Alternative Transaction Proposal") from third
parties up and until the Confirmation Hearing of the Second Amended Plan. If
any such Alternative Transaction Proposal is more advantageous to Creditors and
Debtors' estates, the Debtors reserve the right to modify the Second Amended
Plan and proceed to confirmation with such Alternative Transaction Proposal or
to submit such Alternative Transaction Proposal to the Bankruptcy Court for a
determination by the Court as to whether or not such Alternative Transaction
Proposal contains economic terms and conditions more favorable to Debtors and
Creditors than the transaction proposed by the Second Amended Plan. The
solicitation procedures for Alternative Transaction Proposals are detailed
more fully below in Article X(B)(5).
For ease of review, the following chart summarizes which Claims have
been placed in which Classes:
Class 1: Priority Wage Claims Unimpaired
- no solicitation required
Class 2: Priority Benefit Plan Unimpaired
Contribution Claims - no solicitation required
Class 3 Priority Customer Deposit Unimpaired
Claims - no solicitation required
Class 4: Secured Tax Claims Unimpaired
- no solicitation required
Class 5: Miscellaneous Secured Claims Unimpaired
- no solicitation required
Class 6: Original First Mortgage Note Impaired
Claims - entitled to vote
Class 7: Heller Capital Lease Claims Impaired
- entitled to vote
Class 8: Capital Lease Claims Impaired
- entitled to vote
Class 9: General Unsecured Claims Impaired
- entitled to vote
Class 10: Reliable Steel Lien Claims Impaired
- entitled to vote
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Class 11: Gaming Corp. Common Stock Unimpaired
- not entitled to vote
Class 12: Equity Interests and Impaired, receiving no consideration
Equity Interests - Related -deemed rejected
Claims
A. NEW CAPITAL STRUCTURE
Upon confirmation of the Second Amended Plan, all Equity Interests in
Stratosphere will be canceled and terminated. Stratosphere, as reorganized
("Reorganized Stratosphere") will issue two million thirty thousand (2,030,000)
shares of New Common Stock which will represent one-hundred percent (100%) of
the equity ownership and voting power of Reorganized Stratosphere. The New
Common Stock will be distributed in a manner provided below.
B. HOLDERS OF THE ORIGINAL FIRST MORTGAGE NOTES
Each holder of the Original First Mortgage Notes ("Class 6 Claimants")
as of the Distribution Record Date shall receive its Pro Rata share of two
million thirty thousand (2,030,000) shares of New Common Stock upon receipt of
Gaming Authority approvals.
In the event that an Alternative Transaction Proposal is presented by
Debtors or is considered by the Bankruptcy Court at the Confirmation Hearing,
the Indenture Trustee shall have the right (if applicable under the
circumstances) pursuant to Section 363(k) of the Bankruptcy Code to credit bid
against the Allowed Secured Claim of the holders of Original First Mortgage
Notes in the event that an Alternative Transaction Proposal or any other sale
proposal is considered by the Bankruptcy Court at the Confirmation Hearing.
C. COMPLETION OF PHASE II
Subsequent to the Effective Date, the decision as to construction and/or
completion of Phase II, the scope and design of Phase II and the means and
method to finance Phase II will rest
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with Reorganized Stratosphere. Nothing contained in the Plan or the
Confirmation Order is intended to or will dictate or restrict Reorganized
Stratosphere in this regard. Approval of the Bankruptcy Court after the
Effective Date concerning Phase II will not be required nor will it be
necessary.
D. HELLER CAPITAL LEASE CLAIMS AND CAPITAL LEASE CLAIMS
Under the Second Amended Plan, on the Effective Date Reorganized
Stratosphere and Reorganized Gaming Corp. shall execute and deliver to Heller
the Amended Heller Capital Lease in full satisfaction and settlement of the
Heller Capital Lease Claims. The Heller Amended Capital Lease shall provide for
the same payment schedule as the Heller Capital Lease but shall not include the
financial covenants as set forth in Section 13.16 of the Heller Capital Lease.
In addition, any other terms, conditions, warranty or covenant of the Heller
Capital Lease which would be deemed breached or violated by the transaction
proposed in the Second Amended Plan shall be deemed cured on the Effective Date.
Additionally, Reorganized Stratosphere and Reorganized Gaming Corp., as
applicable, shall execute and deliver to First Security and the Capital Lease
Bank Group the Amended Capital Lease Agreement and the Amended Participation
Agreement in full satisfaction and settlement of the Capital Lease Claims. The
Amended Participation Agreement shall provide for the same payment schedule as
the Original Participation Agreement but shall not include Section 5.16 of the
Original Participation Agreement. In addition, any other terms, conditions,
warranties or covenants of the Original Participation Agreement or Original
Capital Lease Agreement which would be deemed breached or violated by the
transaction proposed by the Second Amended Plan shall be deemed cured on the
Effective Date.
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Pursuant to the adequate protection stipulation with the Capital Lease
Bank Group and the adequate protection stipulation with Heller, payments to
both the Capital Lease Bank Group and Heller have been maintained current
throughout the bankruptcy proceedings.
E. ADMINISTRATIVE CLAIMS
In general, all Administrative Claims will be paid in full in Cash upon
the latest of: (i) the Effective Date or as soon thereafter as practicable;
(ii) such date as may be fixed by the Bankruptcy Court; (iii) the tenth (10th)
Business Day after such Administrative Claim is allowed; or (iv) such date as
the holder of such Claim and the Debtors, as applicable, may agree. Each
Allowed Preserved Ordinary Course Administrative Claim shall be paid by the
Debtors on the terms and conditions under which such Claim arose or in the
ordinary course of Reorganized Stratosphere's or Reorganized Gaming Corp.'s
businesses. Any Allowed Priority Tax Claim will be paid in full in Cash on the
Effective Date; provided, however, that Reorganized Stratosphere or Reorganized
Gaming Corp., as the case may be, may elect to pay such Claims through deferred
Cash payments with interest over a period not exceeding six (6) years after the
date of assessment of such Claim, of a value as of the Effective Date, equal to
the allowed amount of such Claim.
In general, Allowed Priority Wage Claims, Allowed Priority Benefit Plan
Contribution Claims, Allowed Priority Customer Deposit Claims and Secured Tax
Claims will be paid in full in Cash upon the latest of: (i) the Effective
Date; (ii) such date as may be fixed by the Bankruptcy Court; (iii) the tenth
(10th) Business Day after such Priority Wage Claim, Priority Benefit Plan
Contribution Claim, Priority Customer Deposit Claim or Secured Tax Claim is
allowed; or (iv) such date as the holder of such Claim and the Debtors, as
applicable, may agree.
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All requests for payment of Administrative Claims (except for Professional
Fees and Preserved Ordinary Course Administrative Claims) must be filed by the
Administrative Claims Bar Date or the holders thereof shall be forever barred
from asserting such Administrative Claims against the Debtors,
Reorganized Stratosphere and Reorganized Gaming Corp. All final applications
for allowance and disbursement of Professional Fees must be filed by the
Professional Fee Bar Date. All such applications must be in compliance with
all of the terms and provisions of any applicable order of the Bankruptcy
Court, including the Confirmation Order, and all other orders governing payment
of Professional Fees. Such applications may be later amended to include any
fees and costs incurred after the Confirmation Date.
F. MISCELLANEOUS SECURED CLAIMS
At Reorganized Stratosphere's or Reorganized Gaming Corp.'s option, the
holder of any Allowed Secured Claim in Class 5 shall receive one of the
following alternative treatments: (i) the holder of such Claim shall be
treated in accordance with the terms and conditions of all Debt Instruments
evidencing such Claim and the legal equitable or contractual rights of such
holder shall not otherwise be altered; (ii) any default, other than a default
of the kind specified in Section 365(b)(2) of the Bankruptcy Code relating to a
defacto default provision under an executory contract, shall be Cured or
Reinstated; (iii) any default shall be Cured or Reinstated on the Effective
Date; (iv) on the Effective Date or on such other date thereafter as may be
agreed to by Stratosphere or Gaming Corp. and the holder of such Claim, the
appropriate Estate shall abandon the collateral securing such Claim in full
satisfaction and release of such Claim; or (v) the holder of such Claim shall
receive Cash equal to its Allowed Secured Claim on the
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<PAGE> 22
Effective Date. For a more detailed discussion of the treatment of
miscellaneous Secured Claims refer to Section 4.5 of the Second Amended
Plan.
G. ALLOWED GENERAL UNSECURED CLAIMS
Each holder of an Allowed Class 9 General Unsecured Claim shall receive
the lesser of such holder's Allowed General Unsecured Claim or such holder's
Pro Rata share of Six Million Dollars ($6,000,000) Cash, upon the latest of:
(i) the Effective Date, or as soon thereafter as practicable; (ii) the tenth
(10th) Business Day after such Claim is Allowed, or as soon thereafter as
practicable; and (iii) such date as the holder of such Claim and Reorganized
Stratosphere or Reorganized Gaming Corp., as the case may be, have agreed or
shall agree. Debtors estimate that holders of Original First Mortgage Notes
will have a General Unsecured Claim of approximately One Hundred Twenty-Three
Million Dollars ($123,000,000). In addition, holders of Original First
Mortgage Notes through the Indenture Trustee will hold the Grand Subordinated
Claim(2) of approximately Fifty-Three Million Dollars ($53,000,000). In all
likelihood, Class 9 Allowed General Unsecured Claims will total no less than
One Hundred Seventy-Nine Million Dollars ($179,000,000) and each holder of a
Class 9 Allowed Claim will receive approximately a three percent (3%) recovery.
. . .
- ----------------------------
(2) The Grand Subordinated Claim is any and all indebtedness of Stratosphere
and Gaming Corp. to Grand, including but not limited to, that indebtedness
arising out of or evidenced by: (i) that certain Notes Completion Guarantee
in the original amount of $50,000,000, dated as of March 9, 1995; (ii) that
certain Completion Guarantor Subordination Agreement dated as of March 9, 1995;
(iii) any and all subordinated notes issued to Grand by Stratosphere from
time to time; and (iv) any other loan and security documents, including, but
not limited to Debt Instruments, evidencing, securing, or relating to such
obligations and Claims. In accordance with the Original Subordination
Agreement, the Grand Subordinated Claim is owned by the Indenture Trustee for
the benefit of the holder of Original First Mortgage Notes.
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H. RELIABLE STEEL LIEN CLAIM
The Second Amended Plan provides that the holder of the Class 10 Reliable
Steel Lien Claim shall receive One Hundred Twenty-Five Thousand Dollars
($125,000) on the Effective Date in full satisfaction and settlement of the
Reliable Steel Lien Claim and the Reliable Steel Adversary Action. In
conjunction with this settlement, the holder of the Reliable Steel Lien Claim
has entered into a settlement agreement whereby such holder has agreed to
support the Second Amended Plan. The settlement agreement is attached hereto
as Exhibit "D."
I. EQUITY INTEREST AND EQUITY INTEREST-RELATED CLAIMS
The Second Amended Plan will subordinate the Equity Interest-Related
Claims to the General Unsecured Claims pursuant to Section 510(b) of the
Bankruptcy Code which requires the subordination of claims for damages arising
out of the sale or purchase of a security. An Equity Interest-Related Claim is
any Claim arising from the recission of a purchase or sale of an Equity
Interest, or for damages arising from the purchase or sale of
an Equity Interest, or any Claim by any Person that asserts equitable or
contractual rights of reimbursement, contribution or indemnification arising
from such Claim. Because the Equity Interest-Related Claims arose out of the
sale or purchase of an Equity Interest, the holders of Equity Interest-Related
Claims will be treated in the same Class as the holders of Equity Interests.
As set forth above, the Deloitte & Touche Appraisal concluded that the
estimated "as is" market value of the Stratosphere Hotel and Casino to be One
Hundred Twenty Million Dollars ($120,000,000). When combined with Debtors
other assets, there is not enough value in Debtors' estates to pay all
Creditors in full. Pursuant to the Bankruptcy Code and as discussed more fully
in Section XVI(B) below, unless Creditors are paid in full, Equity Interest and
Equity
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Interest-Related Claims may not receive any distributions under the
Second Amended Plan absent consent of the Creditors, and in particular the
holders of Original First Mortgage Notes. Debtors have been informed that such
holders will not consent to any distributions to holders of Equity Interest or
Equity Interest-Related Claims.
AS SUCH, UNDER THE SECOND AMENDED PLAN, THE EQUITY INTERESTS OF
STRATOSPHERE SHALL BE CANCELED AND TERMINATED AND EACH HOLDER OF AN EQUITY
INTEREST AND EACH HOLDER OF AN EQUITY INTEREST-RELATED CLAIM WILL RECEIVE
NOTHING.
VI. DESCRIPTION OF THE DEBTORS
A. STRATOSPHERE
Stratosphere is a publicly traded corporation which was incorporated in
the State of Delaware on January 14, 1993 under the name Stratosphere Tower &
Casino Corporation. The name of the corporation was changed to Stratosphere
Corporation pursuant to a Certificate of Amendment of Articles of Incorporation
filed with the Delaware Secretary of State on February 12, 1993. Stratosphere
is the parent corporation and sole shareholder of Gaming Corp.
Stratosphere is registered with the Gaming Commission as a publicly traded
corporation and has been found suitable by the Gaming Authorities as the sole
shareholder of Gaming Corp. Stratosphere owns most of the real property and
improvements upon which the Stratosphere Hotel & Casino is located. A portion
of the second floor of the Stratosphere Hotel & Casino consisting of retail
space is operated by Strato-Retail, L.L.C., a Nevada limited liability company
("Strato-Retail") pursuant to that certain Development and Lease Agreement
between Stratosphere and Strato-Retail dated March 5, 1996. Strato-Retail is
unrelated to Stratosphere and its Affiliates.
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B. GAMING CORP.
Gaming Corp. is a Nevada corporation which was formed on June 24, 1994.
Gaming Corp. is the entity that operates the Stratosphere Hotel & Casino
pursuant to that certain Facility Lease Agreement dated April 29, 1996 between
Gaming Corp. and Stratosphere. Gaming Corp. holds a nonrestricted gaming
license to conduct gaming operations at the Stratosphere Hotel & Casino.
Gaming Corp. has leased the sports pool and race book wagering operation of the
Stratosphere Hotel & Casino to Leroy's Horse & Sports Place in consideration of
a percentage of the revenue derived from the sports book operation.
C. OTHER ENTITIES OWNED BY STRATOSPHERE
Stratosphere has several wholly-owned subsidiaries that have not filed for
Chapter 11 protection under the Bankruptcy Code.
1. Stratosphere Land Corporation
Stratosphere Land Corporation, a Nevada corporation ("Stratosphere
Land"), was incorporated with the Nevada Secretary of State on January 25,
1996. The purpose of Stratosphere Land was to acquire and develop real
property for possible further expansion of the Stratosphere Hotel & Casino.
Stratosphere Land has made and delivered to Stratosphere that certain
promissory note dated January 23, 1997 in the principal amount of Twelve
Million Two Hundred Seventy-four Thousand Nine Hundred Dollars ($12,274,900)
evidencing previous loans to Stratosphere Land from Stratosphere. This
promissory note is unsecured, bears no interest and is payable upon the demand
of Stratosphere. Stratosphere Land owns: (i) the approximate 4.5 acre parcel
of real property formerly known as the Sulinda Hotel and Casino located on Las
Vegas Boulevard South and an adjoining lot which is currently used as a parking
lot; (ii) the
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former Stratosphere Hotel & Casino employment center
located on the Sulinda site; and (iii) most of Lot 7 located near the
Stratosphere Hotel & Casino and an adjacent vacant lot which is currently used
as a staging and storage area for Phase II construction materials.
2. Stratosphere Advertising Agency
Stratosphere Advertising Agency ("Stratosphere Advertising") was
incorporated with the Nevada Secretary of State on November 2, 1995.
Stratosphere Advertising was formed to place advertisements and rent billboards
and other advertising mediums on behalf of Stratosphere and Gaming Corp.
Stratosphere Advertising obtains beneficial advertising rates which flow to
Stratosphere and its Affiliates. Stratosphere Advertising does not list any
assets on its books and has no revenue.
3. Stratosphere-Nevada Corporation
Stratosphere-Nevada Corporation, a Nevada corporation,
("Stratosphere-Nevada") was incorporated with the Nevada Secretary of State on
April 12, 1996 for the purpose of becoming the merging entity with
Stratosphere. Stratosphere-Nevada is currently inactive and does not hold any
assets on its books and has no revenue.
4. 2000 South Las Vegas Boulevard Retail Corporation dba Stratosphere
Retail
2000 South Las Vegas Boulevard Retail Corporation, a Nevada corporation,
(the "Retail Corporation") was incorporated with the Nevada Secretary of State
on December 12, 1996 for the purpose of owning and controlling the lease rights
for the retail gift shops (the "Stratosphere Gift Shops") located in the
Stratosphere Hotel & Casino and in the retail area. The Retail Corporation
owns the sub-leasehold interests in two retail shops in the retail mall area
leased by Strato-Retail and eighty percent (80%) of the inventory sold in all
of the Stratosphere Gift Shops.
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The Stratosphere Gift Shops are managed by Tower Merchandise Management
Company, LLC, a Nevada limited liability company ("Tower Management"), an
unrelated entity, pursuant to that certain Management Agreement-Retail Shops
dated as of April 18, 1996, as thereafter amended. Tower Management owns the
remaining twenty percent (20%) of the inventory sold in the Stratosphere Gift
Shops.
VII. OFFICERS AND DIRECTORS OF THE DEBTORS AND REORGANIZED STRATOSPHERE AND
GAMING CORP.
A. BOARD OF DIRECTORS OF STRATOSPHERE
The following individuals currently serve as members of the Board of Directors
for Stratosphere:
1. Thomas G. Bell has been a director of Stratosphere since December 1993.
For more than the past twenty-five (25) years, Mr. Bell has been engaged in
the private practice of law, principally in the State of Nevada. Mr. Bell
earns One Thousand Dollars ($1,000) per non-telephonic meeting of the
Stratosphere board and earns Ten Thousand Dollars ($10,000) per quarter as a
member of the Stratosphere board.
2. Andrew S. Blumen has been Vice President, General Counsel, Secretary
and a director of Stratosphere since January 1993 and became Executive Vice
President in November 1993. Prior to joining Stratosphere, Mr. Blumen served
as the Director of Operations and General Counsel for Vegas World Hotel and
Casino ("Vegas World"), a sole proprietorship of Robert Stupak ("Mr. Stupak")
and all other enterprises owned by Mr. Stupak. From 1983 through 1989 he was
engaged in the private practice of law in the State of Nevada. Mr. Blumen was
granted a Nevada gaming license in 1994. Mr. Blumen receives an annual salary
of Two Hundred Twenty-Five Thousand Dollars ($225,000) in his capacity as
Executive Vice President
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and General Counsel of Stratosphere and no compensation as a director and
Secretary of Stratosphere.
3. Thomas A. Lettero has been the Chief Financial Officer and Treasurer of
Stratosphere since December, 1994 and a director of Stratosphere since being
nominated to the board on July 31, 1997. Mr. Lettero has held various
financial positions with various casino operations throughout the United States
from May, 1991 until December, 1994. Mr. Lettero receives an annual salary of
Two Hundred Thousand Dollars ($200,000) in his capacity as Chief Financial
Officer of Stratosphere and no compensation as a director and Treasurer of
Stratosphere.
4. Robert A. Maheu has been the Vice Chairman of the Board of Directors of
Stratosphere since March 1993. For more than the past five (5) years, Mr.
Maheu has been the owner and president of Robert A. Maheu Associates, a
specialized management consulting firm based in Las Vegas, Nevada. Mr. Maheu
earns One Thousand Dollars ($1,000) per non-telephonic meeting of the
Stratosphere board and Ten Thousand Dollars ($10,000) per quarter as a director
the Stratosphere.
5. Thomas A. Hantges has been a director of Stratosphere since August 14,
1997. Mr. Hantges is the President of USA Capital Land Fund Limited
Partnership, based in Las Vegas, Nevada. Mr. Hantges earns One Thousand
Dollars ($1,000) per non-telephonic meeting of the Stratosphere board and Ten
Thousand Dollars ($10,000) per quarter as a director of Stratosphere.
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B. OFFICERS AND DIRECTORS OF GAMING CORP.
1. Andrew S. Blumen has been Secretary and Executive Vice President of
Gaming Corp. since June 1994.
2. Thomas A. Lettero has been the Chief Financial Officer and Treasurer of
Gaming Corp. since December 1994.
C. OFFICERS AND DIRECTORS OF THE REORGANIZED DEBTORS
On the Effective Date, the operation of Reorganized Stratosphere and
Reorganized Gaming Corp. shall become the general responsibility of their
respective boards of directors, who shall thereafter have responsibility for
the management, control and operation of Reorganized Stratosphere and
Reorganized Gaming Corp. The names of the initial seven (7) members of the
board of directors and the executive officers of Reorganized Stratosphere and
Reorganized Gaming Corp. shall be disclosed at or prior to the Confirmation
Hearing. All such directors and executive officers of Reorganized Stratosphere
and Reorganized Gaming Corp. shall be deemed to have been elected or appointed,
as the case may be, pursuant to the Confirmation Order, but shall not take
office until the Effective Date and receiving the requisite approvals by Nevada
Gaming Authorities. Those directors and officers not continuing in office
after the Effective Date, if any, shall be deemed removed therefrom without
cause as of the Effective Date pursuant to the Confirmation Order and shall be
indemnified by Reorganized Stratosphere for all actions taken by such directors
and officers while acting as directors and officers for the Debtors from the
Petition Date.
. . .
. . .
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VIII. EVENTS LEADING UP TO THE FILING OF THE BANKRUPTCY CASES
A. AGREEMENTS WITH MR. STUPAK
Pursuant to an agreement dated as of November 1993 (the "November 1993
Grand/Stupak Agreement"), Mr. Bob Stupak granted Grand or its assignee an
option (the "Option") to purchase certain assets related to Vegas World which
was located on a portion of the site upon which the Stratosphere Hotel & Casino
is now located. In connection with the Option and the Initial Public
Offering,(3) Grand agreed to subscribe to purchase from Stratosphere a minimum
of Four Million (4,000,000) Units consisting of one (1) share of Old Common
Stock and a transferable warrant. Grand further agreed to purchase from Bob
Stupak Enterprises, Inc., a Nevada corporation ("BSE") an additional five
million three hundred fifty-one thousand one hundred thirty-two (5,351,132)
shares of Old Common Stock. On June 1, 1994, Grand assigned the Option to
Stratosphere. Stratosphere exercised the Option and Mr. Stupak and
Stratosphere entered into an Asset Purchase Agreement dated as of November 4,
1994 (the "Asset Purchase Agreement"). Pursuant to the Asset Purchase
Agreement, Stratosphere purchased most of the assets, but not the liabilities
of Vegas World.
B. ISSUANCE OF STRATOSPHERE'S FIRST MORTGAGE NOTES
In July 1994, in order to finance the purchase of the Vegas World assets,
to refurbish the existing hotel and to construct additional hotel rooms for the
Stratosphere Hotel & Casino, Stratosphere filed a registration statement with
the SEC for an offering of the Original First Mortgage Notes. The proceeds of
the Original First Mortgage Notes were used to develop and construct the first
phase ("Phase I") of the Stratosphere Hotel & Casino, which included a three
- -----------------------------
(3) Stratosphere conducted an initial public offering ("Initial Public
Offering") in February 1994 of 11,700,000 units each consisting of one share of
Old Common Stock and one redeemable stock purchase warrant.
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hundred fifty-four thousand (354,000) square foot building at the base of the
tower, consisting of: (i) a one hundred ninety-four thousand five hundred
(194,500) square foot first level containing ninety-seven thousand (97,000)
square feet of casino space; (ii) a one hundred six thousand (106,000) square
foot second level entertainment complex; and (iii) a one thousand one hundred
forty-nine (1,149) foot tower with a 12-story pod featuring indoor and outdoor
observation decks, revolving restaurants, cocktail lounge, outside roller
coaster and the "Big Shot" thrill ride.
In connection with the offering of the Original First Mortgage Notes,
Grand executed that certain Notes Completion Guarantee (the "Notes Completion
Guarantee") pursuant to which it committed, subject to certain qualifications,
to complete Phase I to assure that the Stratosphere Hotel & Casino became an
operating hotel and casino and to pay project costs owing prior to such
completion up to a maximum obligation of Fifty Million Dollars ($50,000,000).
Grand also provided the Standby Equity Commitment pursuant to which and subject
to certain terms and conditions Grand agreed to purchase up to Twenty Million
Dollars ($20,000,000) of additional Old Common Stock of Stratosphere during
each of the first three (3) years Stratosphere Hotel & Casino was operating so
long as Stratosphere's consolidated cash flow did not reach Fifty Million
Dollars ($50,000,000). The Original First Mortgage Notes were secured by
substantially all of the assets of Stratosphere including real and personal
property (but not including Stratosphere Land's real property), cash and a
pledge of Gaming Corp.'s common stock and were guaranteed by Gaming Corp.
C. CAPITAL LEASE FACILITY
Pursuant to the Original Participation Agreement and Original Capital
Lease Agreement executed by Gaming Corp. as lessee and Stratosphere as
guarantor on April 19, 1996, BA
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Leasing & Capital Corporation, a California corporation ("BA Leasing"), Bank of
Scotland, Wells Fargo Bank, National Association (successor by merger to First
Interstate Bank of Nevada) ("Wells Fargo"), Societe Generale, Credit Lyonnais,
New York Branch, the CIT Group/Equipment Financing, Inc., United States
National Bank of Oregon, the First National Bank of Boston, Imperial Bank,
Trustmark National Bank and First Security Trust Bank, N.A. (collectively, the
"Lenders") made term loans to First Security Trust Company of Nevada ("First
Security"), Bank of Scotland, Wells Fargo, and Societe Generale as co-agents
(collectively, the "Co-agents") with respect to the Original Participation
Agreement. Credit Lyonnais, Los Angeles Branch, acted as Lead Manager (the
"Lead Manager"), with BA Leasing acting as arranger and agent ("Agent"
collectively, the "Capital Lease Bank Group"). The Lenders loaned to First
Security a sum not to exceed Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000) for the purpose of enabling First Security to: (i) purchase from
Gaming Corp. certain equipment owned and thereafter acquired by Gaming Corp.;
(ii) lease back such equipment to Gaming Corp.; and (iii) grant BA Leasing
perfected first priority liens and security interests in such equipment for the
benefit of the Lenders. Stratosphere guaranteed the obligation of Gaming
Corp.
D. THE SUBSEQUENT STRATOSPHERE PUBLIC OFFERINGS
On December 22, 1995, Stratosphere closed on an offering (the "First
Offering") of ten million (10,000,000) shares of Old Common Stock, resulting in
proceeds to Stratosphere of Seventy-Five Million Two Hundred Thousand Dollars
($75,200,000). Of these shares, eight million four hundred thousand
(8,400,000) were sold at Eight Dollars ($8) per share in an underwritten public
offering (the "Public Offering") resulting in net proceeds to Stratosphere,
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after underwriting discounts, of Seven and 52/100 Dollars ($7.52) per share.
The remaining one million six hundred thousand (1,600,000) shares (the "Direct
Shares") of the First Offering were sold by Stratosphere for Seven and 52/100
Dollars ($7.52) per share directly to Affiliates of Stratosphere. Of the
Direct Shares, one million (1,000,000) shares were purchased by Grand, five
hundred thousand (500,000) shares were purchased by Mr. Lyle Berman and one
hundred thousand (100,000) shares were purchased by Mr. Stanley Taube,
affiliates of Grand and Directors of Stratosphere. On December 29, 1995,
Stratosphere closed on a second offering (the "Second Offering," and together
with the First Offering, the "Equity Offerings") of one million two hundred
sixty thousand (1,260,000) shares granted in an option to the underwriters of
the Public Offering. Stratosphere received proceeds in the amount of Nine
Million Four Hundred Seventy-Five Thousand Two Hundred Dollars ($9,475,200)
from the Second Offering. In January 1996, Stratosphere also issued one
million fifty thousand (1,050,000) shares of Old Common Stock to acquire
approximately four and one-half (4.5) acres of land directly across the street
from the Stratosphere Hotel & Casino formerly known as the Sulinda Motel and an
adjoining lot which real property is vested in Stratosphere Land and three
hundred and fifty-eight thousand and one hundred and forty (358,140) shares of
Old Common Stock which it sold to a third party, the proceeds of which were
used to acquire most of Lot 7 and one adjacent parcel. In addition, on
September 7, 1995, Stratosphere called for redemption on October 10, 1995, of
five million, nine hundred and fifty thousand (5,950,000) stock purchase
warrants issued in conjunction with its Initial Public Offering. As a result
of such call, the warrants redeemed were exercised at a price of $5.83 per
share, yielding aggregate proceeds of Thirty Four Million, Two Hundred
Thousand Dollars ($34,200,000) to Stratosphere.
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E. PENDING LITIGATION MATTERS
1. The Securities Litigation
(a) The 1994 Securities Action
On April 29, 1994, a lawsuit was filed in the United States District Court
for the District of Nevada (the "Federal District Court") by Harvey Cohen and
several other plaintiffs purporting to represent a class against Stratosphere,
Grand and certain of their officers, directors and underwriters alleging
violations of federal securities law pursuant to the original IPO of 11.7
million units (1 share and 1 warrant) in February 23, 1994. The lawsuit was
dismissed on April 10, 1995. Prior to the Petition Date, the plaintiffs
appealed the dismissal to the United States Court of Appeals for the Ninth
Circuit, which appeal was denied on June 6, 1997. The plaintiffs also
commenced an action in the Eighth Judicial District, Clark County, Nevada (the
"State Court") alleging violations of state securities laws. Prior to the
Petition Date, that lawsuit was stayed pending a determination of the appeal to
the Ninth Circuit.
(b) The Federal District Court Litigation
On August 5, 1996, a group of plaintiffs' securities lawyers, purportedly
on behalf of a class of investors who purchased Old Common Stock between
December 19, 1995 and July 22, 1996, commenced securities litigation against
Stratosphere and Grand, together with certain of their officers and directors,
by filing a complaint in the Federal District Court. The lead plaintiffs'
attorney in the Federal District Court action subsequently filed five (5) other
nearly identical complaints in the Federal District Court on behalf of other
putative class representatives. Subsequently, three (3) other nearly identical
complaints were filed in the
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Federal District Court on behalf of other putative class representatives by
different plaintiffs' security attorneys (all of the actions collectively,
the "Federal Actions").
On January 15, 1997, the Federal Actions were consolidated and Jules
Brody, Esq. of Stull, Stull & Brody and Kevin P. Roddy, Esq. of Milberg Weiss
Berghad Hynes & Lerach, L.L.P. were named as joint primary counsel. As of the
Petition Date, no class certification had been filed or approved and the
Federal Action stayed as against Stratosphere. On February 14, 1997, the
Federal Actions were amended and consolidated to include a state court action
("State Court Action") together with Federal Actions hereinafter (the
"Consolidated Actions").
(c) The State Court Litigation
On August 16, 1996, nearly two (2) weeks after the Federal Actions were
filed, a lawsuit was filed in State Court based on the same factual events as
set forth in the Federal Actions, alleging primarily the same claims that were
asserted in the Federal Actions and purporting to do so on behalf of the same
class of investors who purchased Old Common Stock between December 19, 1995 and
July 22, 1996 (the "State Court Action"). On September 30, 1996, the
defendants filed a motion to dismiss the State Court Action (the "Motion to
Dismiss") and a motion to stay discovery pending the hearing on the Motion to
Dismiss. The hearing on the Motion to Dismiss was held on February 11, 1997.
The court ordered the stay of the State Court Action pending resolution of the
Federal Actions and the Federal Actions were amended to incorporate the State
Court Action on February 14, 1997.
. . .
. . .
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(d) The Bankruptcy Estimation Procedure
The Joint Plan filed on the Petition Date included as a condition
precedent the resolution of the Claims represented in the Consolidated Actions.
To reach resolution of such Claims, the Debtors filed their "Motion to
Establish Estimation Procedure and Protocol with respect to Securities Claims
pursuant to 11 U.S.C. Section Section 105(a) and 502(c)" ("Estimation Motion").
The Court granted the Estimation Motion which provided for discovery, summary
estimation and briefing schedules. As a result of discovery, Grand determined
to waive the resolution of these securities Claims as a condition precedent to
the Joint Plan and at a status hearing in April, 1997, the Court stayed further
discovery and continuation of the estimation proceeding. Debtors are currently
negotiating a stipulation with counsel for the securities claimants for allowed
amounts of a Class proof of Claim, and dismissal of the estimation proceedings.
All securities Claims are included in Class 12 of the Second Amended Plan and
will receive nothing.
Those officers and directors formerly and currently employed by
Stratosphere and named as defendants in the Consolidated Action have asserted
Claims against Stratosphere for indemnification if they incur any liability as
defendants in the Consolidated Actions. Stratosphere has no officers' and
directors' liability insurance. To the extent that the indemnification Claims
are proper under applicable law, the claimants will have Allowed General
Unsecured Claims in the Chapter 11 Cases which will be subordinated pursuant to
Section 510(b) of the Bankruptcy Code and treated in Class 12 of the Second
Amended Plan. Stratosphere has agreed to indemnify those officers and
directors pursuant to applicable law and its bylaws as memorialized by letter
agreements dated January 23, 1997.
. . .
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2. Other Actions
Stratosphere is a defendant in various lawsuits alleging negligence in the
normal operation of the Stratosphere Hotel & Casino.
There have been three (3) lawsuits filed against Stratosphere regarding
the purchase of real property for the Stratosphere Hotel & Casino expansion.
(a) J. O. Winfrey One Partnership v. Kellogg, Case
No. A363750
Stratosphere is a defendant in an action alleging that Stratosphere caused
a co-defendant to breach a land sale purchase agreement by selling certain real
property to Stratosphere instead of the plaintiff. The co-defendant filed a
cross-complaint against Stratosphere seeking indemnification for all damages
allegedly arising out of such sale. The co-defendant filed a motion for relief
from the automatic stay to proceed against Stratosphere on its cross-complaint
in state court which was denied by the bankruptcy court. If the Claim is
allowed, the Claim will be included in Class 9 under the Second Amended
Plan.
(b) Vegas Market Place, Inc. v. Stupak, Vegas World
Hotel and Casino; Stratosphere Corporation Et Al and Tower
Merchandise Management, LLC, Intervenor Defendant, Case No.
A353930
A second lawsuit, "Vegas Market Place, Inc. vs. Stupak, Vegas World Hotel
and Casino, Stratosphere Corporation, et al and Tower Merchandise Management,
LLC, Intervenor Defendant, Case No. A353930, Dept. X, Docket K" ("VMP
Litigation"), was filed by Vegas Market Place, Inc., a Nevada corporation
("VMP") against Mr. Stupak and Stratosphere seeking equitable relief to obtain
gift shop space at the Stratosphere Hotel & Casino, quiet title to the gift
shop portion at the Stratosphere Hotel & Casino, specific performance on a
lease, declaratory judgment on its rights under the lease and an injunction
against any party selling merchandise bearing the "Las Vegas" logo. In a
hearing on May 6, 1996, the court denied Plaintiffs' motion
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for a preliminary injunction. On May 29, 1997, Stratosphere filed in bankruptcy
court a Motion to Compromise Claims and for Disbursement of Funds Held By
Stratosphere Corporation seeking an order to compromise Claims and to disburse
Two Hundred Forty Thousand Dollars ($240,000.00) in escrowed funds to obtain a
release from VMP for any liability Stratosphere may have arising out of the
state court proceeding and the proofs of Claim filed by VMP in the sum of Two
Million Four Hundred Thousand Dollars ($2,400,000.00) and Mr. Stupak in the
sum of Three Hundred Thousand Dollars ($300,000.00).
On June 24, 1997, the Court granted the Motion in its entirety. More
specifically, in an order dated July 16, 1997, the Court authorized
Stratosphere to disburse the sum of Two Hundred Forty Thousand Dollars
($240,000.00) in consideration for executed releases by VMP and Mr.
Stupak of their respective proofs of Claim. The Court further ordered that the
Two Hundred Forty Thousand Dollars ($240,000.00) be paid directly to VMP.
(c) Sandra Blumen v. Stratosphere, et al, Case No. A356658.
Stratosphere is a defendant in an action alleging that Stratosphere
breached an escrow agreement with Ms. Blumen. The action is proceeding with
regards to the non-debtor co-defendants and is set for trial in January, 1998.
If the Claim is allowed, the Claim will be included in Class 9 under the Second
Amended Plan.
3. Owner Participation Agreement
On December 7, 1994, Stratosphere and the Las Vegas Downtown Redevelopment
Agency (the "LVDRA") entered into that certain Owner's Participation Agreement
(the "OPA") for the express purpose of effectuating the City's Redevelopment
Plan. Pursuant to the OPA, Stratosphere was obligated to deposit funds in an
"Acquisition Account" in the amount of Four
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Million Dollars ($4,000,000) to be used by the LVDRA to acquire certain
properties as more fully described in the OPA.(4) As of May 31, 1997, the amount
in the Acquisition Account was approximately Three Hundred Twenty-Five Thousand
Dollars ($325,000) and approximately Seven Hundred Fifty Thousand Dollars
($750,000) was on deposit with the state district court clerk to cover costs of
one pending condemnation action (see below). It is anticipated that after the
payment of all fees and costs, including attorneys' fees and costs, the
remaining balance will be approximately Seven Hundred Two Thousand Dollars
($702,000). Pursuant to the OPA, attorneys' fees and costs of the LVDRA are
assessable against the sums in the Acquisition Account.
Pursuant to the OPA, the LVDRA was obligated to acquire certain
properties, which properties would then be transferred to Stratosphere for
development. In addition to funding the acquisition costs, Stratosphere was
obligated to convey the Chester Stupak Community Center to the City of Las
Vegas and to convey, design and construct a new park on a parcel of property
located in the redevelopment area.
In the Spring of 1994, the LVDRA filed two actions(5) based on eminent
domain grounds seeking to condemn real property located in close proximity to
the Stratosphere Hotel & Casino in fulfillment of its obligations under the
OPA. Both lawsuits were dismissed and are currently
- --------------------------
(4) The funds were to be used to pay all of the acquisition costs, including
(i) any amounts of compensation awarded by the court and paid by the LVDRA or
negotiated settlements in any condemnation actions; (ii) the purchase price,
including escrow fees, title fees and costs paid by the LVDRA to acquire title
to the Acquisition Property; (iii) all costs associated with the prosecution of
any and all condemnation actions, including attorneys' fee and costs, appraisal
fees, witness fees and costs, court costs, deposits and damages; (iv) claims by
property owners not within the Site and which relate to the acquisition of the
Acquisition Property; (v) payment of any and all relocation or related costs
and (vi) outside legal counsel to assist in the negotiation and preparation of
the OPA.
(5) The two cases were styled as: City of Las Vegas Redevelopment Agency v.
Moldon, et al. and City of Las Vegas Redevelopment Agency v. Crockett, et al.
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on appeal to the Nevada Supreme Court. An order consolidating the two
appeals was filed on September 12, 1997.
The LVDRA has suggested that Stratosphere may be in breach of its
obligations under the OPA because it has not transferred the Chester Stupak
Community Center to the City. Stratosphere has countered that that parcel of
property is owned by Mr. Stupak, who refuses to transfer the parcel to
Stratosphere and argues that the City can seek possession of and title to that
parcel by condemnation.
Additionally, although not subject to the OPA, the City has alleged that
Stratosphere owes the City approximately One Hundred Twenty Thousand Dollars
($120,000) with interest pursuant to a deed of trust encumbering certain real
property located on 100-112 Philadelphia Avenue. Stratosphere disputes any
obligation under that deed of trust. At the present time, Stratosphere
intends to assume the OPA as an executory contract pursuant to the Second
Amended Plan on the Effective Date.
4. Reliable Steel and Various Mechanic's Liens
As of the Petition Date, three (3) mechanics' lien claims were recorded in
the Office of the County Recorder, Clark County, Nevada against the real
property owned by Stratosphere totaling Two Hundred Fifty-eight Thousand Three
Hundred Twenty-Five and 24/100 Dollars ($258,325.24). Prior to the Petition
Date, Reliable Steel, Inc., commenced a foreclosure action in State Court in
connection with its mechanics' lien claim of One Hundred Eighty-nine Thousand
Seven Hundred and 25/100 Dollars ($189,700.25). The Reliable Steel mechanics
lien dispute is to be resolved upon confirmation pursuant to the treatment of
Class 10 under the Second
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Amended Plan upon payment of One Hundred Twenty-Five Thousand ($125,000) Cash
on the Effective Date.
F. STRATOSPHERE'S PRE-BANKRUPTCY FINANCIAL RESULTS
The Stratosphere Hotel & Casino opened on April 29, 1996 and consists of a
1,149-foot, free standing observation tower with an integrated casino, hotel
and entertainment complex. Prior to opening, Stratosphere 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 Original First Mortgage
Notes (see Section VIII(B)) and the Original Capital Lease Agreement (see
Section VIII(C)). DUE TO THE SHORT OPERATING PERIOD, HISTORICAL RESULTS MAY
NOT BE INDICATIVE OF FUTURE OPERATING RESULTS.
The Debtors operated sixty-two (62) days during the first six months of
1996, producing gross revenues of Thirty-one Million Eight Hundred Thousand
Dollars ($31,800,000). During this period, thirty-nine percent (39%) of gross
revenue was derived from casino operations, twenty-three percent (23%) of gross
revenue was derived from miscellaneous operations, twenty-two percent (22%) of
gross revenue was derived from food and beverage operations and sixteen percent
(16%) of gross revenue was derived from tower, retail and hotel operations.
The net loss for the first two (2) quarters of operation was Nine Million Two
Hundred Thousand Dollars ($9,200,000) inclusive of amortization of pre-opening
expenses of Seven Million Seven Hundred Thousand Dollars ($7,700,000).
Through June 30, 1996, the Stratosphere Hotel & Casino experienced hotel
occupancy of seventy-five and nine-tenths percent (75.9%) at an average daily
rate of Seventy-Three Dollars
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($73) and visitations to the tower totaled Seven Hundred Four Thousand Seven
Hundred Forty-nine (704,749) inclusive of guests dining at the Top of the World
revolving restaurant.
On October 1, 1996, the Debtors launched a new, aggressive marketing
campaign, which included reduced table odds and slot holds to provide more
gaming value to Stratosphere Hotel & Casino guests and continually adjusted
rates for the hotel, resulting in an average daily hotel occupancy of ninety
percent (90%) during the three month period ending December 29, 1996.
Total revenues for the fiscal months ending October 27, 1996, November 24,
1996 and December 29, 1996 were Sixteen Million Four Hundred Eighty-two
Thousand Dollars ($16,482,000); Fifteen Million Four Hundred Twenty-seven
Thousand Dollars ($15,427,000) and Sixteen Million Fifty-five Thousand Dollars
($16,055,000), respectively. Earnings before interest, taxes, depreciation and
amortization before readjustment for extraordinary and non- recurring items
(based on definition in the original Restructuring Agreement for these
periods), were Two Million Two Hundred Sixteen Thousand Dollars ($2,216,000);
Two Million Two Hundred Thirty-Four Thousand Dollars ($2,234,000); and a loss
of Two Million Two Hundred and Eighty Thousand Dollars ($-2,280,000),
respectively. After adjustments eliminating restructuring costs and
non-recurring items, Stratosphere and its consolidated subsidiaries generated
consolidated cash flow of Two Million Seven Hundred Three Thousand Five Hundred
Two Dollars ($2,703,502) in October, 1996; Two Million Four Hundred Seventy-Six
Thousand Nine Hundred Fifteen Dollars ($2,476,915) in November, 1996; and One
Million Three Hundred Sixty-One Thousand Two Hundred Twenty-Two Dollars
($1,361,222) in December, 1996. For January, 1997 through August, 1997 the
results respectively were as follows: January, 1997, Five Hundred Fifty-Three
Thousand, Six Hundred and Twenty-Two Dollars ($553,622);
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February, 1997, Nine Hundred, Eighty-Three Thousand, Four Hundred and
Twenty-One Dollars ($983,421); March, 1997, Two Million, Two Hundred and
Eighty-One Thousand, Six Hundred and Twenty-Nine Dollars ($2,281,629); April,
1997, One Million, Three Hundred and Fifty-Seven Thousand, Nine Hundred and
Sixty-Five Dollars ($1,357,965); May, 1997, Forty-Nine Thousand, Six Hundred
and Ninety-Six Dollars ($49,696); June, 1997, One Hundred and Three Thousand,
Four Hundred and Seventy Dollars ($103,470); July, 1997, negative One Hundred
Twelve Thousand Three Hundred Sixty-Five Dollars (<$112,365>); August, 1997,
One Million Five Hundred Twenty-Two Thousand Six Hundred Forty-Three Dollars
($1,522,643); and September, 1997, One Million Eight-One Thousand Four Hundred
Seventy Dollars ($1,081,470). Consolidated Cash Flow (as defined) has
averaged One Million One Hundred Ninety-Six Thousand Nine Hundred Thirty-Two
Dollars ($1,196,932) for the period October 1, 1996, through September, 1997.
G. THE WORKOUT AND BANKRUPTCY FILING
1. The Initial Restructuring
Prior to filing the Chapter 11 Cases, Stratosphere, in response to its
financial difficulties and the need to raise the funds necessary to complete
Phase II, initiated negotiations with Grand and the Ad Hoc Committee regarding
the restructuring of the Debtors' obligations under the Original First Mortgage
Notes as well as raising sufficient capital to complete Phase II.
As a result of these negotiations, the Debtors, Grand and the Ad Hoc
Committee entered into that certain "Restructuring Agreement Regarding
Pre-Negotiated Plan of Reorganization" dated January 6, 1997 (the
"Restructuring Agreement"). The specific terms and conditions of Grand's
participation in and contribution to the Debtors' restructuring were set forth
in the
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"Investment and Reorganization Agreement" dated January 24, 1997 (the "Initial
Investment Agreement"), executed by Stratosphere and Grand. On the Petition
Date, the Debtors and Grand filed the Joint Plan, which incorporated the terms
of the Restructuring Agreement and the Initial Investment Agreement (the
"Initial Restructuring"). The Initial Restructuring called for a substantial
equity infusion by Grand, both as a primary investor and as a "backstop" if
other stockholders did not wish to participate in the reorganization.
However, the feasibility of the Initial Restructuring and, as more fully
set forth in the Initial Investment Agreement, Grand's obligation to
participate therein was dependent upon various terms and conditions being
satisfied including, inter alia, Stratosphere meeting certain financial and
operating conditions, Grand receiving a fairness opinion from its financial
advisor, and there being no material adverse change in Debtors' financial
condition. Specifically, Section 10.1(e) of the Restructuring Agreement and
Section 6.1(e) of the Initial Investment Agreement provided in relevant part
that as one of the conditions to Grand's obligation to consummate the Initial
Restructuring, "Stratosphere's monthly Consolidated Cash Flow for the periods
between October 1, 1996 and June 30, 1997 shall average not less than Two
Million Two Hundred Sixty-Seven Thousand Dollars ($2,267,000) (the "Cash Flow
Condition"). Section 6.1(g) of the Initial Investment Agreement further
provided that the Equity Interest-Related Claims were to be resolved on terms
and conditions acceptable to Grand.
2. Stratosphere's Failure To Meet Grand's Conditions
Through June 30, 1997, the results of Stratosphere's operations were
below anticipated and projected levels. For the time period of October 1996
through May 1997, Stratosphere's average monthly consolidated cash flow
averaged One Million Four Hundred Seventy Thousand Nine
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Hundred Ninety-Six Dollars ($1,470,996). As a result of Stratosphere's
inability to maintain cash flow levels sufficient to meet the Cash Flow
Condition, Grand announced in May, 1997, that it was not willing to waive the
Consolidated Cash Flow Condition.
3. First Amended Plan Of Reorganization
In response to Grand's announcement in early May 1997, Stratosphere and
Grand commenced discussions regarding the terms of possible alternative
restructuring proposals which culminated in the "Amended and Restated
Investment and Reorganization Agreement" dated June 20, 1997 between Grand,
Stratosphere and Gaming Corp. (the "Amended Investment Agreement"). Debtors
filed their First Amended Plan of Reorganization ("First Amended Plan") on
June 20, 1997, to implement the terms the Amended Investment Agreement. The
First Amended Plan provided for the restructuring of the principal amount of
the Original First Mortgage Notes to One Hundred Thirty-Five Million Dollars
($135,000,000) with the holders of the Original First Mortgage Notes receiving
ten percent (10%) of the new common stock of Reorganized Stratosphere in
addition to their pro rata share of One Hundred Ten Million Dollars
($110,000,000) of the restated First Mortgage Notes. Grand agreed to purchase
ninety percent (90%) of the new common stock of Reorganized Stratosphere for
Fifty Million Dollars ($50,000,000) cash and to purchase Twenty-Five Million
dollars ($25,000,000) of the restated First Mortgage Notes. Phase II would
then be completed with the Seventy-Five Million Dollars ($75,000,000) cash
infusion by Grand. It was understood and agreed by Grand that Stratosphere's
board of directors reserved the right and had the obligation to entertain and
accept competitive proposals which provided higher and better treatment for
Stratosphere's Creditors.
. . .
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4. Second Amended Plan
As more fully set forth above in Section V, following the filing of the
First Amended Plan, discussions commenced between Debtors and High River.
Stratosphere's Independent Members of the Board of Directors preliminarily
deemed the High River proposal to be to be a higher and better than the Grand
proposal and thereafter determined not to proceed with the First Amended Plan.
The Second Amended Plan followed substantial negotiation among the Debtors,
High River and Grace Bros. Ltd. Although the Second Amended Plan incorporates
terms which are different from those contained in High River's proposal,
Debtors believe that the Plan obtains the greatest recovery for Creditors,
simplifies the necessary approvals from the Gaming Authorities, and will bring
these reorganizations to a timely conclusion.
IX. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
The Debtors are currently operating their businesses as
debtors-in-possession. The Bankruptcy Court has certain supervisory powers
over the operations of the Debtors during the pendency of the Chapter 11 Cases.
These powers are generally limited to reviewing and ruling upon any objections
raised by a party in interest to business operations or proposed transactions
of the Debtors. Except as otherwise authorized by the Bankruptcy Court, the
Debtors are required to give notice of any transactions not in the ordinary
course of business and of the compromise of any controversy to parties in
interest who request such notice. In addition, the Bankruptcy Court supervises
the employment of attorneys, accountants and other professionals.
A. FIRST DAY MOTIONS
1. General Ex Parte Applications
Concurrent with the filing of the Petitions, the Debtors presented to the
Bankruptcy Court
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various motions designed to assist the Debtors in making a smooth transition
into Chapter 11, which "first day motions" included:
The Debtors submitted a Motion for Joint Administration requesting that
the Chapter 11 Cases be jointly administered which was approved by order
entered on January 28, 1997.
The Debtors each submitted an Ex Parte Application for Order Approving
Employment of Attorneys seeking approval by the Bankruptcy Court to employ the
law firm of Gordon & Silver, Ltd. as its general bankruptcy counsel. An order
approving the applications was entered on January 28, 1997.
Gaming Corp. filed an Ex Parte Application for Order Authorizing
Debtor-in-Possession to Pay Pre-Petition Wages, Taxes, Related Benefits and
Taxes, and to Honor Outstanding Payroll Checks requesting an order authorizing
Gaming Corp. to pay pre-petition wages and salaries, inclusive of vacation days
and sick leave, subject to withholdings for the state and federal governments
and any obligations under the Debtors' various employee benefit plans. An
order approving the application was entered on January 29, 1997.
Gaming Corp. filed an Ex Parte Application for Order Permitting the
Honoring of Casino Chips and Other Gaming Liability requesting authorization
from the Bankruptcy Court to honor gaming chips purchased by Stratosphere Hotel
& Casino customers prior to the Petition Date, and other gaming liabilities
which may have accrued prior to the Petition Date. An order approving the
application was entered on January 28, 1997.
Gaming Corp. submitted an Ex Parte Application For Order Permitting
Stratosphere Gaming Corp. to Honor Hotel Room and Other Customer Deposits and
to Honor Travel Agent Commissions seeking authorization from the Bankruptcy
Court to pay certain pre-petition
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obligations such as travel agent commissions and room reservations. An order
approving the application was entered on January 28, 1997.
Gaming Corp. submitted an Ex Parte Motion For Order Authorizing
Debtor-in-Possession to Retain Cash Management System of the Debtor seeking a
Bankruptcy Court order authorizing Gaming Corp. to maintain existing bank
accounts, continue using existing business forms and continue using their
existing cash management systems. An order approving the application was
entered on January 28, 1997.
Gaming Corp. submitted an Ex Parte Application for Order Authorizing
Debtor-In-Possession to Retain Bank of America Account, Credit Card Merchant
Numbers and Brokerage Depository Accounts of the Debtor seeking authorization
to maintain existing accounts. An order approving the application was entered
on January 28, 1997.
The Debtors submitted an Ex Parte Motion For Order Fixing Time Within
Which Proofs of Claim Must be Filed. An order (the "Bar Date Order")
establishing the Bar Date as March 14, 1997 was entered on the Petition Date.
The Bar Date Order was mailed to all Creditors and holders of Equity Interests
on January 30, 1997 and a Notice of the Bar Date was published in the Wall
Street Journal and the Las Vegas Review Journal on January 31, 1997.
2. Motions for Authorization to Use Cash Collateral
The Debtors, the Indenture Trustee and the Ad Hoc Committee entered into
an Interim Agreed Order Authorizing the Use of Cash Collateral (the "Interim
Order") which Interim Order provided for the use of cash collateral by the
Debtors through March 15, 1997. Each of the parties to the Interim Order
reserved all rights as to the extent of the security and perfection of the
security interest of the Indenture Trustee in and to cash collateral. Attached
to the Interim
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Order was a budget of the Debtors for the months of February through June 1997.
The Interim Order also allowed the Debtors to file within ten (10) days of the
entry of the Interim Order, a Motion to Approve Final Agreed Order Authorizing
Use of Cash Collateral by Debtors and Debtors-In-Possession in Granting
Replacement Liens and Other Adequate Protection Pursuant to 11 U.S.C. Section
363 (the "Final Cash Collateral Order") which was entered on February 20, 1997.
The Final Cash Collateral Order provided for the use of cash collateral on the
same terms and conditions as the Interim Order through April 30, 1997,
reserving the rights extended therein.
The Final Cash Collateral Order also reserved all rights as to the extent
of the security and perfection of the security interest of the Indenture
Trustee in and to the cash collateral. The Debtors dispute that the Indenture
Trustee has a perfected security interest in the Cash held by the Debtors on
the Petition Date or any post-petition revenues generated by the Debtors from
the continued operation of the hotel and casino except for the Strato-Retail
rents. The Noteholders Committee and the Indenture Trustee have asserted that
they have a perfected security interest in such Cash and post petition
revenues. This issue has been reserved.
The second budget under the Final Cash Collateral Order for the period
ending June 30, 1997 was approved by Stipulation and Order entered on May 19,
1997 extending the Final Cash Collateral Order. The Debtors and the Indenture
Trustee are currently negotiating a renewed cash collateral order and, in the
meantime, the Debtors continue to use their cash with consent of the
Noteholders Committee and Indenture Trustee subject only to the amended cash
collateral budget attached to the Stipulation and Order filed on May 19, 1997
referenced above.
3. Motion to Shorten Time For Periodic Interim Allowances of
Fees and Expenses of Professionals
The Debtors submitted a Motion to Shorten Time For Periodic Interim
Allowances of
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Fees and Expenses of Professionals requesting that professionals employed in
Debtors' cases be allowed to submit fee applications every sixty (60) days,
rather than the standard one hundred twenty (120) days. An order approving the
motion was entered on May 23, 1997.
B. EXTENSION OF BAR DATE
The Bar Date (as described above) was reopened and extended to August 25,
1997 by Court Order entered on July 16, 1997 to allow for the noticing of the
commencement of the Chapter 11 Cases to the holders of certain vacation
packages purchased from Mr. Stupak and his Affiliates and to provide individual
Vacation Package Holders an opportunity until August 25, 1997, to file proofs
of Claim. The holders of these vacation packages were intentionally omitted
from the bankruptcy schedules (because it is the Debtors' position that they
are not Creditors of Debtors). The Debtors' schedules which were later amended
to list them as disputed Creditors in order to efficiently administer their
alleged Claims against the Debtors. As of August 25, 1997, approximately nine
thousand (9,000) proofs of Claim for a total of approximately Thirteen Million
Dollars ($13,000,000) have been filed by holders of vacation packages.
C. MOTION FOR ORDER APPROVING SENIOR EXECUTIVE RETENTION AGREEMENTS
On June 27, 1997, the Debtors filed a Motion for Order Approving Senior
Executive Retention Agreements ("Retention Agreements") whereby the Debtors
sought approval of certain retention agreements with various key executives.
The Retention Agreements are to replace existing pre-petition severance
agreements. These Retention Agreements were the result of negotiations with
the Noteholders Committee and Grand. The Retention Agreements with Matt
Morgan-Director of Systems, Bobby Ray Harris-Director of Hotel Operations, Jay
Roberts-Vice President of Human Resources, Michael Turngren-Vice President of
Casino Operations,
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John Sands-Director of Table Games, Kenneth Greene-Vice President of Food
and Beverage, Tom Willard, Vice President of Marketing, Art Steele-Vice
President of Security, and Ann Holland, Senior Vice President of Operations are
briefly summarized as follows:
(a) Under the Retention Agreements, each executive is entitled to
additional compensation equal to 5% of the executives then base salary
for each month of employment by the Debtors following May 1, 1997. On
August 1, 1997, the Debtors placed into escrow a sum of money equal to
the amount of Retention Compensation accrued at the end of the initial
three-month period, that being May 1, 1997, through July 31, 1997, and
such escrowed funds will be payable to the executive on the earlier of an
involuntary termination without cause, the liquidation or consummation
and closing of the sale of substantially all of the assets of the Debtors
("Sales Event) or confirmation of a plan of reorganization. Commencing
August 1, 1997, no further retention compensation shall be escrowed and
all such retention compensation due the executive will be accrued monthly
and payable quarterly until the earlier of an involuntary termination
without cause, a Sales Event, or confirmation of a plan of
reorganization.
(b). In addition, the executive will be entitled to receive and will
be paid an amount equal to three month's base salary upon the occurrence
of either an involuntary termination without cause or a Sales Event
which results in the executive's termination or the executive being
offered employment by the acquirer of the Debtors' assets which offer
either diminishes or reduces the executive's title, compensation,
authority, responsibility, functions or duties.
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The Retention Agreements for Andrew S. Blumen, Esq., Executive Vice
President and General Counsel, and Thomas A. Lettero, Chief Financial Officer,
are different from the above description in that the Retention Compensation is
equal to 75% of the executive's annual base salary as of May 1, 1997, and that
such amount is payable to the executive on the earlier of an involuntary
termination without cause or before the 90th day following a Sales Event or
confirmation of a plan of reorganization. Additionally, if a plan of
reorganization is confirmed on or before March 1, 1998, Mr. Blumen and Mr.
Lettero will be entitled to receive an amount equal to 25% of their annual base
salary as of May 1, 1997. Mr. Lettero and Mr. Blumen will not receive the
quarterly payments as provided the other executives as set forth above. They
will also receive insurance for a period of nine (9) months after termination
or confirmation.
The Retention Agreement for the then President and Chief Executive Officer
of Stratosphere, Richard Schuetz, was withdrawn from consideration due to Mr.
Schuetz' resignation in July 1997.
The purpose of the Retention Agreements is to encourage the executives to
remain with the Debtors despite the uncertainty engendered by the bankruptcy
cases and to assure continuity of management for the Stratosphere Hotel and
Casino during the reorganization. The motion for approval of these agreements
was heard on July 30, 1997 and granted by order entered on September 15, 1997.
The escrow agreement has been executed and the initial deposits required under
the Retention Agreements made.
D. DEBTORS' FIRST MOTION TO EXTEND EXCLUSIVITY AND ACCEPTANCE PERIODS
Section 1121 of the Bankruptcy Code provides that only the debtor may file
a plan until after one hundred twenty days (120) after the petition date. In
the event that a debtor files a plan
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within the one hundred twenty days (120), the debtor has an additional sixty
days to obtain acceptance of the plan. By virtue of the filing of Joint Plan
on January 27, 1997, the exclusivity and acceptance period for the Debtors was
to expire on or about July 25, 1997. Pursuant to the Final Cash Collateral
Order, the Debtors waived their exclusive right to file a plan of
reorganization for the benefit of the Noteholders Committee and Grand. On June
20, 1997, Debtors filed their First Motion to Extend Exclusivity and Acceptance
Periods ("Extension Motion"). The Extension Motion sought an order of the
Bankruptcy Court (a) extending the exclusivity period for the filing of a plan
to November 28, 1997; (b) extending the acceptance period for a plan to January
27, 1998; and (c) that such order exclude Grand and the Noteholders Committee
pursuant to the terms and conditions of the Final Cash Collateral Order so that
during such extended exclusivity period, only Debtors, Grand and the
Noteholders Committee are entitled to file plans of reorganization. The
Extension Order was approved by the Bankruptcy Court on July 14, 1997.
E. ADEQUATE PROTECTION STIPULATIONS
1. Adequate Protection Stipulation with the Capital Lease Bank Group.
On January 31, 1997, the Debtors entered into a Stipulation Providing
Adequate Protection with the Capital Lease Bank Group (the "Capital Lease
Stipulation"). In the Capital Lease Stipulation, the parties acknowledge that
the collateral which is the subject of the Original Participation Agreement and
Original Capital Lease Agreement is essential to the operations of the
Stratosphere Hotel & Casino. Additionally, the parties acknowledge that the
amount due as of the Petition Date to the Capital Lease Bank Group under the
Original Capital Lease Bank Agreement and the Original Participation agreement
was Twenty-eight Million Two Hundred
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Twenty-four Thousand One Hundred Seventy-Five Dollars ($28,224,175) and
that such amount is secured by the collateral described in the Original
Participation Agreement.
The Capital Lease Stipulation requires that the Capital Lease Bank Group
refrain from exercising, instructing or authorizing any other person to take
any action pursuant to Bankruptcy Code Section 362(d) to terminate, annul,
modify or condition the automatic stay as provided for by Bankruptcy Code
Section 362(a) during the period from the Petition Date until a plan is
substantially consummated, subject to certain conditions, including adequate
protection with respect to any decrease in the value of the collateral as of
the Petition Date. The Capital Lease Stipulation also incorporates Gaming
Corp.'s obligation to make all scheduled loan payments to the Capital Lease
Bank Group.
The Stipulation further grants to the Capital Lease Bank Group a lien
against and a security interest in all presently owned and hereafter acquired
equipment of Gaming Corp., wherever located, subject only to valid and
enforceable liens and security interests existing on the property owned by
Gaming Corp. as of the Petition Date.
Since the entry of the Stipulation, Grand and the Capital Lease Bank Group
entered into a Limited Capital Lease Guarantee in the amount not to exceed
Eight Million Six Hundred Eighty-four Thousand Three Hundred Sixty-Two Dollars
($8,684,362), whereby Grand has guaranteed, among other things, Reorganized
Gaming Corp's obligations under the Amended Capital Lease Agreement.
Reportedly, the Capital Lease Bank Group has agreed to support a Grand effort
to reorganize Debtors if Grand elects to attempt to reorganize Debtors through
a plan of reorganization proposed by Grand. Debtors are unaware of any
intention of Grand to file its own plan of reorganization.
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2. Adequate Protection Stipulation with Heller
On June 16, 1997, the Debtors entered into an Amended Stipulation
providing adequate protection ("Heller Stipulation") with Heller. In the
Heller Stipulation, the parties acknowledge that the collateral which is the
subject of various agreements dated June 28, 1996 (the "Lease Financing
Documents") is essential to the operations of the Stratosphere Hotel and
Casino. Additionally, the parties acknowledge in the Heller Stipulation that
the amount due under the Lease Financing Documents to Heller is Three Million
Nine Hundred Twelve Thousand Five Hundred Dollars ($3,912,500) as of March 28,
1997, and that such amount is secured by the collateral described in the Lease
Financing Documents.
The Heller Stipulation provides that Heller shall refrain from exercising,
instructing or authorizing any person to take action pursuant to Bankruptcy
Code Section 362(d) to terminate, null, modify or condition the automatic stay
as provided for by Bankruptcy Code Section 362(a) during the period from the
Petition Date until a plan of reorganization is substantially consummated,
subject to certain conditions, including adequate protection with respect to
any decrease in the value of the collateral as of the Petition Date. The
Heller Stipulation also incorporates Gaming Corp.'s obligation to make schedule
payments to Heller on the dates and the amounts set forth in the original Lease
Financing Documents.
F. CLASS CERTIFICATION PROCEEDINGS REGARDING VACATION PACKAGE HOLDERS
The Asset Purchase Agreement with Bob Stupak, et al expressly provided
that all vacation package obligations sold by Mr. Stupak or any Affiliates
providing rooms, benefits and services to Vegas World guests (the "Vacation
Package Obligations") were to remain the responsibility of Mr. Stupak and not
be assumed by Stratosphere. Pursuant to the Asset Purchase
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Agreement, Stratosphere agreed to provide a facility to service the outstanding
Vacation Package Obligations on condition and in exchange for Mr. Stupak's
agreement to reimburse Stratosphere for certain of the costs of the benefits
provided by the fulfillment of the Vacation Package Obligations at the
Stratosphere Hotel & Casino. Stratosphere agreed to provide the room, tower
elevation and drink portion of certain vacation packages at no charge to Mr.
Stupak in exchange for Mr. Stupak providing and paying for all other benefits,
including the gaming chips or cash these vacation package holders received
during their visits. Mr. Stupak initially agreed to fund the outstanding
Vacation Package Obligations by depositing into an escrow account a sum equal
to one hundred ten percent (110%) of the reimbursable costs of the then
outstanding Vacation Package Obligations. This amount was modified during
Gaming Commission and Gaming Board hearings to one hundred fifty percent (150%)
in non-cash equity or one hundred percent (100%) cash.
Stratosphere believes that Mr. Stupak has breached the November 1993
Grand/Stupak Agreement and the Asset Purchase Agreement by (i) allowing the
amount held in the escrow account to fall below the amount necessary to service
the outstanding Vacation Package Obligations; (ii) by failing and refusing to
deposit additional funds in the escrow account; and (iii) by disputing the
payments to Stratosphere for benefits already provided. Stratosphere further
contends that other actions by Mr. Stupak regarding the Package Obligations has
resulted in additional breaches by Mr. Stupak.
On May 23, 1997, Richard Duncan ("Mr. Duncan") filed an amended proof of
Claim ("Class Proof of Claim") on behalf of himself and the approximate 14,000
vacation package holders ("Vacation Package Holders") for the Vegas World
and/or Stratosphere Tower Hotels
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that have not expired, been relinquished or redeemed in full. The amended
proof of Claim substituted Mr. Duncan for Ms. April M. Frank as a class
representative. The Class Proof of Claim asserts a Priority Claim for
Thirty-Four Million, Seven Hundred Two Thousand, Two Hundred Dollars
($34,702,200) as a Section 507(a)(6) customer deposit and a General Unsecured
Claim of Fifteen Million, Two Hundred Ninety-Seven Thousand, Eight Hundred
Dollars ($15,297,800).
Mr. Duncan filed two (2) motions seeking to apply Bankruptcy Rules 7023 to
certify the Vacation Package Holders as a Class and to authorize him to file
the Class Proof of Claim as their representative. The first motion was denied
for lack of procedural compliance, the second renewed motion (the "Renewed
Motion") was granted creating a mandatory opt-in class and requiring each
Vacation Package Holder to file a proof of Claim in the Chapter 11 Cases and to
affirmatively indicate their desire to participate in the class action. In the
Renewed Motion, Mr. Duncan abandoned many of his previously asserted legal
theories and confined his argument of Stratosphere's purported liability to the
theories that either Stratosphere (i) has a direct contract with the Vacation
Package Holders; (ii) has a purported contract with the State of Nevada of
which Vacation Package Holders are third party beneficiaries; or (iii) is in
violation of subsections 2, 3, 5, 9 of NRS 598.0915. Debtors objected to the
Class Proof of Claim and a hearing was scheduled for August 12, 1997 to
determine whether the Class Proof of Claim would be an Allowed Claim. In Mr.
Duncan's Response to the Debtors' Objection to the Class Proof of Claim, Mr.
Duncan attached a proposed Third Amendment to Proof of Claim, Priority
Requested, Claim of Real Property Interest [sic] alleging eleven causes of
action, three of which had not previously been pled. The Debtors objected to
the basis of the Claim, the allowance of
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the Third Amendment to the Class Proof of Claim after the Bar Date has passed
as well as Mr. Duncan's contention to it being a Priority Claim. The Court
has scheduled a hearing on November 6, 1997 to determine whether Mr. Duncan
will receive leave of Court to adopt the Fourth Amended Class Proof of Claim
and what issues are to be before the Court. In the event that the Claim is
determined by the Bankruptcy Court to be an Allowed Priority Customer Deposit
Claim, unless the Class otherwise agrees, the Allowed Priority Customer Deposit
Claim will need to be paid in full on the Effective Date of the Second Amended
Plan. It is uncertain whether sufficient Cash will then exist on the Effective
Date to satisfy all Effective Date Cash requirements, if such Effective Date
Cash requirements include an Allowed Priority Customer Deposit Claim for the
Vacation Package Holders. Debtors' estimate of the Allowed Priority Claim
would be Six Million Dollars ($6,000,000) based upon the nine thousand (9,000)
proofs of Claims filed by the Vacation Package Holders by the extended Bar Date
of August 25, 1997.
G. CDS LIFT STAY MOTION
On May 9, 1997, Casino Data Systems, Inc. ("CDS") filed a Motion To
Terminate The Automatic Stay Or In The Alternative For Adequate Protection.
CDS alleged that it is a secured Creditor pursuant to certain Hardware Purchase
and Software License Agreements entered into with the Debtors on or about March
5, 1996. CDS sought either a return of the equipment or continued adequate
protection payments alleging that the Debtors presently owe CDS One Million Six
Hundred Eighty-Three Thousand Two Hundred Thirteen Dollars ($1,683,213). The
Debtors disputed that CDS was a secured Creditor and opposed the motion on the
basis that CDS failed to perfect its security interest in the equipment and was
not entitled to either relief from the automatic stay or adequate protection
payments. An evidentiary hearing was held on July 24,
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1997, and by Order entered on September 15, 1997, the Court determined that CDS
did not perfect its security interest and is an unsecured Creditor entitled to
participate in Class 9 of the Second Amended Plan.. CDS has since appealed the
decision to the United States District Court for the District of Nevada.
H. MOTION OF OFFICIAL COMMITTEE OF NOTEHOLDERS FOR (1) STANDING TO REQUEST
ASSUMPTION ON BEHALF OF DEBTORS' ESTATES, OF STANDBY EQUITY COMMITMENT
WITH GRAND CASINOS, INC. AND (2) AN ORDER AUTHORIZING SUCH ASSUMPTION
PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE
On June 3, 1997, the Noteholders Committee filed a Motion Of Official
Committee Of Noteholders For (1) Standing To Request Assumption On Behalf Of
Debtors' Estates, Of Standby Equity Commitment With Grand Casinos, Inc. and (2)
An Order Authorizing Such Assumption Pursuant To Section 365 Of The Bankruptcy
Code ("Standby Equity Motion"). The Standby Equity Motion sought a forced
assumption by the Debtors of the Standby Equity Commitment executed by
Stratosphere and Grand contemporaneously with the completion of the offering on
March 9, 1995 of the Original First Mortgage Notes. The Standby Equity
Commitment essentially commits Grand to infuse up to an additional Sixty
Million Dollars ($60,000,000) in cash over a three (3) year period under
certain conditions as set forth in the agreement. Both Grand and the Debtors
have opposed the Standby Equity Motion, although for different reasons. At the
hearing on this matter, the Court set the matter over for a trial on the issue
of post-petition enforceability. The issue of assumption or rejection pursuant
to Section 365 of the Bankruptcy Code was bifurcated and reserved pending a
determination as to the post-Petition Date enforceability of the Standby Equity
Commitment. On September 11, 1997 the Indenture Trustee commenced a lawsuit
against Grand in the United States District Court for the District of Nevada
independent of the Standby Equity Motion. This lawsuit seeks to recover
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monies due under the Standby Equity Commitment on the basis that the Indenture
Trustee is a third party beneficiary to the Standby Equity Commitment and that
Grand has breached its obligations under Section 5(b) of the Standby Equity
Commitment which was in favor of the Indenture Trustee. Grand has not yet
answered or otherwise pled in this action.
The Noteholders Committee has been actively progressing with the
litigation. The trial is currently set for December 1997.
I. CHANGES ON STRATOSPHERE'S BOARD OF DIRECTORS
On July 31, 1997, Directors Lyle Berman, Neil Sell, and Stanley Taube
resigned as Directors for Stratosphere as a result of the Committee of
Independent Directors' decision to accept the Alternative Transaction Proposal
by High River. As a result of the foregoing resignations, Thomas Lettero and
Thomas Hantges were elected as Directors.
X. DETAILED DESCRIPTION OF THE SECOND AMENDED PLAN
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS UNDER THE
SECOND AMENDED PLAN
Class 1 - Priority Wage Claims. Class 1 consists of all Claims that are
entitled to priority under Section 507(a)(3) of the Bankruptcy Code being wage
claims per individual employee to the extent of Four Thousand Dollars ($4000)
earned within ninety (90) days of the Petition Date. By virtue of the First
Day Order authorizing Debtors to honor and pay Priority Wage Claims, Debtors do
not believe any Priority Wage Claims exist.
Class 2 - Priority Benefit Plan Contribution Claims. Class 2 consists of
all Claims that are entitled to priority under Section 507(a)(4) of the
Bankruptcy Code, being unpaid contributions to an employee benefit plan to the
extent of Four Thousand Dollars ($4000) per employee arising from services
within one hundred eighty (180) days of the Petition Date. By
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virtue of the First Day Order authorizing Debtors to honor and pay Priority
Benefit Plan Contribution Claims, Debtors do not believe any Priority Benefit
Plan Contribution Claims exist.
Class 3 - Priority Customer Deposit Claims. Class 3 consists of all
Claims that are entitled to priority under Section 507(a)(6) of the Bankruptcy
Code being customer deposits of money for the purchase of property or services
from the Debtors which were not delivered or provided, to the extent of One
Thousand Eight Hundred Dollars ($1,800) for each such individual. Each Allowed
Priority Customer Deposit Claim, if any, shall be paid in full in cash upon the
latest of: (i) the Effective Date, or as soon thereafter as practicable; (ii)
such date as may be fixed by the Bankruptcy Court, or as soon thereafter as
practicable; (iii) the tenth (10th) business day after such Claim is allowed,
or as soon thereafter as practicable; and (iv) such date as the holder of such
Claim and Reorganized Stratosphere or Reorganized Gaming Corp., as the case may
be, have agreed or shall agree. The only Claims that would be included in the
Class are the Vacation Package Obligations, totaling roughly Six Million
Dollars ($6,000,000). Debtors dispute that those Vacation Package Obligations
will be allowed Priority Claims.
Class 4 - Secured Tax Claims. Class 4 consists of all Secured Tax Claims
which are defined in the Second Amended Plan as being the Claim of any state or
local governmental unit which is secured by a lien upon property owned by the
Debtors by operation applicable law, including, but not limited to, every such
Claim for unpaid real and personal property taxes. Each holder of a Secured
Tax Claim will be considered to be in its own separate subclass within Class 4,
and each such subclass will be deemed to be a separate Class for purposes of
the Second Amended Plan. Debtors have determined that as of the Effective
Date, Priority Tax Claims will
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be One Million, One Hundred Thirty-Three Thousand One Hundred Sixty-Three
Dollars ($1,133,163.00).
Class 5 - Miscellaneous Secured Claims. Class 5 consists of all Secured
Claims, other than Secured Claims in Classes 4, 6, 7, 8 and 10. Each holder of
a Miscellaneous Secured Claim shall be considered to be in its own separate
subclass within Class 5, and each such subclass shall be deemed to be a
separate Class for purposes of the Second Amended Plan.
Class 6 - Original First Mortgage Note Claims. Class 6 consists of all
Allowed Secured Claims of the holders of Original First Mortgage Notes.
Class 7 - Heller Capital Lease Claims. Class 7 consists of the Heller
Capital Lease Claims.
Class 8 - Capital Lease Claims. Class 8 consists of the Capital Lease
Claims.
Class 9 - General Unsecured Claims. Class 9 consists of all General
Unsecured Claims, including the Grand Subordinated Claims and the deficiency
Claim of the holders of the Original First Mortgage Notes of approximately One
Hundred Twenty-Three Million Dollars ($123,000,000). Debtors estimate that as
of the Effective Date, there will be approximately Three Million Eight Hundred
Thousand Dollars ($3,800,000) in General Unsecured Claims not including the
Grand Subordinated Claim or the deficiency Claim of the holders of the Original
First Mortgage Notes. Pursuant to the Second Amended Plan, Allowed Claims will
share Pro Rata the Six Million Dollars ($6,000,000) to be paid on the latest
of: Effective Date, or as soon thereafter as practicable; (ii) the tenth
(10th) Business Day after such claim is Allowed, or as soon thereafter as
practicable; and (iii) such date as the holder of such Claim and Reorganized
Stratosphere or Reorganized Gaming Corp. as the case may be, have agreed or
shall agree.
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Debtors estimate that each holder of an Allowed General Unsecured Claim will
receive approximately three percent (3%) of their Allowed Claim on the
Effective Date.
Class 10 - Reliable Steel Lien Claim. Class 10 consists of the Reliable
Steel Lien Claim. The Second Amended Plan provides that the holder of the
Reliable Steel Lien Claim shall receive One Hundred Twenty-Five Thousand
Dollars ($125,000) on the Effective Date in full satisfaction and settlement of
the Reliable Steel Claim and the Reliable Steel Adversary Action. Pursuant to
a settlement agreement entered into by the Debtors and the holder of the
Reliable Steel Lien Claim a lock-in agreement has been executed pursuant to
which the holder of the Reliable Steel Lien Claim shall support the Second
Amended Plan. See Exhibit "D" hereto.
Class 11 - Gaming Corp. Common Stock. Class 11 consists of the Gaming
Corp. Common Stock held by Stratosphere. The Second Amended Plan provides for
Reorganized Stratosphere continuing to own the Reorganized Gaming Corp. Common
Stock.
Class 12 - Equity Interests and Equity Interest - Related Claims. Class
12 consists of the holders of Equity Interests who continue to hold their
Equity Interests as of the Voting Record Date and holders of Allowed Claims
relating to the purchase or sale of an Equity Interest or for damages arising
from the purchase and sale of an Equity Interest or any Claim by a person who
asserts a right to reimbursement, contribution or indemnification arising from
such a Claim. Holders of Class 12 Claims will receive nothing under the Second
Amended Plan.
B. MEANS FOR IMPLEMENTATION OF THE SECOND AMENDED PLAN
1. New Capital Structure.
Upon confirmation of the Second Amended Plan, the Old Common Stock will be
canceled and all rights arising thereunder terminated. Reorganized
Stratosphere shall have ten
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million (10,000,000) shares of New Common Stock authorized of which two million
thirty thousand (2,030,000) shares of New Common Stock shall be issued and
outstanding representing one hundred percent (100%) of the equity ownership and
voting power of Reorganized Stratosphere.
2. Satisfaction and Cancellation of Original First Mortgage Notes
On the Effective Date, the Original First Mortgage Notes shall be canceled
and extinguished and the Original First Mortgage Security Documents and
Original Subsidiary Guarantee released, reconveyed and extinguished in part, in
exchange for two million thirty thousand (2,030,000) shares of New Common Stock
to be delivered to the Indenture Trustee on the Distribution Date. Other than
(a) the right receive the two million thirty thousand (2,030,000) shares of New
Common Stock on the Distribution Date; and (b) the right to participate in
Class 9 distributions, the holders of the Original First Mortgage Notes shall
not receive any equity or other interest in Reorganized Stratosphere or any
other consideration in exchange for the cancellation and extinguishment of the
Original First Mortgage Notes, Original First Mortgage Security Documents and
Original Subsidiary Guarantee. Upon the Effective Date, any and all rights
regarding the enforcement of the Standby Equity Commitment shall revest in
Reorganized Stratosphere, provided however, such revesting shall not affect the
Indenture Trustee's right to pursue its independent cause of action against
Grand under the Standby Equity Commitment.
3. Interim Management Agreement
On or before the Effective Date subject to requisite Gaming Authority
approvals, Stratosphere may enter into the Interim Management Agreement
pursuant to which the designated
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manager shall manage the day-to-day operations of Stratosphere until the
Effective Date. In the event that the Interim Management Agreement is not
effectuated, Debtors' management shall remain in place until the Effective
Date.
4. Phase II
Subsequent to the Effective Date, the decision as to construction and/or
completion of Phase II, the scope and design of Phase II and the means and
method to finance Phase II will rest with Reorganized Stratosphere. Nothing
contained in the Second Amended Plan or the Confirmation Order is intended to
or will dictate or restrict Reorganized Stratosphere in this regard. Approval
of the Bankruptcy Court after the Effective Date concerning Phase II will not
be required nor necessary
5. Alternative Transaction Proposal
During the period commencing upon the filing of the Second Amended Plan
with the Bankruptcy Court and up until the commencement of the Confirmation
Hearing, Stratosphere and Stratosphere Gaming, will, upon the execution of
appropriate confidentiality agreements, respond to inquiries from, engage in
discussions with and provide information to any Person interested in the final
restructuring of the Debtors in lieu of the transaction contained in the Second
Amended Plan. At the Confirmation Hearing, Debtors shall disclose to the
Bankruptcy Court information concerning all Alternative Transaction Proposals
received and the Bankruptcy Court may in its own discretion consider such
Alternative Transaction Proposal. In the event that prior to the Confirmation
Hearing an Alternative Transaction Proposal is received, Stratosphere shall
notify the Majority Original Holders of such Alternative Transaction Proposal,
whether written or oral, which notice shall identify the parties to such
Alternative Transaction Proposal and set forth in reasonable
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detail the terms and conditions of such Alternative Transaction Proposal.
Debtors reserve the right to submit such Alternative Transaction Proposal to
the Bankruptcy Court for determination as to whether such Alternative
Transaction Proposal contains economic terms and conditions more favorable to
the Debtors and Creditors than the transaction proposed by the Second Amended
Plan. Debtors reserve the right to alter, amend or modify the Second Amended
Plan as provided for in Section 13.1 of the Second Amended Plan prior to
Confirmation or during the Confirmation Hearing to reflect such Alternative
Transaction Proposal.
In the event that an Alternative Transaction Proposal is presented by the
Debtors or is considered by the Bankruptcy Court at the Confirmation Hearing,
the Indenture Trustee shall have the right (if appropriate under the
circumstances) pursuant to Section 363(k) of the Bankruptcy Code to credit bid
against the Allowed Secured Claim of the holders of Original First Mortgage
Notes in the event that an Alternative Transaction Proposal or any other sale
proposal is considered by the Bankruptcy Court at the Confirmation Hearing.
In order to effectuate such a credit bid, the order approving this Disclosure
Statement shall specifically authorize the Indenture Trustee to credit bid less
than the full amount of the Class 6 Allowed Claim upon instruction from holders
of a majority in amount of the Original First Mortgage Notes.
C. CONDITIONS TO CONFIRMATION AND EFFECTIVENESS OF THE SECOND AMENDED PLAN
Confirmation and effectiveness of the Second Amended Plan is subject to a
number of conditions, including, but not limited to, approval of the Second
Amended Plan by the Bankruptcy Court pursuant to Bankruptcy Code Section 1129,
receipt of all necessary regulatory approvals including those required by
Gaming Authorities and the SEC, completion of definitive
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Second Amended Plan-related documents and other customary closing conditions.
In addition, confirmation of the Second Amended Plan is conditioned in part
upon:
1. Conditions to Confirmation
a. The Bankruptcy Court shall have entered an order approving this
Disclosure Statement with respect to the Second Amended Plan in form and
substance reasonably acceptable to the Debtors; and
b. The Confirmation Order shall be in form and substance reasonably
acceptable to the Debtors.
2. Conditions to Effectiveness
Effective Date transactions, in addition to other matters as set forth in
the Second Amended Plan, include the following:
a. a notice of effectiveness of the Second Amended Plan to be filed and
served; and
b. the dismissal of the Reliable Steel Adversary Action.
The following are conditions precedent to the occurrence of the Effective
Date, each of which may be satisfied or waived in accordance with Section 10.2
of the Second Amended Plan:
a. The Confirmation Date shall have occurred and the Confirmation Order
shall, among other things, provide that:
i). The provisions of the Confirmation Order are nonseverable and
mutually dependent;
ii). All executory contracts or unexpired leases assumed by Reorganized
Stratosphere and Reorganized Gaming Corp. during the Chapter 11 Cases or under
the Second Amended Plan shall remain in full force and effect for the benefit
of Reorganized Stratosphere and Reorganized Gaming Corp. notwithstanding any
provision in such contract or lease (including
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those described in Sections 365(b)(2) and (f) of the Bankruptcy Code) that
prohibits such assignment or transfer or that enables, permits or requires
termination of such contract or lease;
iii) Except as expressly provided in the Second Amended Plan, the Debtors
are discharged effective upon the Effective Date from any "debt" (as that term
is defined in Section 101(12) of the Bankruptcy Code), and the Debtors'
liability in respect thereof is extinguished completely, whether reduced to
judgment or not, liquidated or unliquidated, contingent or noncontingent,
asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, or known or unknown, or that arose from any
agreement of the Debtors that has either been assumed or rejected in the
Chapter 11 Cases or pursuant to the Second Amended Plan, or obligation of the
Debtors incurred before the Confirmation Date, or from any conduct of the
Debtors prior to the Confirmation Date, or that otherwise arose before the
Confirmation Date, including, without limitation, all interest, if any, on any
such debts, whether such interest accrued before or after the Petition Date;
and
(iv) The Second Amended Plan does not provide for the liquidation of all
or substantially all of the property of the Debtors and its confirmation is not
likely to be followed by the liquidation of Reorganized Stratosphere or
Reorganized Gaming Corp. or the need for further financial reorganization.
b. The Confirmation Order shall be a Final Order, except that
Debtors reserve the right to cause the Effective Date to occur notwithstanding
the pendency of an appeal of the Confirmation Order, under circumstances that
would moot such appeal;
c. No request for revocation of the Confirmation Order under Section 1144
of the Bankruptcy Code shall have been made, or, if made, shall remain pending;
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d. The Bankruptcy Court in the Confirmation Order shall have approved the
retention of jurisdiction provisions in Article 12 of the Second Amended
Plan.;
e. All documents necessary to implement the transactions contemplated by
the Second Amended Plan shall be in form and substance reasonably acceptable to
the Debtor; and
f. Sufficient Effective Date Cash exists to make required distributions to
holders of Allowed Claims required on the Distribution Date; and
g. The Debtors shall have received any and all required approvals by the
Gaming Authorities to consummate this Plan; provided however, that Gaming
Authorities approval of: (i) four (4) of the seven (7) nominees to the board
of directors of Reorganized Stratosphere; (ii) two (2) of the three (3)
nominees to the board of directors of Reorganized Gaming Corp.; and (iii) the
suitability of holders of Original First Mortgage Notes (if required), or the
waiver of such finding of suitability requirements (if required), necessary as
a condition precedent to the issuance and distribution of more than one million
fifteen thousand (1,015,000) shares of New Common Stock to such holders in
Class 6 shall be deemed sufficient.
XI. RISK FACTORS
In addition to matters addressed elsewhere in this Disclosure Statement,
including the issuance and ownership of New Common Stock, the Second Amended
Plan involves certain significant risks which should be taken into
consideration, including those material factors set forth below.
A. RISK OF NON-PAYMENT
On and after the Effective Date, Reorganized Debtors will be required to
make substantial payments under the Amended Capital Lease Agreement and Amended
Heller Capital Lease and
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to service their obligations to other pre-petition Creditors pursuant to the
Second Amended Plan as well as pay post-Effective Date obligations in the
ordinary course. Reorganized Stratosphere's and Reorganized Gaming Corp.'s
ability to meet their obligations will be entirely dependent on the results of
the operations of the Stratosphere Hotel & Casino. Although the Debtors
anticipate that they will achieve improved operating results after the
Effective Date, this belief is based upon a number of assumptions that are
subject to inherent uncertainties and contingencies, some of which will be
beyond the control of Reorganized Stratosphere and Reorganized Gaming Corp.
Reorganized Stratosphere's and Reorganized Gaming Corp.'s relatively high
level of projected indebtedness may have important consequences, including the
following: (i) future cash flow from the operations may be inadequate to
satisfy all of Reorganized Stratosphere's and Reorganized Gaming Corp.'s debt
service obligations, including interest and principal due on the Amended
Capital Lease Agreement and the Amended Heller Capital Lease, and this risk
would be heightened if Reorganized Stratosphere and Reorganized Gaming Corp.
incur additional indebtedness to develop and complete Phase II, or if
Reorganized Stratosphere and Reorganized Gaming Corp. suffer other adverse
operating results; (ii) a substantial portion of Reorganized Stratosphere's and
Reorganized Gaming Corp.'s cash flow from operations may be dedicated to the
payment of principal and interest on its indebtedness and would not be
available for other purposes such as maintenance and improvement of the
Stratosphere Hotel & Casino; (iii) Reorganized Stratosphere's and Reorganized
Gaming Corp.'s ability to obtain additional financing in the future for working
capital, capital expenditures, the completion of Phase II, or acquisitions may
be limited; and (iv) Reorganized Stratosphere's and Reorganized Gaming
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Corp.'s levels of indebtedness could limit their flexibility in planning
for, or reacting to changes in the industry.
Based upon Reorganized Stratosphere's and Reorganized Gaming Corp.'s
anticipated level of operations, Reorganized Stratosphere and Reorganized
Gaming Corp. currently expect that their cash flows from operations will be
sufficient to enable Reorganized Stratosphere and Reorganized Gaming Corp. to
satisfy their anticipated operating cash requirements, including interest
payments on its debt. However, there can be no assurance as to the actual
level of operating cash requirements or of the amount of cash flows from
operations or Reorganized Stratosphere and Reorganized Gaming Corp.'s being
sufficient to meet such requirements. Future cash requirements could exceed
the amount currently anticipated, while future operating cash flow could be
less than current expectations. If Reorganized Stratosphere and Reorganized
Gaming Corp. are unable to satisfy their operating cash requirements from cash
flows from operations, Reorganized Stratosphere and Reorganized Gaming Corp.
could be required to explore alternatives, such as reducing or delaying capital
expenditures or seeking additional debt or equity financing. There can be no
assurance that any of such actions could be effected on satisfactory terms.
B. COMPETITION
Hotel and casino capacity in Las Vegas, Nevada has increased significantly
over the last several years, increasing hotel and casino competition in the
area. Moreover, such growth is presently continuing, and based upon recent
announcements of certain major operators, is expected to continue for the next
few years. The rapid growth in the Las Vegas area has also significantly
increased competition in the employment market, making it more difficult and
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costly to attract and retain qualified employees. There can be no assurance
that the Stratosphere Hotel & Casino will be able to compete successfully or
achieve the increased levels of revenues required to sustain operations and
meet debt service requirements of Reorganized Stratosphere and Reorganized
Gaming Corp. following the Effective Date.
There is intense competition among companies in the gaming industry
generally, many of which have greater name recognition and financial and
marketing resources than the Debtors. In addition to the regional competitors
described below, Reorganized Stratosphere and Reorganized Gaming Corp. will
compete with famous facilities nationwide, including land-based casinos in
Nevada and Atlantic City, New Jersey, dockside casinos in Mississippi and
riverboat and Indian gaming throughout the United States. Reorganized
Stratosphere and Reorganized Gaming Corp. will also compete, to some extent,
with other forms of gaming on both a local and national level, including
state-sponsored lotteries, on and off-track wagering and card parlors. The
recent and continuing expansion of legalized casino gaming to new jurisdictions
throughout the United States has increased competitive conditions faced by
Reorganized Stratosphere and Reorganized Gaming Corp. and will continue to do
so in the future.
The Las Vegas market is highly competitive. The Debtors compete primarily
with casino properties located in downtown Las Vegas and located on the Las
Vegas Strip. The Debtors also believe that they compete, to a lesser extent,
with local neighborhood casinos and casino-hotels.
The Debtors have experienced competition from new and existing Las Vegas
casino-hotels which have sought to attract some of the same "middle-market"
players and tour and travel visitors targeted by the Debtors. The Debtors
anticipate continuing increased competition for these customers. Moreover,
three (3) substantial new properties have opened on or near the
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Las Vegas Strip within the past two (2) years, four (4) new properties
(Belagio, Circus Circus Millennium, Venetian and City of Paris) and other major
expansions of existing properties are under construction and several additional
new projects have been announced on or near the Las Vegas Strip, in addition to
several casinos catering to local residents. These new properties, as well as
any other major additions, expansions or enhancements to existing properties by
the Debtors' competitors, could have a material adverse impact on the Debtors'
business.
In addition, the Debtors believe that the introduction of casino gaming,
or the expansion of presently conducted gaming activities (particularly at
Indian establishments) in areas in or close to Nevada, such as Arizona,
California, Oregon, Washington or western Canada could have an adverse impact
on the operations of the Stratosphere Hotel & Casino and, depending on the
nature, location and extent of such operations, such impact could be material.
Debtors believe that Reorganized Stratosphere's and Reorganized Gaming
Corp.'s ability to maintain their competitive position in Las Vegas will
require the completion of Phase II and the expenditure of sufficient funds for
such items as updating slot machines to reflect changing technology, periodic
refurbishing of rooms and public service areas and replacing obsolete equipment
on an ongoing basis. There can be no assurance that Reorganized Stratosphere
and Reorganized Gaming Corp. will generate sufficient internal funds or obtain
sufficient additional financing to fund such expenditures.
C. LAS VEGAS ECONOMY
Although Las Vegas has experienced significant growth in recent years,
there can be no assurance of the future growth of the Las Vegas area or the Las
Vegas gaming industry due to overcapacity, the scarcity of water and other
matters. Any significant downturn in the economy
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of the Las Vegas area could materially adversely affect the operations of the
Stratosphere Hotel & Casino.
D. POTENTIAL LIQUIDITY OF SECURITIES ISSUED PURSUANT TO THE SECOND AMENDED PLAN
No established trading market exists for the New Common Stock and no
assurances can be given that such a trading market will ever develop,
especially since approximately 88% of the New Common Stock is expected to be
issued to three holders. Accordingly, New Common Stock may be illiquid
investments for which the holders thereof may be unable to readily find a buyer
on reasonable terms. Furthermore, due to High River's and Grace Bros.'
substantial ownership of Original First Mortgage Notes, they will own no less
than eighty-eight percent (88%) of the New Common Stock and in all likelihood
will be subject to certain trading restrictions. See Section XIV below.
E. GAMING CONTROL ACT
The Second Amended Plan proposes the continuation of Gaming Corp. as a
nonrestricted licensee and Stratosphere as a registered publicly traded
corporation. The ownership and operation of casino/hotel facilities and
related businesses in Nevada are the subject of strict regulation under the
Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, the "Nevada Act"). The receipt of all necessary approvals and
authorizations from the Gaming Authorities is a condition to the effectiveness
of the Second Amended Plan. (See Section 10.2(f) of Second Amended Plan and
Section XV of this Disclosure Statement.) There can be no guarantee that the
Gaming Authorities will grant all authorizations and approvals necessary for
the operation and ownership of the Stratosphere Hotel & Casino, nor is there
any guarantee that the Gaming Authorities will investigate and consider any
gaming applications
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filed related thereto within any specific time period. The Chairman of the
State Gaming Control Board has absolute discretion to determine the depth of
investigation any application requires and to schedule hearings on any gaming
application related thereto. Additionally, the Gaming Authorities have
absolute discretion to limit, restrict or condition any gaming application
filed in any manner deemed reasonable by the Gaming Authorities, or to deny any
gaming application for any cause they deem reasonable.
Furthermore, no person may acquire control of a publicly traded
corporation registered with the Gaming Commission (a "Registered Corporation")
without the prior approval of the Gaming Commission upon the recommendation of
the Gaming Board. Accordingly, no person or entity, or any principal thereof,
may acquire control of the operation of Stratosphere or Gaming Corp., without
first making application to and receiving approval from the Gaming Commission.
The Second Amended Plan proposes a change in control of Stratosphere.
Accordingly, an application for approval of an acquisition of control of
Stratosphere must be filed by the nominees to the board of directors of
Reorganized Stratosphere or the Original First Mortgage Noteholders, as
applicable. Again, as indicated above, the time and manner in which the Gaming
Authorities investigate and consider these applications is a discretionary act
by the Gaming Authorities.
Moreover, any beneficial owner of voting securities, or warrants to
purchase voting securities, of a Registered Corporation with the Gaming
Commission, regardless of the number of shares owned, may be required to file
an application, be investigated and have his suitability as a beneficial owner
of the Registered Corporation's voting securities determined if the Gaming
Commission has reason to believe that such ownership would otherwise be
inconsistent with the
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declared policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than five percent
(5%) of a Registered Corporation's voting securities to report the acquisition
to the Gaming Commission. The Nevada Act requires that beneficial owners of
more than ten percent (10%) of a Registered Corporation's voting securities
apply to the Gaming Commission for a finding of suitability within thirty (30)
days after the Chairman of the Gaming Board mails written notice requiring such
filing. Under certain circumstances, an "institutional investor," as defined
in the Nevada Act, which acquires more than ten percent (10%), but not more
than fifteen percent (15%), of a Registered Corporation's voting securities
other than through a debt restructuring, or more than ten percent (10%) of such
voting securities through a debt restructuring such as the Plan, may apply to
the Gaming Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. (See Section XV of this Disclosure Statement.) At least three (3) of
the Original First Mortgage Noteholders will receive beneficial ownership of
more than fifteen percent (15%) of Reorganized Stratosphere's New Common Stock.
The Gaming Commission may, in its discretion, require the holder of any
debt or similar security of a Registered Corporation, to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation if the Gaming Commission believes that such ownership would
otherwise be inconsistent with the declared policies of the State of Nevada.
If the Gaming Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of
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its approvals, if without the prior approval of the Nevada Commission, it: (1)
pays to the unsuitable person any dividend, interest or any distribution
whatsoever; (2) recognizes any voting right by such unsuitable person in
connection with such securities; (3) pays the unsuitable person remuneration in
any form; or (4) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation or similar
transaction. In addition, a Registered Corporation may require a holder of
debt or debt securities who fails to apply for a license or a finding of
suitability as required by the Gaming Authorities to dispose of its debt
instrument, or may redeem such securities.
Additionally, a Registered Corporation may not make a public offering of
securities without the prior approval of the Gaming Commission, including
purchase rights offerings, if the securities or the proceeds are intended to:
(1) pay for the construction of gaming facilities in Nevada; (2) acquire any
direct or indirect interest in gaming facilities in Nevada; (3) finance the
operation, by an affiliated company (i.e. a subsidiary holding a Nevada gaming
license) of gaming facilities in Nevada; or (4) retire or extend obligations
for one or more such purposes. A "public offering" would encompass any sale of
securities, either equity, debt, options, purchase rights or warrants, that
would be subject to the registration requirements of Section 5 of the Federal
Securities Act, or that is exempt from such requirements solely by reason of an
exemption contained in Section 3(a)10, 3(a)11 or 3(c) or said Act or Regulation
A adopted pursuant to Section 3(b) of that act. Since the issuance of New
Common Stock contemplated in the Second Amended Plan would result in a change
of control in Stratosphere it would require the prior approval of the Gaming
Commission. Again, as indicated above, the time and manner
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in which any gaming application is investigated and considered by the Gaming
Authorities is a discretionary act by the Gaming Authorities.
F. RISK OF INCREASES IN GAMING TAXES
The Debtors believe that the prospect of significant tax revenue is one of
the primary reasons that many jurisdictions have legalized gaming. As a
result, gaming operators are typically subject to significant taxes and fees in
addition to corporate income taxes, where applicable, and such taxes and fees
are subject to increase at any time. In addition, it is possible that a
federal gaming tax may be imposed after completion of and submission to
Congress of the report of the National Gaming Commission. Any material
increase in these taxes or fees may adversely affect Reorganized Stratosphere
and Reorganized Gaming Corp. The Debtors pay and expect to continue to pay
substantial taxes and fees in Nevada.
G. DEPENDENCE UPON CASH FLOW FROM SUBSIDIARIES
Stratosphere's operations are conducted through its direct subsidiaries.
As a holding company, Stratosphere is dependent upon the cash flow of its
subsidiaries to meet its own obligations. Accordingly, Reorganized
Stratosphere's ability to make interest and principal payments on its debts is
dependent upon the receipt of sufficient funds from Reorganized Gaming Corp.,
which ability may be limited by law, contract or otherwise, as well as by
operating results.
H. POTENTIAL EFFECT OF BANKRUPTCY
The effect, if any, which the filing of the Chapter 11 Cases has had upon
the operations of the Stratosphere Hotel & Casino cannot be accurately
predicted or quantified. However, the filing and continuation of the Chapter
11 Cases may adversely impact the Debtors' relationships
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with its customers, Creditors and employees. The more protracted the Chapter
11 Cases become, the more likely it is that the Chapter 11 Cases could
materially adversely impact the operations of the Stratosphere Hotel & Casino.
I. RISK OF NON-CONFIRMATION OF THE SECOND AMENDED PLAN
Even if the requisite acceptances are received, the Second Amended Plan
may not be confirmed by the Bankruptcy Court. Confirmation of the Second
Amended Plan requires, among other things, a finding by the Bankruptcy Court
that it is not likely that there will be a need for further financial
reorganization and that the value of distributions to dissenting members of
impaired Classes of Creditors and Equity Interests not be less than the value
of distributions such Creditors and holders would receive if the Debtors were
liquidated under Chapter 7 of the Bankruptcy Code. Although the Debtors
believe that the Second Amended Plan will not be followed by a need for
further financial reorganization and that dissenting members of impaired
Classes of Creditors and Equity Interests will receive distributions at least
as great as would be received in a liquidation under Chapter 7 of the
Bankruptcy Code, there can be no assurance that the Bankruptcy Court will
conclude that these tests have been met.
Furthermore, the effectiveness of the Second Amended Plan is subject to
certain other conditions and there can be no assurance that such conditions
will be satisfied.
XII. POST CONFIRMATION DATE OPERATIONS AND PROJECTIONS
A. SUMMARY OF TITLE TO PROPERTY AND DISCHARGEABILITY
1. Revesting of Assets
Subject to the provisions of the Second Amended Plan, the property of the
Estate (including all rights and causes of action relating to the Standby
Equity Commitment of the
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Debtors shall revest in Reorganized Stratosphere and Reorganized Gaming Corp.
on the Effective Date. As of the Effective Date, all such property of
Reorganized Stratosphere and Reorganized Gaming Corp. shall be free and clear
of all Liens and Claims of Creditors and Equity Interests, except as otherwise
provided in the Second Amended Plan. From and after the Effective Date,
Reorganized Stratosphere and Reorganized Gaming Corp. may operate their
businesses, and may use, acquire and dispose of their property free of any
restrictions of the Bankruptcy Code, including the employment of and payment to
professionals, except as otherwise provided in the Second Amended Plan or the
Confirmation Order.
2. Discharge
Except as provided in the Second Amended Plan or the Confirmation Order,
the rights afforded under the Second Amended Plan and the treatment of Claims
and Equity Interests under the Second Amended Plan shall be in exchange for
and in complete satisfaction, discharge and release of all Claims and
termination of all Equity Interests, including any interest accrued on Claims
from the Petition Date. Except as provided in the Second Amended Plan or the
Confirmation Order, Confirmation shall: (a) discharge the Debtors, Reorganized
Stratosphere and Reorganized Gaming Corp. from all Claims or other debts that
arose before the Confirmation Date and all debts of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not; (i)
a proof of Claim based on such debt is filed or deemed filed pursuant to
Section 501 of the Bankruptcy Code; (ii) a Claim based on such debt is allowed
pursuant to Section 502 of the Bankruptcy Code; or (iii) the holder of a Claim
based on such debt has accepted the Second Amended Plan; and (b) terminate all
Equity Interests and other rights of equity security holders in Stratosphere.
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3. Injunction
Except as provided in the Second Amended Plan or the Confirmation Order,
as of the Confirmation Date, all entities that have held, currently hold or may
hold a Claim or other debt or liability that is discharged or an Equity
Interest or other right of an Equity Interest holder that is terminated
pursuant to the terms of the Second Amended Plan are permanently enjoined from
taking any of the following actions on account of any such discharged Claims,
debts or liabilities or terminated an Equity Interests or rights: (a)
commencing or continuing in any manner any action or other proceeding against
the Debtors, Reorganized Stratosphere or Reorganized Gaming Corp.; (b)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtors, Reorganized Stratosphere
Reorganized Gaming Corp. or their respective directors, officers and employees,
or their respective property; (c) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, Reorganized Stratosphere, Reorganized Gaming
Corp. or their respective property; (d) asserting a setoff, right of
subrogation or recoupment of any kind against any debt, liability or obligation
due to the Debtors, Reorganized Stratosphere, Reorganized Gaming Corp. or their
respective property; and (e) commencing or continuing any action, in any manner
or in any place that does not comply with or is inconsistent with the
provisions of the Second Amended Plan or the Bankruptcy Code. Notwithstanding
anything contained in the Second Amended Plan to the contrary, nothing set
forth in the Second Amended Plan shall prevent Reorganized Stratosphere from
initiating or pursuing any claim or cause of action it may have against Mr.
Stupak or any of his Affiliates and Grand or any of its Affiliates.
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4. Exculpation
Neither Debtors, Reorganized Stratosphere, Reorganized Gaming Corp., nor
any Statutory Committee, nor any of their respective present or former members,
directors, officers, employees, advisors, attorneys or agents, shall have or
incur any liability to any holder of a Claim or Equity Interest, or any other
party in interest, or any of their respective agents, employees,
representatives, financial advisors, attorneys or affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Cases, the pursuit of confirmation of the
Second Amended Plan or the consummation of the Second Amended Plan, except for
their willful misconduct, and in all respects shall be entitled to reasonably
rely upon the advice of counsel with respect to their duties and
responsibilities under the Second Amended Plan or in the context of the
Chapter 11 Cases. No holder of a Claim or Equity Interest, or any other party
in interest, including their respective agents, employees, representatives,
financial advisors, attorneys or Affiliates, shall have any right of action
against Debtors, Reorganized Stratosphere, Reorganized Gaming Corp., any
Statutory Committee or any of their respective present or former members,
officers, directors, employees, advisors, attorneys or agents, for any act or
omission in connection with, relating to, or arising out of, the Chapter 11
Cases, the pursuit of confirmation of the Second Amended Plan, the
consummation of the Second Amended Plan, or the administration of the Second
Amended Plan, except for their willful misconduct.
. . .
. . .
. . .
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B. SUMMARY OF CERTAIN MATERIAL DOCUMENTS OF THE SECOND AMENDED PLAN
1. Projections
Based upon the assumption that the Second Amended Plan is confirmed and
becomes effective, Debtors have prepared a cash flow analysis which depicts the
Debtors' projected annual operating results for a three (3) year period. The
cash flow analysis is based upon the detailed set of assumptions developed by
management. The key assumptions underlying these projections include the
following:
1. The Second Amended Plan will be confirmed by the Bankruptcy
Court by January 31, 1998;
2. The Second Amended Plan will become effective on June 30, 1998;
3. The Capital Lease Facility remains in place pursuant to the
terms of the Standstill and Amendment Agreement dated October, 1996;
4. The Heller Lease Facility will remain in place and payments will
be made as scheduled;
5. A payment of Six Million Dollars ($6,000,000) will be made on
the Effective Date in full satisfaction of the Allowed General Unsecured
Claims;
6. A payment of approximately One Million Dollars ($1,000,000) will
be made on the Effective Date in full satisfaction of various other
Allowed Claims (e.g. Secured Tax Claims, Priority Wage Claims,
Miscellaneous Secured Claims, etc.); and
7. The Class Proof of Claim for Vacation Package Holders will not
be determined by the Bankruptcy Court to be an Allowed Customer Deposit
Priority Claim.
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Exhibit "B" attached hereto sets forth the of cash flow analysis which
depicts the annual projected cash flow for a three (3) year period. As set
forth therein, it is projected that Reorganized Debtors will be able to
generate cash flow which is sufficient to satisfy all obligations under the
Second Amended Plan.
2. Phase II Budget
As determined by Debtors, the total cost estimate to complete the
construction of Phase II is Seventy-Four Million Nine Hundred Fifty-Eight
Thousand Five Hundred Eleven Dollars ($74,958,511). Any decision to construct
and/or complete Phase II, the scope and design of Phase II and the means and
method to finance Phase II will rest with Reorganized Stratosphere. The cost
estimate includes the completion of the proposed retail shell building; the
completion of the one thousand (1,000) bay guest room tower, including all
furniture, fixtures and equipment, landscape and hardscape; completion of a
swimming pool, landscape and fence; completion of a mechanical piping
connection from Phase I central plants to provide partial air conditioning to
the proposed retail shell; and the completion of certain other renovations for
the Stratosphere Hotel & Casino, including baggage storage, gift shop and cart
remodel. Included in the total cost estimate is the following:
Costs Amount
----- ------
Design(6)................................$ 1,658,411.00
Construction for Hotel and Casino(7)..... 56,242,688.00
- -----------------
(6) The total project budget for design costs was $6,370,340.00. The total
amount paid to date is $3,432,583.00, leaving a balance of $1,658,411.00 to
finish. Design costs include architect and engineering fees, specific fees for
casino remodeling and the possible design of Kids Quest, owner construction
administration, civil and structural engineering costs, mechanical and
electrical engineering costs, and various consultant and consultant
reimbursable costs.
(7) The total project budget for construction costs for Phase II was
$103,598,441.00. The total amount paid to date is $45,081.341, leaving a
balance of $56,242,688.00 to finish. The primary expenditure remaining for
construction costs in the cost estimate is $39,565,050.00 estimated for
completion of the hotel tower. Additional projects included in the cost
estimate for Phase II include completion of the Retail Shell, construction of
escalators from the casino to the Broadway showroom, preparation of 7,500
square feet or the arcade for tenant buildout, relocation of a
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Furniture, Fixture, and Equipment(8).... 7,203,688.00
Signage/Graphics (9).................... 343,250.00
Permits and Fees (10)................... 2,638,907.00
Gaming Equipment (11)................... 0.00
Other Equipment(12)..................... 3,738,912.00
Soft Costs(13).......................... 250,000.00
--------------
SUBTOTAL................................ $72,075,856.00
Contingency............................. 2,882,655.00
--------------
TOTAL................................... $74,958,511.00
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. SCOPE AND LIMITATIONS
Under the Internal Revenue Code of 1986, as amended (the "Tax Code"),
there are certain federal income tax consequences associated with the Second
Amended Plan. It is not practicable to present a detailed explanation of all
of the federal income tax aspects of the Second Amended Plan and the following
is only a summary discussion of certain significant consequences. This
Disclosure Statement does not constitute and is not intended to constitute
either a tax opinion or
- -------------------------------------------------------------------------------
dividing wall and construction of a pool and recreation area. The proposed
cost estimate further provides for a buildout of 2,000 square feet for a
baggage room in the new tower, facade upgrades at areas deleted by ballroom and
site work improvements at the porte cochere and ballroom shell.
(8) The total project budget for furniture, fixture and equipment costs was
$7,274,483.00. The total paid to date for this is $70,715.00, leaving a
balance of $7,203,688.00 to finish. Estimates in this section include the
costs of furniture, fixtures and equipment for the pool recreation area and the
hotel tower.
(9) The total project budget for signage and graphics was $1,238,731.00. The
total paid to date is $895,121.00, leaving a balance of $343,250.00 to finish.
The estimate for signage and graphics includes the costs for the pool and
recreation area, entertainment shell and valet circle, hotel tower and exterior
directional signage.
(10) The total project budget for permits and fees was $2,706,475.00. The
total paid to date is $87,568.00, leaving a balance of $2,638,507.00.
Included in the estimate for permits and fees are those associated with testing
and inspections permits, permits and plan check fees, the 905 inspection,
zoning and plan check fees, transportation taxes, sewer connection fees
including those for the pool and water features, public works fees and reissue
permits.
(11) There is currently no money budgeted for new gaming equipment.
(12) The total project budget for other equipment was $3,750,645.00. The total
paid to date is $11,733.00, leaving a balance of $3,738,914.00 to finish.
Included in the estimate for other equipment are costs for telephone systems,
cabling wire, card key locks, housekeeping equipment, baggage handling
equipment, wardroom equipment and uniforms, point of sale equipment, office
equipment, surveillance equipment, CCTV/MATV equipment, MIS equipment, paging
and sounding systems and window washing equipment.
(13) The total project budget for soft costs was $250,000.00. Nothing has been
paid to date. Included in the estimate for soft costs are $50,000.00 for
accounting and auditing and $200,000.00 for builder's risk insurance.
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tax advice to any person, and the summary contained herein is provided for
informational purposes only. This summary is based upon laws, regulations,
rulings and decisions now in effect and upon proposed regulations, all of which
are subject to change (possibly with retroactive effect) by legislation,
administrative action or judicial decision. Under present law, there is
substantial uncertainty surrounding many of the tax consequences discussed
below. Uncertainty is created, in part, by the changes made by the Bankruptcy
Tax Act of 1980, the Tax Reform Act of 1984, the Tax Reform Act of 1986, the
Revenue Reconciliation Act of 1990, and the Taxpayer Relief Act of 1997,
certain provisions of which call for the promulgation of regulations
("Regulations") by the United States Department of Treasury ("Treasury
Department") which have not yet been promulgated or have not yet become final.
As a result, many alternative tax consequences are possible. In addition,
there are differences in the nature of the Claims of various Creditors, their
methods of tax accounting and prior actions taken by Creditors with respect to
their Claims. Further, this summary does not discuss all aspects of federal
taxation that may be relevant to a particular Creditor affected by special
considerations not discussed below. For example, certain types of Creditors
(including non-resident aliens, foreign corporations, broker-dealers, financial
institutions, life insurance companies and tax-exempt organizations) may be
subject to special rules not discussed below. This summary assumes that the
Original First Mortgage Notes and New Common Stock are (or will be) held as
capital assets by the holders thereof as defined under the Tax Code. In
addition to the federal income tax consequences discussed below, the
transactions contemplated herein may have significant state, local and foreign
tax consequences which are not discussed herein. Neither a
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ruling from the IRS nor an opinion of counsel has been requested with respect
to the federal income tax consequences of the Second Amended Plan.
ACCORDINGLY, HOLDERS OF CLAIMS, ORIGINAL FIRST MORTGAGE NOTES AND
EQUITY INTERESTS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE SECOND AMENDED PLAN WITH RESPECT TO THEIR CLAIM,
ORIGINAL FIRST MORTGAGE NOTE OR EQUITY INTEREST. THE DEBTORS AND THEIR
COUNSEL ARE NOT MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX
CONSEQUENCES OF CONFIRMATION AND CONSUMMATION OF THE SECOND AMENDED PLAN
AS TO ANY CREDITOR, ORIGINAL FIRST MORTGAGE NOTE HOLDER OR EQUITY
INTEREST HOLDER NOR ARE THE DEBTORS OR THEIR RESPECTIVE COUNSEL RENDERING
ANY FORM OF LEGAL OPINION AS TO SUCH TAX CONSEQUENCES.
B. TAX CONSEQUENCES TO REORGANIZED STRATOSPHERE
1. Discharge of Indebtedness Income
As a result of implementation of the Second Amended Plan, the amount of
Reorganized Stratosphere's aggregate outstanding indebtedness will be reduced
substantially. In general, for federal income tax purposes, the Tax Code
provides that a debtor will realize discharge of indebtedness ("DOI") income
when a creditor accepts less than full payment in satisfaction of its debt.
Absent an exception, the amount of DOI income realized must be included in
taxable income. One of the exceptions to this rule, Tax Code Section 108,
provides that DOI income will not be included in the debtor's taxable income
where the debtor is under the jurisdiction of a court in a case under Title 11
of the United States Code and the DOI is granted by the court or is pursuant to
a plan approved by the court. Under the Tax Code Section 108 exception, unless
another rule under Tax Code Section 108 applies such that the debtor does not
realize DOI income (e.g., the payment of the discharged liability would have
given rise to a deduction), the
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debtor's tax attributes (notably, net operating loss ("NOL") carryovers,
general business credit carryovers, capital loss carryovers and the
tax basis of its assets) will be reduced in a prescribed order by the amount of
DOI income excluded under Tax Code Section 108. Tax attributes are generally
reduced by one dollar for each dollar excluded from taxable income, except that
tax credits are reduced by 33.3 cents for each dollar excluded from taxable
income. However, the debtor's tax basis in assets will be reduced only to the
extent that the aggregate tax basis of property held by the debtor immediately
after the debt discharge exceeds the aggregate liabilities of the debtor at
such time. An election can be made to alter the order of priority of attribute
reduction so as to apply such reduction first against depreciable property held
by the taxpayer in an amount not to exceed the aggregate adjusted basis of such
property. It is uncertain at this time whether Reorganized Stratosphere would
effect such election.
Reorganized Stratosphere will realize DOI income, but such income will not
be included in taxable income under Tax Code Section 108 because the discharge
will occur pursuant to the Second Amended Plan approved by the Bankruptcy
Court. The effect of the exclusion of DOI income under Tax Code Section 108
will be to reduce the tax attributes of Reorganized Stratosphere: (i)
resulting in a corresponding reduction of its NOL carryovers; and (ii)
thereafter, possibly resulting in a reduction of the tax basis of assets held
by Reorganized Stratosphere, but not below the aggregate amount of liabilities
of Reorganized Stratosphere immediately after the Effective Date. The Debtors'
DOI income may be increased to the extent that unsecured creditors holding
unscheduled claims fail to timely file a proof of Claim and have their Claims
discharged on the Confirmation Date pursuant to Bankruptcy Code section 1141.
The income
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tax consequences of a substantive consolidation for bankruptcy
purposes are highly uncertain, and Debtors express no view as to such
consequences.
Under the terms of the Second Amended Plan, holders of the Original First
Mortgage Notes will receive, in satisfaction of such Claims, New Common Stock
and the right to receive distributions as an unsecured Class 9 Creditor. For
tax purposes, holders of Class 6 Allowed Claims will be treated as receiving
New Common Stock in exchange for their Allowed Secured Claims.
To the extent that New Common Stock is received by the Holders of the
Original First Mortgage Debt in exchange for an amount of Allowed Claims in
Class 6, the Tax Code Section 108 rules described above will be applicable. The
excess of the amount of the Allowed Claims in Class 6 (generally, the adjusted
issue price of the Original First Mortgage Notes) over the value of the New
Common Stock received by the Class 6 Claimants will be realized as DOI income.
(See "Stock-for-Debt" discussion below.) Such DOI income will be subject to
the rules of exclusion and attribute reduction discussed above.
To the extent that Stratosphere has accrued deductions for interest with
respect to Allowed Claims, Reorganized Stratosphere will realize DOI income
with respect to these Claims, and its tax attributes will be reduced, as
described above, by the excess of the amount of such Claims over the amount of
any consideration treated as distributed in respect of such Claims under the
Second Amended Plan. To the extent that Stratosphere has not accrued
deductions for these Claims, no DOI income should be realized with respect to
such Claims, because an offsetting deduction should be allowable in the same
amount.
. . .
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2. Stock-for-Debt
The historical general stock-for-debt exception to realization of DOI
income was repealed by the Omnibus Budget Reconciliation Act of 1993, effective
for stock transferred after 1994 except for stock transferred in a Title 11
case that is filed before the end of 1993. In the absence of the
stock-for-debt exception, the stock-for-debt exchange is analyzed as a transfer
of money in satisfaction of debt. Specifically, where a debtor corporation
transfers stock to a creditor in satisfaction of its indebtedness, such
corporation will be treated as having satisfied the indebtedness with an amount
of money equal to the fair market value of the stock.
3. Cancellation of Old Common Stock
Holders of Old Common Stock, Class 11, will have their shares canceled and
shall receive no consideration. Reorganized Stratosphere will not recognize
gain or loss upon the cancellation of such shares.
4. Recapitalization
Whether the exchange of Original First Mortgage Notes for New Common Stock
may qualify as a recapitalization under Tax Code Section 368(a)(1)(E) (an "E
Recapitalization") depends upon whether the Original First Mortgage Notes are
treated as securities for federal income tax purposes ("Tax Securities"). The
characterization of a debt instrument as a Tax Security depends upon the facts
and circumstances surrounding the origin and nature of that instrument and its
maturity date. Instruments with a five-year term or less generally do not
qualify as Tax Securities. On the other hand, debt instruments with a maturity
of ten years or more are more likely to be Tax Securities. If the exchange is
treated as an E Recapitalization and the Original First Mortgage Notes are
treated as Tax Securities, then, except for any amounts
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received allocable to accrued interest on Original First Mortgage Notes, no
gain or loss will be recognized by a holder of Original First Mortgage Notes
who receives New Common Stock in exchange therefor. The tax treatment to such
holders will be described in more detail in Section C.2. below.
5. Limitation On Net Operating Losses
Because of the limitations imposed on the availability of NOLs following
an ownership change discussed below, the availability of Stratosphere's NOL
carryovers to offset Reorganized Stratosphere's future taxable income may be
severely limited. As of December 29, 1996, Stratosphere had consolidated NOL
carryovers totaling approximately $[ ] million. These NOLs begin to expire
in the year 2010 and will completely expire by 2011. Of the total NOLs, based
on information provided, none are currently subject to Tax Code Section 382 use
restrictions. Stratosphere estimates that it may have additional NOLs
generated in taxable year 1997 of approximately $[ ] million. These amounts
are estimates or approximations and are subject to adjustment as a result of
IRS audits of its tax returns, which may not take place for several years.
Tax Code Section 382 provides that in the event of an "ownership change,"
the loss corporation's use of its pre-change NOLs and certain "built-in losses"
is limited. An ownership change generally occurs when the percentage of a
corporation's stock held by certain persons (including creditors who exchange
debt for stock) increases by more than fifty (50) percentage points over a
three-year testing period. If an ownership change occurs, a corporation's
annual use of its NOL carryovers (and certain built-in losses) is limited to
the value of the corporation's equity immediately before the ownership change
multiplied by the long-term tax exempt rate
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(which, for example, was five and forty-five hundredths percent (5.45%)
for ownership changes occurring in September 1997). The long-term tax-exempt
rate changes from month to month based on changes in the prevailing interest
rates. Tax Code Section 382 also provides that, in certain cases, a loss
corporation may utilize additional pre-change NOLs if the corporation is
treated as having "built-in gains" in excess of certain statutory thresholds.
On the other hand, a loss corporation may not be allowed to take certain
deductions, including depreciation, if the corporation has "built-in losses" in
excess of similar thresholds. Moreover, no NOLs will survive (except for
certain items specified in Tax Code section 382(C)(2)) if the loss corporation
does not continue its historic business or use a significant portion of its
assets at all times during the two-year period beginning on the date of the
ownership change. If the corporation has more than one line of business,
continuity of business enterprise for this purpose requires only that it
continue a significant line of business.
Unless a corporation "elects out," an exception to these general rules in
Tax Code Section 382(l)(5) provides that no ownership change is deemed to occur
if the increase in ownership occurs in a case under the Bankruptcy Code and if
the shareholders and certain "qualified" creditors of the corporation before
such increase occurs own at least fifty percent (50%) of the corporation's
stock after such increase. The qualified creditor is the beneficial owner,
immediately before the ownership change, of qualified indebtedness of the loss
corporation. Indebtedness of the loss corporation is qualified indebtedness if
it: (a) has been owned by the same beneficial owner since the date that is
eighteen (18) months prior to the date of the filing of a Chapter 11 or similar
case; or (b) arose in the ordinary course of the trade or business of the loss
corporation and has been owned at all times by the same beneficial owner.
When the Tax
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Code Section 382(l)(5) exception applies, the loss corporation's
NOLs and specified credits must be recomputed to eliminate deductions for
interest paid or accrued by the loss corporation on that portion of the debt
which was exchanged for stock, and for which the loss corporation had
previously claimed deductions for federal income tax purposes during (a) the
three taxable years prior to the taxable year in which the ownership change
occurs, and (b) the portion of the taxable year of the ownership change up to,
but not including, the ownership change date. If another "ownership change"
occurs within two (2) years, a corporation's NOL carryovers are reduced to
zero.
If a corporation "elects out" of or is ineligible to utilize Tax Code
Section 382(l)(5), the general rules of Tax Code Section 382 apply. However,
in determining the limitation placed on a corporation's annual use of its NOL
carryovers under those general rules, Tax Code Section 382(l)(6) provides that
the equity value of the corporation immediately before the ownership change is
deemed to include the increase in equity value resulting from any surrender or
cancellation of creditors' claims in the bankruptcy proceeding.
As a result of the issuance of New Common Stock, Reorganized Stratosphere
will incur an ownership change on the Effective Date under the general rules of
Tax Code Section 382. Accordingly, Reorganized Stratosphere's ability to
utilize its NOLs and built-in losses will be subject to the limitations imposed
by Tax Code Section 382. However, to the extent that Creditors own, after the
reorganization, fifty percent (50%) or more of the total voting power in value
of Reorganized Stratosphere, then the initial Tax Code Section 382 (l)(5)
exception will apply. It is unclear at this time how Reorganized Stratosphere
might be affected by all of the limitations imposed under Tax Code Section
382. Reorganized Stratosphere will be subject to
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special rules governing the allocation of income and NOLs in its taxable year
in which the Effective Date occurs.
Any shift (deemed or actual) in the ownership of stock of the Debtors,
directly or by attribution, outside the scope of the Plan may trigger (or may
have already triggered) the application of section 382 and other provisions of
the Tax Code which may affect the availability of Stratosphere's NOLs. Because
the federal income tax consequences of any shift would depend on the particular
facts and circumstances of such time and the application of complex legislation
and regulations, the Debtors express no views as to the effect of any
transactions outside the scope of the Plan or the survival of any NOLs or other
carryovers.
C. TAX CONSEQUENCES TO DEBTOR SHAREHOLDERS
Under the Second Amended Plan, the holders of Class 12 Equity Interests
and all Equity Interest Related Claims will have their interests canceled and
will receive nothing. As such, such holders are entitled to a loss to the
extent of each holder's tax basis in such interests.
D. TAX CONSEQUENCES TO CREDITORS
The federal income tax consequences to Creditors arising from the Second
Amended Plan will vary depending upon, among other things, the type of
consideration received by the Creditor in exchange for its Claim, whether the
Creditor reports income using the cash or accrual method, whether the Creditor
has taken a "bad debt" deduction with respect to its Claim, whether the
Creditor receives consideration in more than one (1) tax year of the Creditor,
whether the Creditor is a resident of the United States, whether all the
consideration received by the Creditor is deemed to be received by that
Creditor in an integrated transaction and whether the Creditor's Claim is a
long term obligation classified as a "security" for federal income tax purposes
and the
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consideration to be received pursuant to the Second Amended Plan
constitutes a "security" for federal income tax purposes.
1. Definition of Security for Tax Purposes
As described above, the determination whether a claim constitutes a
"security" for federal income tax purposes depends upon the facts and
circumstances surrounding the origin and nature of the claim and upon the
interpretation of numerous judicial decisions. Prominent factors that the
courts have relied on in making this determination include the original term of
the instrument, whether the instrument is secured, and the negotiability of the
instrument. Generally, claims arising out of the extension of trade credit
have been held not to be tax securities. Although the precise limits are
unclear, instruments with a term of less than five (5) years generally do not
qualify as Tax Securities. On the other hand, bonds or debentures with an
original term in excess of five (5) to ten (10) years are more likely to be
held to be Tax Securities.
ALL CREDITORS WHO RECEIVE NEW COMMON STOCK SHOULD CONSULT THEIR
TAX ADVISORS TO DETERMINE WHETHER THEIR CLAIMS CONSTITUTE
"SECURITIES" FOR FEDERAL INCOME TAX PURPOSES.
While the issue is inherently factual and not free from doubt, it appears
that the Original First Mortgage Notes may constitute securities for federal
income tax purposes.
2. Claims Constituting Securities
The transactions effected pursuant to the Second Amended Plan should
constitute a "recapitalization" qualifying as a "reorganization" of Reorganized
Stratosphere under the Tax Code and, as such, the consequences of such
transactions to Creditors whose Claims constitute securities who receive New
Common Stock under the Second Amended Plan should be as
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described in this Section. If, however, the Second Amended Plan as confirmed
does not qualify as a "reorganization" under the Tax Code or the New Common
Stock received do not qualify as securities, Creditors holding Claims which are
Tax Securities will be treated the same as Creditors whose Claims do not
constitute Tax Securities as described in Section D.3. below.
a. Recognition of Gain
Section 354 of the Tax Code provides for nonrecognition of gain or loss by
holders of Tax Securities of a corporation who exchange these Claims solely for
stock or Tax Securities, pursuant to certain tax reorganizations, including a
recapitalization pursuant to section 368(a)(1)(E) of the Tax Code. In the
context of the Plan, such section would apply where a holder of Tax Securities
of a debtor exchanges such items for stock of the same debtor (as opposed to
stock of a different debtor) or Tax Securities of the same debtor. The
nonrecognition rule of section 354 is not applicable by its terms if: (i) the
principal amount of Tax Securities received exceeds the principal amount of Tax
Securities surrendered; or (ii) Tax Securities are received, but none are
surrendered; or (iii) stock or Tax Securities are received for accrued
interest. If solely stock or Tax Securities of the relevant Debtor are
received, but clause (i) or (ii) applies, gain (but not loss) will be
recognized to the extent of the fair market value of the amounts described in
clauses (i) or (ii), as applicable. Income or loss will be recognized to the
extent the value received for accrued interest is more or less than the amount
of accrued interest previously included in income for federal income tax
purposes. Assuming the Second Amended Plan constitutes a "reorganization" of
Reorganized Stratosphere under the Tax Code, holders of securities are not
permitted to recognize any loss realized on the exchange.
...
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b. Tax Basis and Holding Period of Property Received
A security holder's aggregate tax basis in New Common Stock received tax
free in exchange for Claims (other than Claims for accrued interest and
penalties) will equal the holder's basis in the surrendered Claims (other than
Claims for accrued interest and penalties), decreased by the amount of Cash and
the fair market value of property (other than securities and stock) received
for such Claims (other than Claims for accrued interest and penalties), and
increased by the amount of gain, if any, recognized on the exchange. If a
Creditor subsequently recognizes any gain on the sale or exchange of the stock
received, the gain recognized by such Creditor on such sale or exchange will be
treated as ordinary income to the extent of any bad debt deduction attributable
to such Creditor's claim or ordinary loss deduction previously claimed by such
Creditor, provided that the New Common Stock constitutes a capital asset in the
Creditor's hands. The holding period for such securities and New Common Stock
received will include the period during which the Creditor held the securities
exchanged therefor, provided such securities were held as a capital asset on
the date of the exchange.
3. Claims Not Constituting Securities
On the exchange of its Claim (other than any Claim for accrued interest
and penalties) for Cash or property, a Creditor whose Claim is not classified
as a security for federal income tax purposes will recognize gain or loss.
Generally, such a Creditor will be entitled to a bad debt deduction or a charge
against its bad debt reserve to the extent the adjusted tax basis of its Claim
(other than a Claim for accrued interest and penalties) exceeds the "amount
realized", which equals the sum of the amount of Cash received, the issue price
(although unclear, such amount for a cash basis taxpayer might equal fair
market value) of New Common Stock received and the
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market value of other property received, if any (excluding the amount of any
such consideration received in respect of Claims for accrued interest and
penalties). If the sum of such items is greater than the adjusted tax basis of
the Claim, a Creditor will recognize taxable gain. This may occur, for
example, where a Claim represents income not yet reported on the cash method of
tax accounting or where all or a portion of the Claim has been deducted as a
bad debt.
CREDITORS WHOSE CLAIMS ARE NOT SECURITIES THAT RECEIVE NEW COMMON
STOCK OR OTHER DEBT OBLIGATIONS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE EFFECT OF THESE RULES ON THEM.
Under the Second Amended Plan, holders of General Unsecured Claims will
receive payments pursuant to the Second Amended Plan after the Effective Date.
Because these payments will be made without interest, some portion will be
treated as interest income under the OID rules.
HOLDERS OF GENERAL UNSECURED CLAIMS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE TAX TREATMENT OF PAYMENTS RECEIVED.
XIV. SECURITIES LAW CONSIDERATION
A. ISSUANCE OF SECURITIES
The Confirmation Order will authorize the issuance of New Common Stock
to the holders of Original First Mortgage Notes on account of their Allowed
Secured Claims without registration under the Securities Act and without
registration or qualification under state securities and "blue sky" laws (all
such registrations and qualifications are collectively referred to herein as
"Securities Law Registration"), in reliance on the exemptions set forth in
Section 1145 of the Bankruptcy Code.
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Under Section 1145 of the Bankruptcy Code, the issuance of new common
stock will be exempt from Securities Law Registration if the following three
principal requirements are satisfied: (a) the securities must be issued by a
debtor (or its successor) under a plan of reorganization; (b) each recipient of
the securities must hold a claim against the debtor or an affiliate, an
interest in the debtor or an affiliate, or a claim for an administrative
expense against the debtor or an affiliate; and (c) the securities must be
issued in exchange for the recipient's claim against or interest in the debtor
or an affiliate, or principally in such exchange and partly for cash or other
property. The Debtors believe that the issuance of the New Common Stock will
satisfy all three requirements because (a) the New Common Stock will be
securities of Reorganized Stratosphere, which is a debtor, and the issuance of
those securities is specifically mandated under the Plan; (b) the recipients of
the New Common Stock are holders of Claims against the Debtors; and (c) the
recipients of the New Common Stock will receive those securities principally in
exchange for their Claims.
B. RESALE CONSIDERATIONS.
The Debtors believe that the resale or other disposition of the New
Common Stock by the recipients thereof will be exempt from Securities Law
Registration if the recipients are not deemed "underwriters" under Section
1145(b) of the Bankruptcy Code. Section 1145(b) of the Bankruptcy Code defines
four types of underwriters: (a) a person who purchases a claim against,
interest in, or claim for administrative expense in the case concerning, a
debtor with a view to distributing any security received in exchange for that
claim or interest; (b) a person who offers to sell securities offered or sold
under a plan for the holders of those securities; (c) a person who offers to
buy those securities from persons receiving such securities if the offer is
made (i) with a
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view to distribution of the securities, and (ii) under an agreement made in
connection with the plan, with the consummation of the plan or with the offer
or sale of securities under the plan; and (d) a person who is an "issuer" with
respect to the securities, as that term is used in Section 2(11) of the
Securities Act.
The definition of the term "issuer" in Section 2(11) of the Securities
Act includes as "underwriters," for purposes of Section 1145(b) of the
Bankruptcy Code, all persons who, directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control with,
an issuer of securities. (Persons having such a control relationship with the
issuer are sometimes referred to herein as "affiliates.") "Control" (as such
term is defined in Rule 405 of Regulation C under the Securities Act) means the
possession, direct or indirect, of the power to direct or cause the direction
of the policies of a person, whether through the ownership of voting
securities, by contract, or otherwise. Accordingly, an officer or director of
a reorganized debtor (or its successor) under a plan of reorganization may be
deemed a "control person," particularly if such management position is coupled
with the ownership of a significant percentage of the debtor's (or successor's)
voting securities. Moreover, the legislative history of Section 1145 of the
Bankruptcy Code suggests that a creditor who owns at least 10% of the
securities of a reorganized debtor may be presumed to be a "control person."
Under such criteria, certain holders of the New Common Stock may each be
considered a "control person" and, therefore, an "underwriter" under Section
1145(b) of the Bankruptcy Code.
The resale of New Common Stock by a person deemed an "underwriter" is
not exempted from Securities Law Registration by Section 1145 of the Bankruptcy
Code except in "ordinary trading transactions" (within the meaning of Section
1145(b)(1) of the Bankruptcy Code). The
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Bankruptcy Code does not define the term "ordinary trading transactions," and
the SEC has not given definitive guidance with respect to the proper
construction of the term. In no-action letters, the staff of the SEC has,
however, concurred in the view that a transaction will be an "ordinary trading
transaction" if it is carried out on an exchange or in the over-the-counter
market if the issuer of the traded securities is a reporting company under the
Securities Exchange Act of 1934, as amended, and such transaction does not
involve concerted action by recipients (or their distributors) to sell such
securities, the preparation or use of informational documents, or the payment
of special compensation to brokers or dealers in connection with such sale.
In addition, based on the views of the SEC expressed in no-action
letters, recipients who are deemed "control persons" or "affiliates" of the
Debtors will be able to sell their securities (if not registered) pursuant to
the safe harbor provisions of Rule 144 under the Securities Act ("Rule 144") as
those provisions apply to sales by affiliates of securities which are not
"restricted securities." In the context of securities which (i) were issued
pursuant to the Bankruptcy Code Section 1145 exemption from Securities Law
Registration and (ii) are held by control persons or affiliates of the issuer,
Rule 144 provides that if certain conditions are met (including, among other
things, volume limitations, manner of sale and availability of current
information about the issuer), control persons or affiliates of the issuer may
sell their securities without registration.
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN
NATURE AND HAS BEEN INCLUDED IN THIS DISCLOSURE
STATEMENT SOLELY FOR INFORMATIONAL PURPOSES. THE
DEBTORS MAKE NO REPRESENTATIONS CONCERNING, AND ARE
NOT PROVIDING ANY OPINION OR ADVICE WITH RESPECT TO,
THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS
DESCRIBED ABOVE. IN LIGHT OF THE COMPLEX AND
SUBJECTIVE, INTERPRETIVE NATURE OF WHETHER A
PARTICULAR HOLDER OF ANY OF THE SECURITIES DESCRIBED
HEREIN MAY BE DEEMED AN "AFFILIATE" OR "CONTROL
PERSON" UNDER THE LAWS AND
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REGULATIONS DISCUSSED ABOVE AND, CONSEQUENTLY, THE
UNCERTAINTIES CONCERNING THE AVAILABILITY OF
EXEMPTIONS FROM SECURITIES LAW REGISTRATION AND
RESALES OR OTHER DISPOSITIONS OF THOSE SECURITIES,
THE DEBTORS ENCOURAGE EACH CLAIMANT TO CONSIDER
CAREFULLY AND CONSULT WITH HIS, HER, OR ITS OWN
LEGAL ADVISERS WITH RESPECT TO THOSE (AND ANY
RELATED) MATTERS.
XV. GAMING REGULATION AND LICENSING
Because Stratosphere is registered with the Gaming Commission and Gaming
Corp. holds a nonrestricted gaming license to conduct nonrestricted gaming
operations at the Stratosphere Hotel & Casino, various aspects of the Second
Amended Plan are be subject to the jurisdiction and prior approval of the
Gaming Commission and Gaming Board. Accordingly, it is important to note that
the ownership and operation of casino gaming facilities in Nevada, as well as
the manufacture and distribution of gaming devices, are subject to extensive
state and local regulation. Publicly traded parent corporations and holding
companies of Nevada gaming licensees, as well as the licensed subsidiaries are
subject to the gaming laws and regulations of the State of Nevada ("Nevada
Act") and various local regulations. A registered company and its gaming
operations and companies are subject to the licensing and regulatory control of
the Gaming Authorities. The Second Amended Plan contemplates a number of
actions that would result in a "change of control" of Stratosphere, and
accordingly, the prior approval of the Gaming Commission will be required. As
such, applications must be filed with the Gaming Authorities on a timely basis.
It should be noted that the time and manner of any application investigation
or action thereon is within the sole discretion of the Gaming Authorities.
The laws, regulations and supervisory procedures of the Gaming Authorities
have their genesis in various declarations of public policy which are concerned
with, among other things:
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(1) the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity; (2) the
establishment and maintenance of responsible accounting practices and
procedures; (3) the maintenance of effective controls over the financial
practices of a licensee, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with the
Gaming Authorities; (4) the prevention of cheating and fraudulent practices;
and (5) the creation of a source of state and local revenues through taxation
and licensing fees. Neither gaming licenses or the registration approvals
given to publicly traded corporations are transferable. Changes in such laws,
regulations and procedures could have an adverse effect on the Debtors'
operation.
Because Stratosphere is registered with the Gaming Commission as a
publicly traded corporation and has been found suitable as the sole shareholder
of Gaming Corp., it is required to submit, upon application and on a periodic
basis, detailed financial and operating reports to the Gaming Commission.
Additionally, Stratosphere may be required to furnish any other information
requested by the Gaming Commission. No person may become a stockholder of, or
receive any percentage of profits from the licensed Nevada operating companies
without first obtaining licenses and approvals from the Gaming Authorities. In
connection with the actions contemplated by the Second Amended Plan, the order
of registration of Stratosphere must be amended to reflect the reorganization
of Stratosphere and Gaming Corp.
The Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, any registered company or its
licensed subsidiary in order to determine whether such individual is suitable
or should be licensed as a business associate of a
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gaming licensee. Officers, directors and certain key employees of the licensed
subsidiary must file applications with the Gaming Authorities and may be
required to be licensed or found suitable by the Gaming Authorities. Officers,
directors and key employees of the registered company who are actively and
directly involved in the gaming activities of the licensed subsidiary may be
required to be licensed or found suitable by the Gaming Authorities. The
Gaming Authorities may deny an application for licensing for any cause deemed
reasonable. A finding of suitability is comparable to licensing, and both
require the submission of detailed personal and financial information followed
by a thorough investigation. An applicant for licensing or a finding of
suitability must pay all of the costs of the investigation. Changes in
licensed positions with the registered company or its licensed subsidiary must
be reported to the Gaming Authorities. In addition to its authority to deny an
application for a finding of suitability or licensure, the Gaming Authorities
also have jurisdiction to disapprove a change in a corporate position.
If the Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the registered company or its licensed subsidiary, the
companies involved would be required to sever all relationships with such
person. Additionally, the Gaming Commission may require the registered company
or its licensed subsidiary to terminate the employment of any person who
refuses to file appropriate applications. Determinations of suitability or
questions pertaining to licensing are not subject to judicial review in Nevada.
Stratosphere and Gaming Corp. are required to submit detailed financial
and operating reports to the Gaming Commission. Substantially all loans,
leases, sales of securities and similar
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financing transactions by the Gaming Corp. must be reported to, or approved by,
the Gaming Commission.
If it were determined that the Nevada Act was violated by the licensed
subsidiary or the registered company, the gaming licenses or registration held
by the registered company and its licensed subsidiary could be limited,
conditioned, suspended or revoked subject to compliance with certain statutory
and regulatory procedures. Moreover, at the discretion of the Gaming
Commission, the registered company and its licensed subsidiary and persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act.
The beneficial holder of the registered company's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated and have its suitability as a beneficial holder of
the registered company's voting securities determined if the Gaming Commission
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the State of Nevada. The applicant must pay all costs
of the investigation incurred by the Gaming Authorities in conducting such an
investigation. Also, the Clark County Liquor Gaming Licensing Board and the
City of Las Vegas have taken the position that they have the authority to
approve all persons owning or controlling the stock of any corporation
controlling a gaming license.
The Nevada Act requires any person who acquires more than five percent
(5%) of the registered company's voting securities to report the acquisition to
the Gaming Commission. The Nevada Act requires that beneficial owners of more
than ten percent (10%) of the registered company's voting securities apply to
the Gaming Commission for a finding of suitability within thirty (30) days
after the Chairman of the Gaming Board mails written notice requiring such a
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filing. If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation. If the New Common
Stock is held in street name, by a nominee, an agent or trust, Stratosphere
must render maximum assistance to the Gaming Board, if requested to do so, to
determine the beneficial ownership of such securities.
Under certain limited circumstances, an "institutional investor,"
as defined in the Nevada Act, which acquires more than ten percent (10%), but
not more than fifteen percent (15%) of the registered company's voting
securities may apply to the Gaming Commission for a waiver of such a finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to
hold the voting securities for investment purposes only unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the registered company, any change in the registered company's corporate
charter, bylaws, management, policies or operations of the registered company,
or any of its gaming Affiliates, or any other action which the Gaming
Commission finds to be inconsistent with holding the registered company's
voting securities for investment purposes only. Activities which are not
deemed to be inconsistent with holding voting securities for investment
purposes only include: (1) voting on all matters voted on by stockholders; (2)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (3) such other activities as the
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Gaming Commission may determine to be consistent with such investment intent.
If the Gaming Commission grants a waiver to an "institutional investor" the
waiver does not include a waiver or exemption from the requirement for prior
approval to "acquire control" of a registered corporation.
Any person who fails or refuses to apply for a finding of suitability or
a license within thirty (30) days after being ordered to do so by the Gaming
Commission or the Gaming Board may be found unsuitable. The same restriction
applies to a record owner if the record owner, after request, fails to identify
the beneficial owners. Any stockholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the common stock of a
registered corporation beyond such period of time as may be prescribed by the
Gaming Commission may be guilty of a criminal offense. The registered company
is subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with the
registered company or its subsidiaries, the registered company: (1) pays that
person any dividend or interest upon voting securities of the registered
company; (2) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person; (3) pays remuneration
in any form to that person for services rendered or otherwise; or (4) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for Cash at fair market value.
The Gaming Commission may, in its sole discretion, require the holder of
any debt security of a registered corporation to file applications, be
investigated and be found suitable to own the debt security of the registered
corporation. If the Gaming Commission determines that a person is unsuitable
to own such security, then pursuant to the Nevada Act, the registered
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corporation can be sanctioned, including the loss of its approvals, if without
the prior approval of the Gaming Commission, it: (1) pays to the unsuitable
person any dividend, interest or any distribution whatsoever; (2) recognizes
any voting right by such unsuitable person in connection with such securities;
(3) pays the unsuitable person remuneration in any form; or (iv) makes any
payment to the unsuitable person by way of principal, redemption, conversion,
exchange, liquidation or similar transaction.
The registered company is required to maintain a current stock ledger in
Nevada which may be examined by the Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The registered company is also required to render
maximum assistance in determining the identity of the beneficial owner. The
Gaming Commission has the power to require the registered company's stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Act.
Stratosphere may not make a public offering of its securities without the
prior approval of the Gaming Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada or to retire or extend obligations incurred for such
purposes. Any such approval, if given, does not constitute a finding,
recommendation or approval by the Gaming Commission or the Gaming Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
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The contemplated issuance of New Common Stock would result in a change of
control in Stratosphere and would therefore require the prior approval of the
Gaming Commission. Application for approval of public offerings and the like
may be filed without complete documentation related thereto so long as the
documents and information are supplied to the Gaming Authorities as they become
available in accordance with the normal and customary practice of the
securities industry. Additionally, the Gaming Commission may, either generally
or specifically, exempt any person, security or transaction from application
pursuant to its regulations regarding publicly traded corporations. However,
the time and manner in which each application is investigated and considered by
the Gaming Authorities is within the complete discretion of the Gaming
Authorities.
Changes in control of the registered company or its subsidiaries through
merger, consolidation, stock or asset acquisitions, management or
consulting agreements or any act or conduct by a person whereby he obtains
control may not occur without the prior approval of the Gaming Commission. The
Original First Mortgage Noteholders must file for and receive this approval.
Entities seeking to acquire control of a registered corporation must satisfy
the Gaming Authorities in a variety of stringent standards prior to assuming
control of such a registered corporation which may include requiring certain
officers, directors and "Key Employees" to be found suitable prior to the
completion of a "change of control." Prior to the receipt of approval to
acquire control from the Gaming Authorities by any person, neither that person
nor any principal thereof may control, or unduly influence the operation of the
registered company or gaming licensee. Generally, in this regard, Purchasers
may not place stringent negative covenants upon Stratosphere or Gaming Corp.
intended to influence operations beyond normal
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investment intent prior to the receipt of the approval to acquire control.
Moreover, any negative covenant intended to restrict the transfer of, or the
encumbrance of, Gaming Corp. stock would require the specific prior approval of
the Gaming Commission. The Gaming Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposed to acquire control, to be
investigated and licensed as part of the approval process related to the
transaction.
License fees and taxes, computed in various ways dependent upon the type
of gaming activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (1) a percentage of gross revenues received; (2) the number of gaming
devices operated; or (3) the number of table games operated. A casino
entertainment tax is also paid by casino operators where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route or a
manufacturer's or distributor's license also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered or is under common control with such person (collectively, the
"Licensees"), and who propose to become involved in a gaming venture outside
the State of Nevada are required to deposit with the Gaming Board, and
thereafter maintain, a revolving fund in the amount of Ten Thousand Dollars
($10,000.00) to pay the expenses of investigation by the Gaming Board of their
participation in such foreign gaming. The revolving fund is subject to
increase or decrease in the discretion of the Gaming Commission. Thereafter,
Licensees are required to comply with certain reporting
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requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Gaming Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of
honesty and integrity required of Nevada gaming operations, engage in
activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees or employ a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the basis of personal
unsuitability.
It is important to note that the granting of any registrations, amendment
of orders of registration, findings of suitability, approvals or licenses to be
sought in connection with the Second Amended Plan are discretionary with the
Gaming Authorities. The burden of demonstrating the suitability or
desirability of certain business transactions is at all times upon the
applicant. Any licensing or approval process requires the submission of
detailed financial, business and personal information, as well as the
completion of a thorough investigation. The time and manner in which each
application is investigated and considered by the Gaming Authorities. Once an
application is filed it is within the sole discretion of the Gaming Authorities
to allow that application to be withdrawn. Additionally, the Gaming
Authorities have absolute authority to limit, restrict or condition any
application or request for withdrawal filed in any manner deemed reasonable by
the Gaming Authorities.
XVI. CONFIRMATION OF THE SECOND AMENDED PLAN
A. CONFIRMATION HEARING
Pursuant to Bankruptcy Code Section 1128(a), the Bankruptcy Court will
hold a hearing regarding confirmation of the Second Amended Plan at the United
States Court, 300 Las Vegas
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Boulevard South, Las Vegas, Nevada 89101, commencing on _______________________
at _______________________.
B. OBJECTIONS TO CONFIRMATION OF THE SECOND AMENDED PLAN
Bankruptcy Code Section 1128(b) provides that any party in interest may
object to confirmation of a plan. Any objections to confirmation of the Second
Amended Plan must be in writing, must state with specificity the grounds for
any such objections and must be filed with the Bankruptcy Court and served upon
the following parties so as to be received on or before the time fixed by the
Bankruptcy Court.
Counsel for the Debtors:
Gordon & Silver, Ltd.
3800 Howard Hughes Parkway
14th Floor
Las Vegas, Nevada 89109
Telephone: 702-796-5555
Facsimile: 702-369-2666
Attn: Gerald M. Gordon, Esq.
For the Second Amended Plan to be confirmed, the Second Amended Plan must
satisfy the requirements stated in the Bankruptcy Code Section 1129. In this
regard, the Second Amended Plan must satisfy, among other things, the following
requirements:
1. Best Interests of Creditors and Liquidation Analysis
Pursuant to Bankruptcy Code Section 1129(a)(7), for the Second Amended
Plan to be confirmed, it must provide that Creditors and holders of Equity
Interests will receive at least as much under the Second Amended Plan as they
would receive in a liquidation of the Debtors under Chapter 7 of the Bankruptcy
Code (the "Best Interest Test"). The Best Interest Test with respect to each
impaired Class requires that each holder of a Claim or Equity Interest of such
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Class either: (i) accepts the Second Amended Plan; or (ii) receives or
retains under the Second Amended Plan property of a value, as of the Effective
Date, that is not less than the value such holder would receive or retain if
the Debtors were liquidated under Chapter 7 of the Bankruptcy Code. The
Bankruptcy Court will determine whether the value received under the Second
Amended Plan by the holders of Claims in each Class of Creditors or Equity
Interests equals or exceeds the value that would be allocated to such holders
in a liquidation under Chapter 7 of the Bankruptcy Code. The Debtors believe
that the Second Amended Plan meets the Best Interest Test and provides value
which is not less than that which would be recovered by each such holder in a
Chapter 7 bankruptcy proceeding.
To determine what Creditors and holders of Equity Interests in each
impaired Class would receive if the Debtors were liquidated, the Bankruptcy
Court must determine what funds would be generated from the liquidation of the
Debtors' assets and properties in the context of a Chapter 7 liquidation case,
which would consist of the proceeds resulting from the disposition of the
assets of the Debtors, augmented by the Cash held by the Debtors at the time of
the commencement of the liquidation case. Such Cash amounts would be reduced
by the cost and expenses of the liquidation and by such additional
Administrative and Priority Claims as may result from the termination of the
Debtors' businesses and the use of Chapter 7 for the purpose of liquidation.
The Debtors' cost of liquidation under Chapter 7 would include the fees
payable to a trustee in Bankruptcy, as well as those which might be payable to
additional attorneys and other professionals that such trustee might engage,
plus any unpaid expenses incurred by the Debtors during the Chapter 11 Cases,
such as compensation for attorneys, financial advisors and
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accountants and costs and expenses of members of any committees that are
allowed in a Chapter 7 case. In addition, Claims would arise by reason of the
breach or rejection of obligations incurred and executory contracts entered
into by the Debtors during the pendency of the Chapter 11 Cases.
The foregoing types of Claims and such other Claims that may arise in the
Chapter 7 case or result from the Chapter 11 Cases would be paid in full from
the liquidation proceeds before the balance of those proceeds would be made
available to pay pre-Chapter 11 Allowed Priority Claims, Allowed General
Unsecured Claims and Equity Interests.
The distributions from the liquidation proceeds would be paid Pro Rata
according to the amount of the aggregate Claims held by each Creditor. Debtors
believe that the most likely outcome of liquidation proceeds under Chapter 7
would be the application of the "absolute priority rule." Under that rule, no
junior Creditor may receive any distribution until all senior Creditors are
paid in full, with interest, and no Equity Interest holder may receive any
distribution until all Creditors are paid in full. In addition, and in
accordance with Section 510(b) of the Bankruptcy Code, all holders of Equity
Interest-Related Claims being holders of Claims for reimbursement or
contribution allowed under Section 502 of the Bankruptcy Code on account of a
Claim arising from rescission of a purchase or sale of a security of the
Debtors, or for damages arising from the purchase or sale of such a security
receive the same priority as holders of Equity Interests and are entitled to
receive distributions Pro Rata with holders of Equity Interests after all other
Creditors are paid in full.
The Debtors have determined that Confirmation of the Second Amended Plan
will provide each Creditor and holder of an Equity Interest with no less of a
recovery than it would
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receive if Debtors were liquidated under Chapter 7. In a liquidation under
Chapter 7, the Debtors have determined that (i) holders of Administrative
Claims will be paid in full; (ii) holders of Capital Lease Claims and Heller
Capital Lease Claims will be paid in full from liquidation of their collateral;
and (iii) holders of Original First Mortgage Notes will not be paid in full
from liquidation of their collateral. As such, all other General Unsecured
Claims including the deficiency Claims of holders of Original First Mortgage
Notes will not be paid in full. Holders of Equity Interest-Related Claims and
Equity Interests will receive nothing in liquidation.
This determination is based upon the effect that a Chapter 7 liquidation
would have on the ultimate proceeds available for distribution to
Creditors and holders of Equity Interests, including: (i) the likelihood of
revocation of the Debtors' gaming license in Nevada upon the occurrence of any
such liquidation; (ii) the increased costs and expenses of a liquidation under
Chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisors to such trustee; (iii) the erosion in value of assets in a Chapter 7
case in the context of the expeditious liquidation required under Chapter 7 and
the "forced sale" atmosphere that would prevail; (iv) the adverse effects on
the salability of business segments as a result of the departure of key
employees and the loss of major customers; (v) the amount of existing Claims
and the substantial increases in Claims that would have to be satisfied on a
priority basis or on a parity basis with Creditors in the Chapter 11 Cases; and
(vi) the fair market value of the Debtors' assets.
Debtors also believe that the value of any distributions from the
liquidation proceeds to each Class of Allowed Claims in a Chapter 7 case would
be less than the value of distributions under the Second Amended Plan because
such distributions in a Chapter 7 case would not occur
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for a substantial period of time. In the likely event litigation were
necessary to resolve Claims asserted in the Chapter 7 case, the delay could be
prolonged for several years.
As of the Petition Date, substantially all of the Debtors' real property
was encumbered by a deed of trust in favor of the Indenture Trustee on behalf
of the holders of the Original First Mortgage Notes securing the principal
amount of Two Hundred Three Million Dollars ($203,000,000) plus accrued
interest, for a total of Two Hundred Twenty-Three Million, Six Hundred and
Sixty-One Thousand, Four Hundred and Sixty-Seven Dollars ($223,661,467).
Substantially all of the furniture, fixtures and equipment is subject to the
security interests of the Capital Lease Bank Group in the principal amount of
Twenty Million, One Hundred and Twenty Eight Thousand, Five Hundred and Five
Dollars ($20,128,505) as of September 30, 1997. Any remaining personal
property is subject to a security agreement in favor of the Indenture Trustee
on behalf of the holders of the Original First Mortgage Notes. Finally, there
are disputed mechanics' liens recorded against the real property in excess of
Three Hundred Thousand Dollars ($300,000).
Unsecured debt of the Debtors as of the Petition Date was in excess
of Fifty-six Million Dollars ($56,000,000). Such amount includes approximately
Fifty-Three Million Dollars ($53,000,000) owed on the Grand Subordinated Claims
but does not include the Vacation Package Claims nor any unsecured deficiency
Claim of the holders of Original First Mortgage Notes of approximately One
Hundred Twenty-Three Million Dollars ($123,000,000).
The fair market value of the Debtors' real and personal property has been
appraised at One Hundred Twenty Million Dollars ($120,000,000) (without regard
to cash and cash equivalents and the Stratosphere Land assets of approximately
Twelve Million Two Hundred
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Seventy-Four Thousand Nine Hundred Dollars ($12,274,900), which is less
than the above-stated liabilities as of the Petition Date of approximately
Three Hundred and Fifteen Million ($315,000,000). When the cost of liquidation
of such property is considered as well as the time delay in receiving
distributions, the Debtors believe that certain Creditors will receive
substantially smaller distributions pursuant to a Chapter 7 liquidation then
under the Second Amended Plan, and that no distributions would be available to
holders of Equity Interests and Equity Interest-Related Claims. The
Liquidation Analysis attached hereto as Exhibit "C" summarizes the Debtors'
best estimate of recoveries to creditors in the event of liquidation of the
Debtors as of December 31, 1997.
2. Feasibility
The Bankruptcy Code requires that in order to confirm the Second Amended
Plan, the Bankruptcy Court must find that Confirmation of the Second Amended
Plan is not likely to be followed by liquidation or the need for further
financial reorganization of the Debtors (the "Feasibility Test"). For the
Second Amended Plan to meet the Feasibility Test, the Bankruptcy Court must
find that the Debtors will possess the resources and working capital necessary
to operate profitably and will be able to meet their obligations under the
Second Amended Plan.
The proposed operations of the Debtors and Confirmation of the Second
Amended Plan are based upon projected cash flow analysis over a three (3) year
period developed by the Debtors. Based upon the cash flow analysis, Debtors
believe that the Second Amended Plan meets the requirements of the Feasibility
Test. The cash flow analysis is based upon certain assumptions as set forth
therein, and specifically upon the assumption that the Second Amended
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Plan will be confirmed on or before January 31, 1998. Debtors' cash flow
analysis is attached hereto as Exhibit "B".
3. Accepting Impaired Class
For the Second Amended Plan to be confirmed, the Second Amended Plan
must be accepted by at least one impaired Class of Claims. For an impaired
Class of Claims to accept the Second Amended Plan, those representing at least
two-thirds (2/3) in amount and a majority in number of the Allowed Claims voted
in that Class must be cast for acceptance of the Second Amended Plan (not
including the votes of insiders of the Debtors). Similarly, for an impaired
Class of Equity Interests to accept the Second Amended Plan, votes representing
at least two-thirds (2/3) in amount of the outstanding Equity Interests voted
in that Class must be cast for acceptance of the Second Amended Plan.
4. Confirmation over Dissenting Class ("Cram Down")
If there is less than unanimous acceptance of the Second Amended Plan
by impaired Classes of Claims or Equity Interests, the Bankruptcy Court
nevertheless may confirm the Second Amended Plan at the Debtors' request.
Bankruptcy Code Section 1129(b) provides that if all other requirements of
Bankruptcy Code Section 1129(a) are satisfied and if the Bankruptcy Court finds
that: (i) the Second Amended Plan does not discriminate unfairly and (ii) the
Second Amended Plan is fair and equitable with respect to the rejecting
Class(es) of Claims or Equity Interests impaired under the Second Amended Plan,
the Bankruptcy Court may confirm the Second Amended Plan despite the rejection
of the Second Amended Plan by a dissenting impaired Class of Claims or Equity
Interests. The Debtors will request confirmation of the Second Amended Plan
pursuant to Bankruptcy Code Section 1129(b) with respect to any
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impaired Class of Claims or Equity Interests which does not vote to accept the
Second Amended Plan. By virtue of the Classes of Equity Interests and Equity
Interest-Related Claims receiving nothing under the Second Amended Plan, such
Classes are deemed to have rejected the Second Amended Plan.
The Debtors believe that the Second Amended Plan satisfies all of the
statutory requirements for Confirmation, that the Debtors have complied with or
will have complied with all the statutory requirements for Confirmation of the
Second Amended Plan and that the Second Amended Plan is proposed in good faith.
At the Confirmation Hearing, the Bankruptcy Court will determine whether the
Second Amended Plan satisfies the statutory requirements for Confirmation.
5. Allowed Claims
You have an Allowed Claim if: (i) you timely file a proof of Claim and
no objection has been filed to your Claim within the time period set for the
filing of such objections; (ii) you timely file a proof of Claim and an
objection was filed to your Claim upon which the Bankruptcy Court has ruled and
allowed your Claim; (iii) your Claim is listed by either of the Debtors in
their respective schedules or any amendments thereto (which are on file with
the Bankruptcy Court as a public record) as liquidated in amount and undisputed
and no objection has been filed to your Claim; or (iv) your Claim is listed by
either of the Debtors in their respective schedules as liquidated in amount and
undisputed and an objection was filed to your Claim upon which the Bankruptcy
Court has ruled to allow your Claim. Under the Second Amended Plan, the
deadline for filing objections to Claims is forty-five (45) days following the
Effective Date and the deadline for filing objections to Claims based upon a
rejected executory contract or lease is thirty
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(30) days following the Effective Date. If your Claim is not
an Allowed Claim, it is a Disputed Claim and you will not be entitled to vote
on the Second Amended Plan unless the Bankruptcy Court temporarily or
provisionally allows your Claim for voting purposes pursuant to Bankruptcy Rule
3018. If you are uncertain as to the status of your Claim or Equity Interest
or if you have a dispute with either of the Debtors, you should check the
Bankruptcy Court record carefully, including the schedules of the Debtors, and
you should seek appropriate legal advice. The Debtors and their professionals
cannot advise you about such matters.
6. Impaired Claims and Equity Interests
Impaired Claims and Equity Interests include those whose legal,
equitable or contractual rights are altered by the Second Amended Plan, even if
the alteration is beneficial to the Creditor or Equity Interest holder, or if
the full amount of the Allowed Claims will not be paid under the Second Amended
Plan. Holders of Claims which are not impaired under the Second Amended Plan
are deemed to have accepted the Second Amended Plan pursuant to Bankruptcy Code
Section 1126(f) and the Debtors need not solicit the acceptances of the Second
Amended Plan of such unimpaired Claims. Holders of Equity Interest and Equity
Interest-Related Claims will neither receive not retain any property or rights
under the Second Amended Plan and, as such, are deemed to have rejected the
Second Amended Plan and the Debtors need not solicit their votes.
7. Voting Procedures
(a) Submission of Ballots
All Creditors entitled to vote will be sent a Ballot, together with
instructions for voting, a copy of this approved Disclosure Statement and a
copy of the Second Amended Plan.
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You should read the Ballot carefully and follow the instructions contained
therein. Please use only the Ballot that was sent with this Disclosure
Statement. You should complete your Ballot and return it to:
Arthur Andersen, LLP
Attention: Jeffrey A. Truitt
633 West Fifth Street
Los Angeles, California 90071
Telephone Number: (213) 614-1638
Facsimile Number: (213) 614-8474
TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED AT THE ADDRESS LISTED
ABOVE BY 5:00 P.M. PACIFIC TIME, ON _____________.
(b) Incomplete Ballots
Unless otherwise ordered by the Bankruptcy Court, Ballots which are
signed, dated and timely received, but on which a vote to accept or reject the
Second Amended Plan has not been indicated, will not be counted as a vote on
the Second Amended Plan.
(c) Withdrawal of Ballots
A Ballot may not be withdrawn or changed after it is cast unless the
Bankruptcy Court permits you to do so after notice and a hearing to determine
whether sufficient cause exists to permit the change.
(d). Questions and lost or damaged Ballots
If you have any questions concerning these voting procedures, if your
Ballot is damaged or lost or if you believe you should have received a Ballot
but did not receive one, you may
. . .
. . .
. . .
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contact:
Gordon & Silver, Ltd.
3800 Howard Hughes Parkway, 14th Floor
Las Vegas, Nevada 89109
Telephone Number:(702) 796-5555
Facsimile Number:(702) 369-2666
Attn: Thomas H. Fell, Esq.
XVII. ALTERNATIVES TO THE SECOND AMENDED PLAN
The Debtors believe that the Second Amended Plan provides Creditors, the
holders of Equity Interest-Related Claims and holders of Equity Interests the
best and most complete form of recovery available. As a result, the Debtors
believe that the Second Amended Plan serves the best interests of all Creditors
and parties in interest in the Chapter 11 Cases. Nevertheless, there are, at
least theoretically, several alternatives to the Second Amended Plan.
A. ALTERNATIVE PLANS OF REORGANIZATION
Under the Bankruptcy Code, a debtor has an exclusive period of one hundred
twenty (120) days and an additional vote solicitation period of sixty (60) days
from the entry of the order for relief during which time, assuming that no
trustee has been appointed by the Bankruptcy Court, only a debtor may propose
and confirm a plan. By virtue of the filing of the Joint Plan on January 27,
1997, the exclusivity period was initially extended to July 25, 1997. By order
of the Bankruptcy Court, this was extended to November 28, 1997. After the
expiration of this one hundred eighty (180) day period and any extensions
thereof, the Debtors or any other party in interest may propose a different
plan provided the exclusivity period is not further extended by the Bankruptcy
Court. Such an alternative plan might involve either a reorganization and
continuation of Debtors' business, an orderly liquidation of their assets or
some combination thereof.
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In formulating and developing the Second Amended Plan, the Debtors have
explored numerous other alternatives and engaged in an extensive negotiation
process with principal Creditors. The Debtors believe not only that the Second
Amended Plan, as described herein, fairly adjusts the rights of various Classes
of Creditors and enables the Creditors to realize the greatest sum possible
under the circumstances, but also that rejection of the Second Amended Plan in
favor of some theoretical alternative method of reconciling the Claims and
Equity Interests of the various Classes will require, at the very least, an
extensive and time-consuming negotiation process and will not result in a
better recovery for any Class. It is not atypical for bankruptcy proceedings
involving substantial entities to continue for months or years before a plan of
reorganization is consummated and payments are made.
B. LIQUIDATION UNDER CHAPTER 7
If a plan cannot be confirmed, the Debtors' Chapter 11 Cases may be
converted to cases under Chapter 7, in which a trustee would be elected or
appointed to liquidate the assets of the Debtors for distribution to their
Creditors and Equity Interest holders in accordance with the priorities
established by the Bankruptcy Code. For a discussion of the effect that a
Chapter 7 liquidation would have on the recovery by Creditors, see Section
XVI(B)(1) "Confirmation of the Second Amended Plan -- Best Interest of
Creditors and Liquidation Analysis."
As previously stated, the Debtors believe that a liquidation under Chapter
7 would result in a substantially reduced recovery of funds by their Estates
because of: (i) an enormous loss of value resulting from the possible
revocation of gaming and regulatory licenses; (ii) a significant loss of value
resulting from the possible authorization by the Gaming Authorities of a
trustee who would be authorized to operate the Estate and could be authorized
to sell the Stratosphere
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Hotel & Casino if Gaming Corp.'s gaming license is revoked and the additional
Administrative Expenses and fees which would be incurred by such trustee and
other professionals employed by it; (iii) additional Administrative Expenses
involved in the appointment of a trustee for the Debtors and attorneys and
other professionals to assist such trustee; (iv) additional expenses and
Claims, some of which would be entitled to priority, which would be generated
during the liquidation and from the rejection of leases and other executory
contracts in connection with a cessation of the Debtors' operations.
Accordingly, the Debtors believe that holders of certain classes of Claims may
be expected to receive substantially smaller distributions pursuant to a
Chapter 7 liquidation than under the Second Amended Plan.
C. PREFERENCES AND ADVERSARY ACTIONS
A bankruptcy trustee (or the entity as debtor-in-possession) may avoid as
a preference a transfer of property made by a debtor to a creditor on account
of an antecedent debt while a debtor was insolvent, where that creditor
receives more than it would have received in a liquidation of the entity under
Chapter 7 of the Bankruptcy Code had the payment not been made, if (i) the
payment was made within ninety (90) days before the date the bankruptcy case
was commenced; or (ii) if the creditor is found to have been an "insider" as
defined in the Bankruptcy Code within one (1) years before the commencement of
the bankruptcy case. A debtor is presumed to have been insolvent during the
ninety (90) days proceeding the commencement case. Debtors are reviewing
payments by them on account of antecedent debts made within ninety (90) days
before the commencement of the Reorganization Cases, and based upon such review
and the defenses to preference actions under the Bankruptcy Code, Debtors will
determine whether the pursuit of such actions would be cost effective or have a
materially
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impact on Creditors' recoveries. At this time, Debtors are only aware and
intend to pursue the matters set forth below.
1. Grand Casinos, Inc.
As part of the issuance of the Original First Mortgage Notes and as an
inducement to their purchase, Grand executed a Completion Guarantee dated March
9, 1995 ("Completion Guarantee"). The Completion Guarantee provided that Grand
would expend Fifty Million Dollars ($50,000,000) towards making the
Stratosphere Hotel & Casino operational. Grand was only required to expend up
to Fifty Million Dollars ($50,000,000) in the event that, and to the extent
that, there were not sufficient available funds which Stratosphere could use
for such purpose in accordance with the terms of the Completion Guarantee. Any
funds advanced by Grand pursuant to the Completion Guarantee became an
unsecured and subordinated debt of Debtors.
On or about September 30, 1996, Stratosphere demanded that Grand advance
the balance of the Completion Guarantee funds. Grand required as a condition
precedent to the advancement that Stratosphere pay the sum of no less than
Three Million Three Hundred Twenty-Eight Thousand One Hundred Seventy-Five and
81/100 ($3,328,175.81) outstanding to Grand Electronics and Media, Inc. ("Grand
Electronics") (a Grand Affiliate) for past-due purchases and services rendered
and the sum of Two Million, Three Hundred Eighteen Thousand, Eight Hundred
Seventy-Three Dollars and 43/100 ($2,318,873.43) as reimbursement for past-due
expenses and consulting fees due under the Management and Development Agreement
dated July 7, 1994, between Grand and Gaming Corp. The Debtors paid no less
than Three Million Three Hundred Twenty-Eight Thousand One Hundred Seventy-Five
and 81/100 ($3,328,175.81),
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to Grand Electronics from October 11, 1996 through January 13, 1997.
Stratosphere also paid Two Million, Three Hundred Eighteen Thousand, Eight
Hundred Seventy-Three Dollars and 43/100 ($2,318,873.43) to Grand on October
10, 1996 pursuant to a Letter Agreement dated September 27, 1996 wherein the
parties agreed that the Two Million, Three Hundred Eighteen Thousand, Eight
Hundred Seventy-Three Dollars and 43/100 ($2,318,873.43) would either be
advanced back to the Debtors as a loan or refunded no later than November 5,
1996. To date, Grand has not complied with the September 27, 1996 Letter
Agreement.
2. Adversary Action Against Mr. Robert Stupak
On or about November 15, 1993, Grand, Mr. Stupak, Stratosphere and Bob
Stupak Enterprises, Inc. ("BSE") entered into a Letter Agreement (the "1993
Agreement") whereby Mr. Stupak irrevocably granted to Grand or its assignee an
option (the "Option") to purchase assets of Vegas World as more fully described
in the November 1994 Asset Purchase Agreement.
On or about June 1, 1994, Grand assigned and Stratosphere accepted the
assignment to exercise the original option to purchase the assets of Vegas
World subject to certain modifications (the "Assignment"). Mr. Stupak
acknowledged and consented to the Assignment.
The Asset Purchase Agreement was executed in November, 1994 with Mr.
Stupak as seller and Stratosphere as buyer pursuant to which Mr. Stupak agreed
to sell, transfer and convey and Stratosphere agreed to purchase from Mr.
Stupak for the sum of Fifty Million, Five Hundred Thousand Dollars
($50,500,000) all of the assets of Vegas World excluding gambling markers,
liquor, cigarette and foods inventory, gifts to satisfy the Vacation Packages
and deposits. The Asset Purchase Agreement also excluded any and all
liabilities of Mr. Stupak, any affiliate of Mr.
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Stupak including but not limited to Las Vegas Vacation Club, Inc. or Vegas
World regarding the purchase of the prepaid Vacation Package Obligations.
As part of the Asset Purchase Agreement, the parties entered into an
Assumption Agreement whereby Stratosphere assumed certain contracts set forth
on Exhibit "A" thereto (the "Assumption Agreement") and the Assumption
Agreement specifically stated that Mr. Stupak would be solely liable for the
excluded liabilities as defined in the Asset Purchase Agreement. The Vacation
Package Obligations were an excluded liability.
In order to fund Mr. Stupak's obligations with regard to the Vacation
Package Obligations, Stratosphere and Mr. Stupak entered into an Escrow
Agreement with First Interstate Bank of Nevada, N.A. as the escrow agent (the
"Escrow Agreement") which acknowledged that Mr. Stupak had established an
escrow of seven million (7,000,000) shares of Stratosphere common stock, .01
par value per share beneficially owned by Mr. Stupak. Mr. Stupak was required
to deposit with the escrow agent, as needed, additional cash and/or shares of
common stock so that the value of the escrow would be equal to or greater than
one hundred-fifty (150%) of the Vacation Package liabilities, if stock was
used, or one hundred percent (100%) of the Vacation Package liabilities, if
cash was used (the "Escrow Fund"). Mr. Stupak had the right to instruct the
escrow agent to release shares from the Escrow Fund in order to sell shares or
use such shares as collateral provided, however, that Mr. Stupak deposited
sufficient proceeds of such sale or loan in the escrow fund.
To date, Stratosphere is owed approximately Three Million Nine Hundred
Forty-Two Thousand Dollars ($3,942,000.00) for the servicing of the Vacation
Packages. It is the Debtors'
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intention to file an adversary proceeding in the Bankruptcy Court seeking
satisfaction of this claim.
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XVIII. RECOMMENDATION AND CONCLUSION
-----------------------------
The Second Amended Plan provides the best possible recovery for
Creditors. Accordingly, Debtors recommend that all Creditors which are
entitled to vote on the Second Amended Plan should vote to accept the Second
Amended Plan.
DATED this 5th day of November, 1997.
STRATOSPHERE CORPORATION, a STRATOSPHERE GAMING CORP., a
Delaware corporation Nevada corporation
By: [SIG] By: [SIG]
---------------------- --------------------------
Its: EX VP Its: EX VP
---------------------- --------------------------
Prepared and submitted by:
GORDON & SILVER, LTD.
By: Thomas H. Fell
----------------------
GERALD M. GORDON, ESQ.
Nevada Bar No. 229
THOMAS H. FELL, ESQ.
Nevada Bar No. 3717
3800 Howard Hughes Parkway
Fourteenth Floor
Las Vegas, Nevada 89109
Attorneys for Debtors
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EXHIBIT A
<PAGE> 131
GORDON & SILVER, LTD.
GERALD M. GORDON, ESQ.
Nevada Bar No. 229
THOMAS H. FELL, ESQ.
Nevada Bar No. 3717
3800 Howard Hughes Parkway
14th Floor
Las Vegas, Nevada 89109
Tel: (702) 796-5555
Counsel to STRATOSPHERE CORPORATION
and STRATOSPHERE GAMING CORP.,
Debtors-In-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEVADA
In re: )
)
STRATOSPHERE CORPORATION, ) In Proceedings Under Chapter 11
a Delaware corporation, ) CASE NO. 97-20554 GWZ
) (Joint Administration Only)
Debtor. ) CASE NO. 97-20555 GWZ
__________________________)
In re: )
)
STRATOSPHERE GAMING CORP.,)
a Nevada corporation, )
)
Debtor. )
__________________________)
DEBTORS' SECOND AMENDED PLAN OF REORGANIZATION
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TABLE OF CONTENTS
1. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME 2
1.1. Definitions 2
1.1.1. Administrative Claim 2
1.1.2. Administrative Claim Bar Date 2
1.1.3. Affiliate 3
1.1.4. Allowed Claim 3
1.1.5. Alternative Transactions Proposal 3
1.1.6. Amended Capital Lease Agreement 3
1.1.7. Amended Heller Capital Lease 3
1.1.8. Amended Participation Agreement 4
1.1.9. American Real Estate Partners, L.P. 4
1.1.10. Avoidance Actions 4
1.1.11. Ballot 4
1.1.12. Bankruptcy Code 4
1.1.13. Bankruptcy Court 4
1.1.14. Bankruptcy Rules 4
1.1.15. Board of Directors 4
1.1.16. Bar Date 4
1.1.17. Business Day 4
1.1.18. Capital Lease Bank Group 5
1.1.19. Capital Lease Claims 5
1.1.20. Cash 5
1.1.21. Chapter 11 Cases 5
1.1.22. Claim 5
1.1.23. Class 5
1.1.24. Confirmation 5
1.1.25. Confirmation Date 5
1.1.26. Confirmation Hearing 5
1.1.27. Confirmation Order 6
1.1.28. Contingent Claim 6
1.1.29. Creditor 6
1.1.30. Creditors' Committee 6
1.1.31. Cure 6
1.1.32. Debt Instrument 6
1.1.33. Debtors 6
1.1.34. Disbursing Agent 6
1.1.35. Disclosure Statement 6
1.1.36. Disputed Claim 7
1.1.37. Disputed Equity Interest 7
1.1.38. Distribution Date 7
1.1.39. Distribution Record Date 7
1.1.40. Effective Date 7
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1.1.41. Effective Date Cash 7
1.1.42. Equity Interest 7
1.1.43. Equity Interest - Related Claim 8
1.1.44. Estate 8
1.1.45. Final Order 8
1.1.46. First Security 8
1.1.47. Gaming Authorities 8
1.1.48. Gaming Board 8
1.1.49. Gaming Commission 8
1.1.50. Gaming Corp 8
1.1.51. Gaming Corp. Common Stock 8
1.1.52. General Unsecured Claim 8
1.1.53. Grace Bros. Ltd 8
1.1.54. Grand 8
1.1.55. Grand Subordinated Claim 8
1.1.56. Heller 9
1.1.57. Heller Capital Lease 9
1.1.58. Heller Capital Lease Claims 9
1.1.59. High River Limited Partnership 9
1.1.60. Indenture Trustee 9
1.1.61. Interim Management Agreement 9
1.1.62. IRS 9
1.1.63. Majority Original Holders 9
1.1.64. New Common Stock 9
1.1.65. Noteholder Committee 9
1.1.66. Notice and a Hearing 10
1.1.67. Old Common Stock 10
1.1.68. Original Capital Lease Agreement 10
1.1.69. Original First Mortgage Indenture 10
1.1.70. Original First Mortgage Notes 10
1.1.71. Original First Mortgage Security Documents 10
1.1.72. Original Participation Agreement 10
1.1.73. Original Subordination Agreement 10
1.1.74. Original Subsidiary Guarantee 10
1.1.75. Person 10
1.1.76. Petition Date 11
1.1.77. Phase II 11
1.1.78. Plan 11
1.1.79. Plan Distributed Cash 11
1.1.80. Plan Supplement 11
1.1.81. Preserved Ordinary Course Administrative Claim 11
1.1.82. Priority Benefit Plan Contribution Claim 11
1.1.83. Priority Customer Deposits Claim 11
1.1.84. Priority Tax Claim 11
1.1.85. Priority Wage Claim 12
1.1.86. Professional Fee Bar Date 12
1.1.87. Professional Fees 12
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1.1.88. Pro Rata 12
1.1.89. Reclamation Claims 12
1.1.90. Reinstated or Reinstatement 12
1.1.91. Reliable Steel Adversary Action 13
1.1.92. Reliable Steel Lien Claim 13
1.1.93. Reorganized Gaming Corp 13
1.1.94. Reorganized Gaming Corp. Articles 13
1.1.95. Reorganized Gaming Corp. By-Laws 13
1.1.96. Reorganized Stratosphere 13
1.1.97. Reorganized Stratosphere Articles 13
1.1.98. Reorganized Stratosphere By-Laws 13
1.1.99. Schedules 13
1.1.100. SEC 13
1.1.101. Secured Claim 13
1.1.102. Secured Tax Claims 14
1.1.103. Securities Act 14
1.1.104. Stand-By Equity Commitment 14
1.1.105. Statutory Committee 14
1.1.106. Stratosphere 14
1.1.107. Stupak 14
1.1.108. Subordinated Claim 14
1.1.109. Taxes 14
1.1.110. Voting Record Date 14
1.2. Computation of Time 14
1.3. Rules of Interpretation 14
2. TREATMENT OF UNCLASSIFIED CLAIMS 15
2.1. General 15
2.2. Treatment of Administrative Claims 15
2.2.1. Generally 15
2.2.2. Requests for Payment 15
2.3. Preserved Ordinary Course Administrative Claims 15
2.4. Allowed Priority Tax Claims 16
2.5. Allowed Reclamation Claims 16
3. DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS 16
3.1. Summary of Classification 17
3.2. Specific Classification 17
3.2.1. Class 1 - Priority Wage Claims 17
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3.2.2. Class 2 - Priority Benefit Plan Contribution Claims 17
3.2.3. Class 3 - Priority Customer Deposit Claims 17
3.2.4. Class 4 - Secured Tax Claims 18
3.2.5. Class 5 - Miscellaneous Secured Claims 18
3.2.6. Class 6 - Original First Mortgage Note Claims 18
3.2.7. Class 7 - Heller Capital Lease Claims 18
3.2.8. Class 8 - Capital Lease Claims 18
3.2.9. Class 9 - General Unsecured Claims 18
3.2.10. Class 10 - Reliable Steel Lien Claim 18
3.2.11. Class 11 - Gaming Corp. Common Stock 18
3.2.12. Class 12 - Equity Interests and Equity Interest Related
Claims 18
4. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS NOT
IMPAIRED BY THIS PLAN 18
4.1. Class 1 - Priority Wage Claims 18
4.2. Class 2 - Priority Benefit Plan Contribution Claims 19
4.3. Class 3 - Priority Customer Deposit Claims 19
4.4. Class 3 - Secured Tax Claims 19
4.5. Class 4 - Miscellaneous Secured Claims 19
4.6. Class 10 - Gaming Corp. Common Stock 20
5. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS AND
EQUITY INTERESTS IMPAIRED BY THIS PLAN 20
5.1. Class 6 - Original First Mortgage Notes 20
5.1.1. Distributions 20
5.1.2. Disbursing Agent 20
5.1.3. Surrender of Securities or Instruments 21
5.1.4. Distribution Record Date 21
5.1.5. Delivery of Distributions 21
5.1.6. Fees and Expenses 22
5.1.7. Section 363 (k) Right to Credit Bid 22
5.2. Class 7 - Heller Capital Lease Claims 22
5.3. Class 7 - Capital Lease Claims 22
5.4. Class 9 - General Unsecured Claims 22
5.5. Class 10 - Reliable Steel Lien Claim 23
5.6. Class 12 - Equity Interests and Equity Interests Related
Claims 23
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6. MEANS FOR IMPLEMENTATION OF PLAN 23
6.1. New Common Stock 23
6.2. Cancellation of Old Common Stock 23
6.3. Satisfaction and Cancellation of Original First Mortgage
Notes and Original First Mortgage Security Documents 23
6.4. No Fractional Shares 23
6.5. Interim Management Agreement 24
6.6. Phase II 24
6.7. New Certificate of Incorporation and Bylaws 24
6.8. No Corporate Action Required 25
6.9. Directors and Officers 25
7. EXECUTORY CONTRACTS AND UNEXPIRED LEASES 26
7.1. Executory Contracts 26
7.2. Unexpired Leases 26
7.3. Approval of Assumption or Rejection 26
7.4. Cure of Defaults 26
7.5. Post-Petition Date Contracts and Leases 26
7.6. Bar Date 26
7.7. Indemnification Obligations 26
8. PRESERVATION OF LITIGATION CLAIMS 27
9. EFFECTIVE DATE TRANSACTIONS 27
10. CONDITIONS PRECEDENT 27
10.1. Conditions To Confirmation 27
10.2. Conditions To Effectiveness 27
11. TITLE TO PROPERTY; DISCHARGE; INJUNCTION 29
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11.1. Revesting of Assets 29
11.2. Discharge 29
11.3. Injunction 29
11.4. Exculpation 30
12. RETENTION OF JURISDICTION 30
12.1. Jurisdiction 30
13. MODIFICATION, AMENDMENT, AND WITHDRAWAL OF PLAN; ALTERNATIVE
TRANSACTIONS 32
13.1. Modification and Amendment 32
13.2. Alternative Transactions 32
14. MISCELLANEOUS 33
14.1. Filing of Objections to Claims 33
14.2. Settlement of Objections After Effective Date 33
14.3. Effectuating Documents; Further Transactions; Timing 33
14.4. Exemption from Transfer Taxes 33
14.5. Revocation or Withdrawal of this Plan 33
14.6. Binding Effect 34
14.7. Governing Law 34
14.8. Intercompany Claims 34
14.9. Modification of Payment Terms 34
14.10. Providing for Claims Payment 34
14.11. Set Offs 34
14.12. Notices 35
14.13. Statutory Committee 36
14.14. Severability 36
14.15. Withholding and Reporting Requirements 36
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14.16. Post Confirmation Reporting 37
14.17. Cramdown 37
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Stratosphere Corporation ("Stratosphere") and Stratosphere Gaming Corp.
("Gaming Corp."), the debtors and debtors-in-possession in the above-captioned
Chapter 11 reorganization cases (collectively, the "Debtors") jointly propose
this Second Amended Plan of Reorganization ("Plan") for the resolution of the
Debtors' outstanding Claims and Equity Interests (as these terms are defined
herein). All creditors and other parties-in-interest should refer to the
Disclosure Statement (as this term is defined herein) for a discussion of the
Debtors' history, business, properties, results of operations and financial
projections for future operations and for a summary and analysis of this Plan
and certain related matters.
ALL HOLDERS OF CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTORS
ARE ENCOURAGED TO READ THIS PLAN, THE DISCLOSURE STATEMENT AND THE
RELATED SOLICITATION MATERIALS IN THEIR ENTIRETY BEFORE VOTING TO
ACCEPT OR REJECT THIS PLAN.
Subject to the restrictions on modifications set forth in Section 1127 of
the Bankruptcy Code and Bankruptcy Rule 3019, and those restrictions on
modifications set forth in Article 13 to this Plan, the Debtors expressly
reserve the right to alter, amend or modify this Plan, one or more times before
its substantial consummation.
1. DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME
1.1. DEFINITIONS. For purposes of this Plan, except as expressly
provided or unless the context otherwise requires, all capitalized
terms not otherwise defined shall have the meanings ascribed to them
in this Article 1. Any term used in this Plan that is not defined
herein, but is defined in the Bankruptcy Code or the Bankruptcy
Rules, shall have the meaning ascribed to that term in the
Bankruptcy Code or the Bankruptcy Rules. Whenever the context
requires, such terms shall include the plural as well as the
singular, the masculine gender shall include the feminine, and the
feminine gender shall include the masculine. As used in this Plan,
the following terms shall have the meanings specified below:
1.1.1. ADMINISTRATIVE CLAIM. A Claim for any cost or expense of
administration of the Chapter 11 Cases allowed under Sections
503(b), 507(b) or 546(c)(2) of the Bankruptcy Code and
entitled to priority under Section 507(a)(1) of the Bankruptcy
Code, including, but not limited to: (i) fees payable
pursuant to Section 1930 of Title 28 of the United States
Code; (ii) the actual and necessary costs and expenses
incurred after the Petition Date of preserving the Estates,
including wages, salaries, or commissions for services
rendered after the commencement of the Chapter 11 Cases; and
(iii) all Professional Fees approved by the Bankruptcy Court
pursuant to interim and final allowances. To the extent that
a Claim is allowed as an Administrative Claim pursuant to
Section 365(d)(3) of the Bankruptcy Code, such Claim shall
also be deemed an "Administrative Claim" under this section.
1.1.2. ADMINISTRATIVE CLAIM BAR DATE. The date or dates
established by the
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Bankruptcy Court for the filing of Administrative Claims,
excepting therefrom Claims for Professional Fees and Preserved
Ordinary Course Administrative Claims.
1.1.3. AFFILIATE. This term will refer to and mean with respect to
any specified Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect
common control with such Person, and, with respect to any
specified natural Person, any other Person having a
relationship by blood, marriage or adoption not more remote
than first cousins with such natural Person. For purposes of
this definition, "control" (including, with correlative
meanings, the terms "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.
1.1.4. ALLOWED CLAIM. Any Claim, or any portion thereof, against
the Debtors: (i) proof of which, requests for payment of
which, or application for allowance of which, was filed or
deemed to be filed on or before the Bar Date, Administrative
Claim Bar Date or the Professional Fee Bar Date, as the case
may be, for filing proofs of Claim or requests for payment for
Claims of such type against the Debtors; (ii) if no proof of
Claim is filed, which has been or hereafter is listed by the
Debtors in the Schedules as liquidated in amount and not
disputed or contingent; or (iii) that is allowed in any
contract, instrument, indenture or other agreement entered
into in connection with this Plan and, in any case, a Claim as
to which no objection to the allowance thereof has been
interposed within the applicable period of limitation fixed by
this Plan, the Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court. The term "Allowed," when used to modify a
reference in this Plan to any Claim or Class of Claims, shall
mean a Claim (or any Claim in any such Class) that is so
allowed, e.g. an "Allowed Secured Claim" is a Claim that has
been allowed to the extent of the value, as determined by the
Bankruptcy Court pursuant to Section 506(a) of the Bankruptcy
Code, of any interest in property of the Estate of the Debtors
securing such Claim.
1.1.5. ALTERNATIVE TRANSACTION PROPOSAL. A written restructuring
proposal that is received by the Debtors prior to the
Confirmation Hearing as an alternative to this Plan.
1.1.6. AMENDED CAPITAL LEASE AGREEMENT. The Amended and Restated
Lease Agreement to be entered into on the Effective Date by
Reorganized Gaming Corp. and First Security, which is one of
the documents pursuant to which the Capital Lease Claims will
be restructured. The Amended Capital Lease Agreement shall be
substantially in the form filed with the Bankruptcy Court as
part of the Plan Supplement.
1.1.7. AMENDED HELLER CAPITAL LEASE. The Amended and Restated
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Lease Agreement Intended As Security Agreement to be entered
into on the Effective Date by Reorganized Gaming Corp. and
Heller, pursuant to which the Heller Capital Lease Claims will
be restructured. The Amended Heller Capital Lease shall be
substantially in the form filed with the Bankruptcy Court as
part of the Plan Supplement.
1.1.8. AMENDED PARTICIPATION AGREEMENT. The Amended and Restated
Participation Agreement to be entered into on the Effective
Date by Reorganized Stratosphere, Reorganized Gaming Corp.,
First Security, and the Capital Lease Bank Group, which is one
of the documents pursuant to
which the Capital Lease Bank Claims will be
restructured. The Amended Participation Agreement shall be
substantially in the form filed with the Bankruptcy Court as
part of the Plan Supplement.
1.1.9. AMERICAN REAL ESTATE PARTNERS, L.P. American Real Estate
Partners, L.P., a Delaware limited partnership.
1.1.10. AVOIDANCE ACTIONS. This term refers to and means those
actions preserved for the Estates set forth in Sections 542,
543, 544, 545, 547, 548 and 549 of the Bankruptcy Code.
1.1.11. BALLOT. The form of ballot or ballots that will be
distributed with the Disclosure Statement to holders of Claims
entitled to vote under this Plan in connection with
solicitation of acceptances of this Plan.
1.1.12. BANKRUPTCY CODE. The Bankruptcy Reform Act of 1978, Title
11, United States Code, as applicable to the Chapter 11 Cases,
as now in effect or hereafter amended, 11 U.S.C. Section
Section 101 et seq.
1.1.13. BANKRUPTCY COURT. The Bankruptcy Court of the United
States District Court for the District of Nevada or such other
court as may have jurisdiction over the Chapter 11 Cases.
1.1.14. BANKRUPTCY RULES. Collectively, the Federal Rules of
Bankruptcy Procedure, the local rules of the Bankruptcy Court
and the Federal Rules of Civil Procedure, as applicable to the
Chapter 11 Cases, as now in effect or hereinafter amended.
1.1.15. BOARD OF DIRECTORS. This term refers to and means the
duly constituted and acting directors of Stratosphere.
1.1.16. BAR DATE. The date or dates established by the Bankruptcy
Court for the filing of proofs of Claim for all Creditors,
including the holders of Reclamation Claims, if any, excepting
therefrom, Administrative Claims, Preserved Ordinary Course
Administrative Claims, and Claims for Professional Fees.
1.1.17. BUSINESS DAY. Any day other than a Saturday, Sunday or
other
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day on which commercial banks in Clark County, Nevada
are authorized or required by law to close.
1.1.18. CAPITAL LEASE BANK GROUP. Collectively, Bank of Scotland,
Wells Fargo Bank, National Association (successor by merger to
First Interstate Bank of Nevada), Societe Generale, Credit
Lyonnais (Los Angeles Branch), BA Leasing and Capital
Corporation, First Security, The CIT Group/Equipment
Financing, Inc., United States National Bank of Oregon, The
First National Bank of Boston, Imperial Bank, and Trustmark
National Bank and their respective successors and assigns.
1.1.19. CAPITAL LEASE CLAIMS. Any and all indebtedness of the
Debtors to First Security and the Capital Lease Bank Group
arising out of or evidenced by: (i) the Original
Participation Agreement; (ii) the Original Capital Lease
Agreement; (iii) that certain Loan Agreement dated as of April
29, 1996; (iv) that certain Standstill and Amendment Agreement
dated as of October 31, 1996; and (v) any and all loan and
security documents, including, but not limited to, Debt
Instruments, evidencing, securing, or relating in any way to
such Capital Lease Claims.
1.1.20. CASH. Currency, checks, negotiable instruments and wire
transfers of immediately available funds.
1.1.21. CHAPTER 11 CASES. The cases under Chapter 11 of the
Bankruptcy Code in which Stratosphere and Gaming Corp. are the
debtors and debtors-in-possession pending before the
Bankruptcy Court, including all adversary proceedings pending
in connection therewith.
1.1.22. CLAIM. Any right to payment from the Debtors, whether or
not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured arising at
any time before the Effective Date or relating to any event
that occurred before the Effective Date; or any right to an
equitable remedy for breach of performance if such breach
gives rise to a right of payment from the Debtors, whether or
not such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured.
1.1.23. CLASS. A category of holders of Claims, Equity Interests
or Gaming Corp. Common Stock as classified in this Plan.
1.1.24. CONFIRMATION. The entry by the Bankruptcy Court of the
Confirmation Order.
1.1.25. CONFIRMATION DATE. The date upon which the Bankruptcy
Court enters the Confirmation Order confirming this Plan.
1.1.26. CONFIRMATION HEARING. The duly noticed hearing held by the
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Bankruptcy Court on confirmation of this Plan pursuant to
Section 1128 of the Bankruptcy Code. The Confirmation Hearing
may be adjourned by the Bankruptcy Court from time to time
without further notice other than the announcement of the
adjourned date at the Confirmation Hearing.
1.1.27. CONFIRMATION ORDER. The order entered by the Bankruptcy
Court confirming this Plan.
1.1.28. CONTINGENT CLAIM. A Claim which is either contingent or
unliquidated on or immediately before the Confirmation Date.
1.1.29. CREDITOR. Any holder of a Claim, whether or not such Claim
is an Allowed Claim, encompassed within the statutory
definition set forth in Section 101(a) of the Bankruptcy Code.
1.1.30. CREDITORS' COMMITTEE. Any Official Committee of General
Unsecured Creditors appointed by the United States Trustee in
the Chapter 11 Cases pursuant to Section 1102(a)(1) of the
Bankruptcy Code.
1.1.31. CURE. The distribution on the Effective Date or as soon
thereafter as practicable of Cash, or such other property as
may be agreed upon by the parties or ordered by the Bankruptcy
Court, with respect to the assumption of an executory contract
or unexpired lease, pursuant to Section 365(b) of the
Bankruptcy Code, in an amount equal to all unpaid monetary
obligations, without interest, or such other amount as may be
agreed upon by the parties, under such executory contract or
unexpired lease, to the extent such obligations are
enforceable under the Bankruptcy Code and applicable
bankruptcy law.
1.1.32. DEBT INSTRUMENT. A debenture, bond, promissory note, note
or other transferable instrument or document evidencing any
payment obligation.
1.1.33. DEBTORS. Collectively, Stratosphere and Gaming Corp., as
the debtors-in-possession in the Chapter 11 Cases, pursuant to
Sections 1107 and 1108 of the Bankruptcy Code.
1.1.34. DISBURSING AGENT. Reorganized Stratosphere or such other
Person as may be retained by the Reorganized Stratosphere and
approved by the Bankruptcy Court, to hold and distribute
certain consideration to the holders of Unclassified Claims
and Allowed Claims in Classes 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10
of this Plan. With respect to distributions to the holders of
Original First Mortgage Notes as part of Class 6, the
Indenture Trustee shall be the Disbursing Agent.
1.1.35. DISCLOSURE STATEMENT. The written disclosure statement
that relates to this Plan, as approved by the Bankruptcy Court
pursuant to Section 1125 of the Bankruptcy Code and Bankruptcy
Rule 3017, as such disclosure statement may be amended,
modified or supplemented from time to time.
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1.1.36. DISPUTED CLAIM. A Claim which is: (i) subject to timely
objection interposed by the Debtors or any party in interest
entitled to file and prosecute such objection in the Chapter
11 Cases, if at such time such objection remains unresolved;
(ii) a Claim that is listed by the Debtors as disputed,
unliquidated or contingent in the Schedules; or (iii) if no
objection has been timely filed, a Claim which has been
asserted in a timely filed proof of Claim in an amount greater
than or in a Class different than that listed by the Debtors
in the Schedules as liquidated in amount and not disputed or
contingent; provided, however, that the Bankruptcy Court may
estimate a Disputed Claim for purposes of allowance pursuant
to Section 502(c) of the Bankruptcy Code. The term
"Disputed", when used to modify a reference in this Plan to
any Claim or Class of Claims, shall mean a Claim (or any Claim
in such Class) that is a Disputed Claim as defined herein. In
the event there is a dispute as to classification or priority
of a Claim, it shall be considered a Disputed Claim in its
entirety. Until such time as a Contingent Claim becomes fixed
and absolute, such Claim shall be treated as a Disputed Claim
and not an Allowed Claim for purposes related to allocations
and distributions under this Plan.
1.1.37. DISPUTED EQUITY INTEREST. An Equity Interest which is the
subject of a timely objection interposed by the Debtors, or
any party in interest entitled to file and prosecute any such
objection in the Chapter 11 Cases, if at such time such
objection remains unresolved.
1.1.38. DISTRIBUTION DATE. The date, occurring as soon as
practicable after the Effective Date, upon which distributions
are made to holders of Allowed Claims under this Plan.
1.1.39. DISTRIBUTION RECORD DATE. The date or dates established by
the Bankruptcy Court, which shall be the Record Date or Dates
for determining the holders of the Original First Mortgage
Notes entitled to receive distributions under this Plan in
Class 6, Class 9 and Class 10.
1.1.40. EFFECTIVE DATE. The last to occur of: (i) the first
Business Day that is at least eleven (11) days after the
Confirmation Date and on which no stay of the Confirmation
Order is in effect and (ii) the Business Day on which all of
the conditions set forth in Article 12 to this Plan shall have
been satisfied or waived.
1.1.41. EFFECTIVE DATE CASH. All Cash of the Debtors on the
Effective Date prior to distribution or reservation of any
amounts under this Plan.
1.1.42. EQUITY INTEREST. Any interest in Stratosphere, including
Old Common Stock, represented by any class or series of common
or preferred stock issued by Stratosphere prior to the
Effective Date and any warrants, options or rights to purchase
any such common or preferred stock.
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1.1.43. EQUITY INTEREST - RELATED CLAIM. Any Claim arising from
the rescission of a purchase or sale of an Equity Interest, or
for damages arising from the purchase or sale of an Equity
Interest, or any Claim by any Person that asserts equitable or
contractual rights of reimbursement, contribution or
indemnification arising from such Claim.
1.1.44. ESTATE. Collectively, the estates created for the Debtors
in the Chapter 11 Cases, pursuant to Section 541 of the
Bankruptcy Code.
1.1.45. FINAL ORDER. An order or judgment which has not been
reversed, stayed, modified or amended and is no longer subject
to appeal, certiorari proceeding or other proceeding for
review or rehearing, and as to which no appeal, certiorari
proceeding, or other proceeding for review or rehearing shall
then be pending.
1.1.46. FIRST SECURITY. First Security Trust Company of Nevada,
and its successors and assigns.
1.1.47. GAMING AUTHORITIES. Collectively, the Gaming Board, the
Gaming Commission, and any other regulatory agency having the
authority to regulate the gaming activities of the Debtors.
1.1.48. GAMING BOARD. The State of Nevada Gaming Control Board
established pursuant to Nev. Rev. Stat Section 463.010, et
seq., as amended from time to time.
1.1.49. GAMING COMMISSION. The State of Nevada Gaming Commission
established pursuant to Nev. Rev. Stat. Section 463.010, et
seq., as amended from time to time.
1.1.50. GAMING CORP. Stratosphere Gaming Corp., a Nevada
corporation, one of the debtors and debtors-in-possession in
the Chapter 11 Cases pending before the Bankruptcy Court.
1.1.51. GAMING CORP. COMMON STOCK. All of the common stock issued
by Gaming Corp. and held by Stratosphere, including, if
applicable, any warrants, options, or rights to purchase any
such common stock.
1.1.52. GENERAL UNSECURED CLAIM. A Claim not secured by a charge
against or interest in property in which the Debtors' Estate
has an interest.
1.1.53. GRACE BROS. LTD. Grace Brothers Ltd.
1.1.54. GRAND. Grand Casinos, Inc., a Minnesota corporation, and
Affiliates (other than Debtors and their subsidiaries).
1.1.55. GRAND SUBORDINATED CLAIM. Any and all indebtedness of
Stratosphere and Gaming Corp. to Grand, including but not
limited to, that indebtedness arising out of or evidenced by:
(i) that certain Notes
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Completion Guarantee in the original amount of $50,000,000,
dated as of March 9, 1995; (ii) that certain Completion
Guarantor Subordination Agreement dated as of March 9, 1995;
(iii) any and all subordinated notes issued to Grand by
Stratosphere from time to time; and (iv) any other loan and
security documents, including, but not limited to Debt
Instruments, evidencing, securing, or relating to such
obligations and Claims. In accordance with the Original
Subordination Agreement, the Grand Subordinated Claim is owned
by the Indenture Trustee for the benefit of the holder of
Original First Mortgage Notes.
1.1.56. HELLER. Heller Financial Group, Inc., a Delaware
corporation.
1.1.57. HELLER CAPITAL LEASE. The Lease Intended As Security dated
as of June 28, 1996 between Gaming Corp. and Heller.
1.1.58. HELLER CAPITAL LEASE CLAIMS. Any and all indebtedness of
the Debtors to Heller arising out of or evidenced by: (i) the
Heller Capital Lease; and (ii) any and all loan and security
documents, including, but not limited to Debt Instruments,
evidencing, securing, or relating in any way to such Heller
Capital Lease.
1.1.59. HIGH RIVER LIMITED PARTNERSHIP. High River Limited
Partnership, a Delaware limited partnership.
1.1.60. INDENTURE TRUSTEE. IBJ Schroder Bank and Trust Company, as
Successor Trustee to American National Bank Association, or
such other successor trustee under the Original First Mortgage
Indenture.
1.1.61. INTERIM MANAGEMENT AGREEMENT. The management agreement
which (subject to requisite Gaming Authority approvals) may be
entered into prior to the Effective Date by Stratosphere and
Gaming Corp. and an entity to be named by Stratosphere with or
without the Majority Original Holders assistance and consent
pursuant to which the day-to-day operations of Debtors shall
be managed until the Effective Date. The Interim Management
Agreement shall be substantially in the form filed with the
Bankruptcy Court as part of the Plan Supplement.
1.1.62. IRS. The Internal Revenue Service.
1.1.63. MAJORITY ORIGINAL HOLDERS. As of the date of the filing of
the Plan High River Limited Partnership, American Real Estate
Partners, L.P and Grace Bros. Ltd. and any successor or
assigns.
1.1.64. NEW COMMON STOCK. The authorized shares of common stock of
Reorganized Stratosphere, per value of $.01 per share.
1.1.65. NOTEHOLDER COMMITTEE. The committee appointed by the
United States Trustee pursuant to Section 1102(a)(2) of the
Bankruptcy Code
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comprised of certain holders of the Original First Mortgage
Notes and the Indenture Trustee.
1.1.66. NOTICE AND A HEARING. This phrase shall have the same
meaning as provided for in Section 102(1) of the Bankruptcy
Code.
1.1.67. OLD COMMON STOCK. The shares of common stock, $.01 par
value, of Stratosphere issued and outstanding immediately
prior to the Effective Date, and all options, warrants and
similar rights, whether contractual or otherwise, to acquires
such shares of common stock, and all shares or other
securities convertible or otherwise exchangeable into such
shares of common stock.
1.1.68. ORIGINAL CAPITAL LEASE AGREEMENT. The Lease Agreement,
dated as of April 29, 1996, between Gaming Corp., as Lessee,
and First Security, as Lessor.
1.1.69. ORIGINAL FIRST MORTGAGE INDENTURE. The Indenture dated as
of March 9, 1995, among Stratosphere, Gaming Corp., and IBJ
Schroder Bank and Trust Company, as Successor Trustee to
American National Bank Association, pursuant to which the
Original First Mortgage Notes were issued by Stratosphere.
1.1.70. ORIGINAL FIRST MORTGAGE NOTES. The 14-1/4% First Mortgage
Notes due 2002 with Contingent Interest, in the original
principal amount of $203,000,000, issued by Stratosphere under
the Original First Mortgage Indenture.
1.1.71. ORIGINAL FIRST MORTGAGE SECURITY DOCUMENTS. This term
will refer to and mean the deed of trust, security agreement,
financing statements and fixture filings dated as of March 9,
1995 and all other documents executed by Debtors pursuant to
the Original First Mortgage Indenture to secure the
obligations evidenced by the Original First Mortgage Notes.
1.1.72. ORIGINAL PARTICIPATION AGREEMENT Agreement dated as of
April 29, 1996, among Stratosphere, Gaming Corp., First
Security and the Capital Lease Bank Group.
1.1.73. ORIGINAL SUBORDINATION AGREEMENT. The Subordination
Agreement dated as of March 9, 1995 between Grand and the
Indenture Trustee.
1.1.74. ORIGINAL SUBSIDIARY GUARANTEE. The guarantee by Gaming
Corp. of the obligations of Stratosphere under the Original
First Mortgage Notes, which guarantee is set forth in Section
11.01 of the Original First Mortgage Notes Indenture.
1.1.75. PERSON. An individual, a corporation, a limited liability
company, a partnership, an association, a joint stock company,
a joint venture, an
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estate, a trust, an unincorporated organization or a
government, governmental unit or any subdivision thereof or
any other entity.
1.1.76. PETITION DATE. The date (i.e., January 27, 1997) on which
the Debtors filed their voluntary petition commencing the
Chapter 11 Cases.
1.1.77. PHASE II. Stratosphere's planned construction of additional
facilities and improvements to existing facilities, at its
resort complex located in Las Vegas, Nevada, consisting
(subject to the final determination of Reorganized
Stratosphere) of: (i) completion of construction of a new
guest room tower of approximately 1,000 bays, including the
acquisition of all necessary furniture, fixtures and
equipment; (ii) completion of recreation and swimming pool
facilities; (iii) landscape and hardscape at areas adjacent
to the new guest tower, including facade upgrade of floors one
through three; (iv) landscape and fencing at site of
proposed aquarium building; (v) mechanical connection and
piping from the existing Phase I central plant; and (vi)
renovation of existing resort facilities, including baggage
storage, gift shop and gift kiosk remodel, Sister's Coffee
Shop remodel, tower queue remodel, and porte cochere
modifications.
1.1.78. PLAN. This Second Amended Plan of Reorganization, either
in its present form or as it may be amended, supplemented or
modified from time to time, including all exhibits and
schedules annexed hereto or referenced herein and the Plan
Supplement.
1.1.79. PLAN DISTRIBUTED CASH. The Cash to be paid pursuant to
this Plan to the holders of Allowed Claims in all Classes and
Allowed unclassified Claims hereunder.
1.1.80. PLAN SUPPLEMENT. The supplement filed with the Bankruptcy
Court which contains additional exhibits to this Plan. The
Plan Supplement shall be a part of this Plan as if such
exhibits were set forth more fully herein.
1.1.81. PRESERVED ORDINARY COURSE ADMINISTRATIVE CLAIM.
Administrative Claims that are based on liabilities incurred
by the Debtors in the purchase, lease or use of goods and
services in the ordinary course of their business, including,
but not limited to, Administrative Claims due on account of
services provided to the Debtors after the Petition Date.
1.1.82. PRIORITY BENEFIT PLAN CONTRIBUTION CLAIM. Any Claim
entitled to priority in payment under Section 507(a)(4) of the
Bankruptcy Code.
1.1.83. PRIORITY CUSTOMER DEPOSITS CLAIM. Any Claim entitled to
priority in payment under Section 507(a)(6) of the Bankruptcy
Code.
1.1.84. PRIORITY TAX CLAIM. Any Claim entitled to priority in
payment under Section 507(a)(7) of the Bankruptcy Code.
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1.1.85. PRIORITY WAGE CLAIM. Any Claim entitled to priority in
payment under Section 507(a)(3) of the Bankruptcy Code.
1.1.86. PROFESSIONAL FEE BAR DATE. The date, as set by order of
the Bankruptcy Court, on or before which applications for
compensation or expense reimbursement, including Professional
Fees receivable pursuant to Section 503(b), must be filed with
the Bankruptcy Court.
1.1.87. PROFESSIONAL FEES. The Administrative Claims for
compensation and reimbursement submitted pursuant to Sections
330, 331 or 503(b) of the Bankruptcy Code of Persons: (i)
employed pursuant to an order of the Bankruptcy Court under
Sections 327 or 1103 of the Bankruptcy Code; or (ii) for whom
compensation and reimbursement has been allowed by the
Bankruptcy Court pursuant to Section 503(b) of the Bankruptcy
Code, including, but not limited to, reasonable professional
fees and expenses incurred by the Indenture Trustee and
counsel to the Indenture Trustee, that are not otherwise
satisfied in accordance with other provisions of this Plan.
1.1.88. PRO RATA. The ratio of an Allowed Claim or Allowed Equity
Interest in a particular class to the aggregate amount of all
such Allowed Claims or Allowed Equity Interests in any such
Class.
1.1.89. RECLAMATION CLAIMS. Any Claim against the Debtors by any
Person arising out of the sale of goods to the Debtors, in the
ordinary course of such Person's business, provided that such
Person has otherwise satisfied the requirements of Section
546(c) of the Bankruptcy Code and the Uniform Commercial Code,
as applicable.
1.1.90. REINSTATED OR REINSTATEMENT. These terms shall mean: (i)
leaving unaltered the legal, equitable and contractual rights
of the holder of a Claim so as to leave such Claim unimpaired
in accordance with Section 1124 of the Bankruptcy Code; or
(ii) notwithstanding any contractual provision or applicable
law that entitles the holder of such Claim to demand or
receive accelerated payment of such Claim after the occurrence
of a default: (a) Curing any such default that occurred before
or after the Petition Date, other than a default of a kind
specified in Section 365(b)(2) of the Bankruptcy Code; (b)
reinstating the maturity of such Claim as such maturity
existed before such default; (c) compensating the holder of
such Claim for any damages incurred as a result of any
reasonable reliance by such holder on such contractual
provision or such applicable law; and (d) not otherwise
altering the legal, equitable, or contractual rights to which
such Claim entitles the holder of such Claim; provided,
however, that any contractual right that does not pertain to
the payment when due of principal and interest on the
obligation on which such Claim is based, including, but not
limited to, financial covenant ratios, negative pledge
covenants, covenants or restrictions on merger or
consolidation, and affirmative covenants regarding corporate
existence prohibiting certain
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transactions or actions contemplated by this Plan, or
conditioning such transactions or actions on certain factors,
shall not be required in order to accomplish Reinstatement.
1.1.91. RELIABLE STEEL ADVERSARY ACTION. The adversary action
commenced by Reliable Steel, Inc. before the Bankruptcy
Court, being Case No. 97-20554-GWZ to foreclosure upon the
Reliable Steel Lien Claim.
1.1.92. RELIABLE STEEL LIEN CLAIM. The Claim of Reliable Steel,
Inc. for $249,322.85 plus interest, attorneys fees and
additional damages subject to the Second Amended Notice and
Claim of Lien recorded on January 22, 1997 and the Notice of
Lien recorded on August 22, 1996, both with the County
Recorder of Clark County, Nevada
1.1.93. REORGANIZED GAMING CORP. Stratosphere Gaming Corp., a
Nevada corporation, on and after the Effective Date.
1.1.94. REORGANIZED GAMING CORP. ARTICLES. The Restated Articles of
Incorporation of Reorganized Gaming Corp., which shall be
substantially in the form filed with the Bankruptcy Court as
part of the Plan Supplement.
1.1.95. REORGANIZED GAMING CORP. BY-LAWS. The Restated By-Laws of
Reorganized Gaming Corp., which shall be substantially in the
form filed with the Bankruptcy Court as part of the Plan
Supplement.
1.1.96. REORGANIZED STRATOSPHERE. Stratosphere Corporation, a
Delaware corporation, on and after the Effective Date.
1.1.97. REORGANIZED STRATOSPHERE ARTICLES. The Restated
Certificate of Incorporation of Reorganized Stratosphere,
which shall be substantially in the form filed with the
Bankruptcy Court as part of the Plan Supplement.
1.1.98. REORGANIZED STRATOSPHERE BY-LAWS. The Restated By-Laws of
Reorganized Stratosphere, which shall be substantially in the
form filed with the Bankruptcy Court as part of the Plan
Supplement.
1.1.99. SCHEDULES. The schedules of assets and liabilities and any
amendments thereto filed by the Debtors with the Bankruptcy
Court in accordance with Section 521(1) of the Bankruptcy
Code.
1.1.100. SEC. The United States Securities and Exchange
Commission.
1.1.101. SECURED CLAIM. A Claim to the extent of the value of any
interest in property of the Estate securing such Claim or to
the extent of the amount of such Claim subject to setoff in
accordance with Section 553 of the Bankruptcy Code, in either
case as determined pursuant to Section 506(a) of the
Bankruptcy Code.
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1.1.102. SECURED TAX CLAIMS. The Claim of any state or local
governmental unit which is secured by a lien upon property
owned by the Debtors by operation of applicable law,
including, but not limited to, every such Claim for unpaid
real and personal property taxes together with statutory
interests.
1.1.103. SECURITIES ACT. The Securities Act of 1933, as amended,
and the regulations promulgated thereunder.
1.1.104. STANDBY EQUITY COMMITMENT. The Standby Equity Commitment
dated March 9, 1995, by and between Stratosphere and Grand.
1.1.105. STATUTORY COMMITTEE. Collectively, the Creditors
Committee, the Noteholders Committee and any other committee
appointed pursuant to Section 1102 of the Bankruptcy Code.
1.1.106. STRATOSPHERE. Stratosphere Corporation, a Delaware
corporation, one of the debtors and debtors-in-possession in
the Chapter 11 Cases pending before the Bankruptcy Court.
1.1.107. STUPAK. Robert Stupak, individually, and Affiliates.
1.1.108. SUBORDINATED CLAIM. Any Claim or Equity Interest
subordinated, for purposes of distribution or otherwise,
pursuant to Section 510 of the Bankruptcy Code.
1.1.109. TAXES. All income, gaming, franchise, excise, sales, use,
employment, withholding, property, payroll or other taxes,
assessments, or governmental charges, together with any
interest, penalties, additions to tax, fines, and similar
amounts relating thereto, imposed or collected by any federal,
state, local or foreign governmental authority.
1.1.110. VOTING RECORD DATE. The date established by the
Bankruptcy Court for purposes of voting on this Plan by
holders of Allowed Claims arising out of the Original First
Mortgage Notes.
1.2. COMPUTATION OF TIME. In computing any period of time
prescribed or allowed by this Plan, unless otherwise expressly
provided, the provisions of Bankruptcy Rule 9006(a) shall apply.
1.3. RULES OF INTERPRETATION. For purposes of this Plan and the
Plan Supplement only; (i) any reference in this Plan or Plan
Supplement to a contract, instrument, release, indenture, or other
agreement or document's being in particular form or on particular
terms and conditions means that such document shall be substantially
in such form or substantially on such terms and conditions; (ii) any
reference in this Plan or Plan Supplement to an existing document or
exhibit filed or to be filed means such document or exhibit as it
may have been or may be amended, modified, or supplemented; (iii)
unless otherwise specified, all references in this Plan or Plan
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Supplement to Sections, Articles, Schedules and Exhibits are
references to Sections, Articles, Schedules and Exhibits of or to
this Plan; (iv) the words "herein," "hereof," "hereto," and
"hereunder" refer to this Plan in its entirety rather than to a
particular portion of this Plan; (v) captions and headings to
Articles and Sections are inserted for convenience of reference only
and are not intended to be a part of or to affect the interpretation
of this Plan; and (vi) the rules of construction set forth in
Section 102 of the Bankruptcy Code and in the Bankruptcy Rules shall
apply unless otherwise expressly provided.
2. TREATMENT OF UNCLASSIFIED CLAIMS
2.1. GENERAL . The Claims against the Debtors set forth in this
Article 2 are not designated as Classes pursuant to Section
1123(a)(1) of the Bankruptcy Code. The holders of such Claims are
not entitled to vote on this Plan. The treatment of the Claims set
forth below is consistent with the requirements of Section
1129(a)(9)(A) of the Bankruptcy Code.
2.2. TREATMENT OF ADMINISTRATIVE CLAIMS.
2.2.1. GENERALLY. Each Allowed Administrative Claim, other than
Preserved Ordinary Course Administrative Claims and
Reclamation Claims, shall be paid in full in Cash (or
otherwise satisfied in accordance with its terms) upon the
latest of: (i) the Effective Date, or as soon thereafter as
practicable; (ii) such date as may be fixed by the Bankruptcy
Court, or as soon thereafter as practicable; (iii) the tenth
(10th) Business Day after such Claim is Allowed, or as soon
thereafter as practicable; and (iv) such date as the holder
of such Claim and Reorganized Stratosphere or Reorganized
Gaming Corp., as the case may be, have agreed or shall agree.
2.2.2. REQUESTS FOR PAYMENT. All requests for payment of
Administrative Claims (except for Professional Fees and
Preserved Ordinary Course Administrative Claims) must be
filed by the Administrative Claims Bar Date or the holders
thereof shall be forever barred from asserting such
Administrative Claims against the Debtors, Reorganized
Stratosphere and Reorganized Gaming Corp. All final
applications for allowance and disbursement of Professional
Fees must be filed by the Professional Fee Bar Date. All
such applications must be in compliance with all of the terms
and provisions of any applicable order of the Bankruptcy
Court, including the Confirmation Order, and all other orders
governing payment of Professional Fees. Such applications
may be later amended to include any fees and costs incurred
after the Confirmation Date.
2.3. PRESERVED ORDINARY COURSE ADMINISTRATIVE CLAIMS. Each
Allowed Preserved Ordinary Course Administrative Claim shall be paid
by Reorganized Stratosphere or Reorganized Gaming Corp., as the case
may be, pursuant to either: (i) the terms and conditions under
which such Claim arose; or (ii) in the ordinary course of
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Reorganized Stratosphere or Reorganized Gaming Corp.'s business.
Such payments shall be made by Reorganized Stratosphere or
Reorganized Gaming Corp., as the case may be, without further action
by the holder of such Claim.
2.4. ALLOWED PRIORITY TAX CLAIMS. Each Allowed Priority Tax
Claim, if any, will be paid in full in Cash on the Effective Date;
provided, however, that Reorganized Stratosphere or Reorganized
Gaming Corp., as the case may be, may elect to pay such Claims
through deferred Cash payments over a period not exceeding six (6)
years after the date of assessment of such Claim, of a value as of
the Effective Date, equal to the Allowed amount of such Claim. In
that event, such payments shall be made in equal annual installments
of principal, plus interest accruing from the Effective Date at the
rate on the unpaid portion of Allowed Priority Tax Claim set forth
in Internal Revenue Code Sections 6621 and 6622. The first such
payment shall be payable on the latest of: (i) the Effective Date;
(ii) the tenth (10th) Business Day after the date on which an order
allowing such Claim becomes a Final Order; and (iii) such other time
as is agreed upon by the holder of such Claim and Reorganized
Stratosphere or Reorganized Gaming Corp., provided, however, that
Reorganized Stratosphere or Reorganized Gaming Corp., as the case
may be, shall have the right to prepay any such Allowed Priority Tax
Claim, or any remaining balance of such Claim, in full or in part,
at any time on or after the Effective Date, without premium or
penalty.
2.5. ALLOWED RECLAMATION CLAIMS. All requests for payment of
Reclamation Claims must be filed by the Bar Date or the holders
thereof shall be forever barred from asserting such Reclamation
Claim against the Debtors, Reorganized Stratosphere, and Reorganized
Gaming Corp. Each Allowed Reclamation Claim shall be paid in full
in Cash upon the latest of: (i) the Effective Date, or as soon
thereafter as practicable; (ii) such date as may be fixed by the
Bankruptcy Court, or as soon thereafter as practicable; (iii) the
tenth (10th) Business Day after such Claim is Allowed during the
Chapter 11 Cases, or as soon thereafter as practicable; and (iv)
such date as the holder of such Reclamation Claim and Reorganized
Stratosphere or Reorganized Gaming Corp., as the case may be, have
agreed or shall agree.
3. DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS
Pursuant to this Plan and in accordance with Section 1123(a)(1) of the
Bankruptcy Code, all Claims of Creditors and the holders of Equity Interests
and the Gaming Corp. Common Stock (except Administrative Claims, Priority Tax
Claims, Reclamation Claims, and Preserved Ordinary Course Administrative
Claims) are placed in the Classes described below. A Claim, Equity Interest
and the Gaming Corp. Common Stock, is classified in a particular Class only to
the extent that the Claim or Equity Interest qualifies within the description
of that Class and is classified in other Classes only to the extent that any
remainder of the Claim or Equity Interest qualifies within the description of
such other Classes. A Claim is also classified in a particular Class only to
the extent that such Claim is an Allowed Claim in that Class and has not been
paid, released or otherwise satisfied prior to the Effective Date.
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3.1. SUMMARY OF CLASSIFICATION.
Class 1: Priority Wage Claims Unimpaired
- no solicitation required
Class 2: Priority Benefit Plan Unimpaired
Contribution Claims - no solicitation required
Class 3: Priority Customer Deposit Unimpaired
Claims - no solicitation required
Class 4: Secured Tax Claims Unimpaired
- no solicitation required
Class 5: Miscellaneous Secured Claims Unimpaired
- no solicitation required
Class 6: Original First Mortgage Note Impaired
Claims - entitled to vote
Class 7: Heller Lease Claims Impaired
- entitled to vote
Class 8: Capital Lease Claims Impaired
- entitled to vote
Class 9: General Unsecured Claims Impaired
- entitled to vote
Class 10: Reliable Steel Lien Claim Impaired
- entitled to vote
Class 11: Gaming Corp. Common Stock Unimpaired
- not entitled to vote
Class 12: Equity Interests and Impaired
Equity Interests - Related - deemed rejected
Claims
3.2. SPECIFIC CLASSIFICATION.
3.2.1. CLASS 1 - PRIORITY WAGE CLAIMS. Class 1 consists of all
Claims that are entitled to priority under Section 507(a)(3)
of the Bankruptcy Code.
3.2.2. CLASS 2 - PRIORITY BENEFIT PLAN CONTRIBUTION CLAIMS. Class
2 consists of all Claims that are entitled to priority under
Section 507(a)(4) of the Bankruptcy Code.
3.2.3. CLASS 3 - PRIORITY CUSTOMER DEPOSIT CLAIMS. Class 3
consists of all Claims that are entitled to priority under
507(a)(6) of the Bankruptcy
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Code.
3.2.4. CLASS 4 - SECURED TAX CLAIMS. Class 4 consists of all Secured Tax
Claims. Each holder of a Secured Tax Claim shall be considered to
be in its own separate subclass within Class 4, and each such
subclass shall be deemed to be a separate Class for purposes of
this Plan.
3.2.5. CLASS 5 - MISCELLANEOUS SECURED CLAIMS. Class 5 consists of
all Secured Claims, other than Secured Claims in Class 4, Class 6,
Class 7, and Class 8. Each holder of a Miscellaneous Secured Claim
shall be considered to be in its own separate subclass within Class
5, and each such subclass shall be deemed to be a separate Class
for purposes of this Plan.
3.2.6. CLASS 6 - ORIGINAL FIRST MORTGAGE NOTE CLAIMS. Class 6 consists of
the Allowed Secured Claims under the Original First Mortgage
Notes.
3.2.7. CLASS 7 - HELLER CAPITAL LEASE CLAIMS Class 7 consists of the
Heller Capital Lease Claims.
3.2.8. CLASS 8 - CAPITAL LEASE CLAIMS. Class 8 consists of the Capital
Lease Claims.
3.2.9. CLASS 9 - GENERAL UNSECURED CLAIMS. Class 9 consists of all
General Unsecured Claims, including the Grand Subordinated
Claims and the unsecured deficiency Claim of the Indenture Trustee
and holders of the Original First Mortgage Notes.
3.2.10. CLASS 10 - RELIABLE STEEL LIEN CLAIM. . Class 10 consists of the
Reliable Steel Lien Claim
3.2.11. CLASS 11 - GAMING CORP. COMMON STOCK Class 11 consists of the
Gaming Corp. Common Stock held by Stratosphere.
3.2.12. CLASS 12 - EQUITY INTERESTS AND EQUITY INTEREST RELATED CLAIMS.
Class 12 consists of all Equity Interests and all Equity Interest
Related Claims.
4. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS NOT
IMPAIRED BY THIS PLAN
4.1. CLASS 1 - PRIORITY WAGE CLAIMS. Each Allowed Priority Wage
Claim shall be paid in full in Cash upon the latest of: (i) the
Effective Date, or as soon thereafter as practicable; (ii) such date
as may be fixed by the Bankruptcy Court, or as soon thereafter as
practicable; (iii) the tenth (10th) Business Day after such Claim is
Allowed, or as soon thereafter as practicable; and (iv) such date as
the holder of such Claim and Reorganized Stratosphere or Reorganized
Gaming Corp., as the case may be, have agreed or shall agree. Class
1 is unimpaired under this Plan.
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Holders of Allowed Claims in Class 1 are not entitled to vote on this
Plan.
4.2. CLASS 2 - PRIORITY BENEFIT PLAN CONTRIBUTION CLAIMS. Each
Allowed Priority Benefit Plan Contribution Claim, if any, shall be
paid in full in Cash upon the latest of: (i) the Effective Date, or
as soon thereafter as practicable; (ii) such date as may be fixed by
the Bankruptcy Court, or as soon thereafter as practicable; (iii)
the tenth (10th) Business Day after such Claim is Allowed, or as
soon thereafter as practicable; and (iv) such date as the holder of
such Claim and Reorganized Stratosphere or Reorganized Gaming Corp.,
as the case may be, have agreed or shall agree. Class 2 is
unimpaired under this Plan. Holders of Allowed Claims in Class 2 are
not entitled to vote on this Plan.
4.3. CLASS 3 - PRIORITY CUSTOMER DEPOSIT CLAIMS. Each Allowed
Priority Customer Deposit Claim, if any, shall be paid in full in
Cash upon the latest of: (i) the Effective Date, or as soon
thereafter as practicable; (ii) such date as may be fixed by the
Bankruptcy Court, or as soon thereafter as practicable; (iii) the
tenth (10th) Business Day after such Claim is Allowed, or as soon
thereafter as practicable; and (iv) such date as the holder of such
Claim and Reorganized Stratosphere or Reorganized Gaming Corp., as
the case may be, have agreed or shall agree. Class 3 is unimpaired
under this Plan. Holders of Allowed Claims in Class 3 are not
entitled to vote on this Plan.
4.4. CLASS 4 - SECURED TAX CLAIMS. Each Allowed Secured Tax Claim
shall be paid in full in Cash upon the latest of: (i) the Effective
Date, or as soon thereafter as practicable; (ii) such date as may be
fixed by the Bankruptcy Court, or as soon thereafter as practicable;
(iii) the tenth (10th) Business Day after such Claim is Allowed, or
as soon thereafter as practicable; (iv) the date on which such
Secured Tax Claim is scheduled to be paid in the ordinary course of
business under applicable law or regulation; and (v) such date as
the holder of such Claims and Reorganized Stratosphere or
Reorganized Gaming Corp., as the case may be, have agreed or shall
agree. Class 4 is unimpaired under this Plan. Holders of Allowed
Claims in Class 4 are not entitled to vote on this Plan.
4.5. CLASS 5 - MISCELLANEOUS SECURED CLAIMS. On the Effective
Date, at Reorganized Stratosphere's or Reorganized Gaming Corp.'s
option, the holder of any Allowed Secured Claim in Class 5 shall
receive one (1) of the following alternative treatments:
a) the holder of such claim shall be treated in accordance
with the terms and conditions of all Debt Instruments evidencing
such Claim and the legal, equitable or contractual rights to which
each holder of such Claim is entitled shall not otherwise be
altered;
b) any default, other than a default of the kind specified in
Section 365(b)(2) of the Bankruptcy Code, shall be Cured or
Reinstated;
i) the maturity of the Claims shall be Reinstated as
such maturity before any default; and
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ii) the other legal, equitable or contractual rights to
which the holder of the Claim is entitled shall not otherwise
be altered, provided, however, that as to any Allowed Secured
Claim which is a nonrecourse Claim and exceeds the value of
the collateral securing the Claim, the collateral may be sold
at a sale at which the holder of such Claim has an
opportunity to bid;
c) on the Effective Date, or on such other date thereafter as
may be agreed to by Reorganized Stratosphere or Reorganized Gaming
Corp., as applicable, and the holder of such Claim, the Estate
shall abandon the collateral securing such Claim to the holder
thereof in full satisfaction and release of such Claim; or
d) on the Effective Date, the holder of such Claim shall
receive, on account of such Claim, Cash equal to its Allowed
Secured Claim, or such lesser amount to which the holder of such
Claim shall agree, in full satisfaction and release of such Claim.
Class 5 is unimpaired under this Plan. Holders of Allowed Claims
in Class 5 are not entitled to vote on this Plan.
4.6. CLASS 11 - GAMING CORP. COMMON STOCK. On the Effective Date,
Reorganized Stratosphere shall own the Gaming Corp. Common Stock and
Reorganized Gaming Corp. shall continue as a wholly-owned subsidiary
of Reorganized Stratosphere. Class 11 is unimpaired under this
Plan; the holder of the Class 11 Gaming Corp. Common Stock is not
entitled to vote on this Plan.
5. DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS AND
EQUITY INTERESTS IMPAIRED BY THIS PLAN
5.1. CLASS 6 - ORIGINAL FIRST MORTGAGE NOTES The holders of
Allowed Secured Claims arising out of Original First Mortgage Notes
shall receive the following treatment under this Plan.
5.1.1. DISTRIBUTIONS. Each holder of Original First Mortgage Notes
as of the Distribution Record Date shall receive its Pro Rata
share of two million thirty thousand (2,030,000) shares of
New Common Stock receipt of upon requisite Gaming Authority
approvals.
5.1.2. DISBURSING AGENT. The New Common Stock to be distributed
under this Plan to the holders of Original First Mortgage
Notes shall be deposited upon requisite Gaming Authority
approvals with the Indenture Trustee on the Distribution Date
who shall deliver such distributions to the holders of
Original First Mortgage Notes in accordance with the
provisions of this Plan and the terms of the Original First
Mortgage Indenture. Reorganized Stratosphere shall continue
to hold New Common Stock of a holder who has not yet received
all requisite Gaming Authority
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approvals.
5.1.3. SURRENDER OF SECURITIES OR INSTRUMENTS. On or before the
Distribution Date, or as soon as practicable thereafter,
each holder of an instrument evidencing an Allowed Secured
Claim on account of Original First Mortgage Notes shall
surrender such instrument to the Indenture Trustee and such
instrument shall be canceled. No distribution of property
hereunder shall be made to or on behalf of any such holder
unless and until such instrument is received by the
Indenture Trustee, or the unavailability of such instrument
is reasonably established to the satisfaction of the
Indenture Trustee and the Indenture Trustee receives written
notice of the approval by Gaming Authorities of such holder,
if applicable. Any such holder who fails to surrender or
cause to be surrendered such instrument or fails to execute
and deliver an affidavit of loss and indemnity reasonably
satisfactory to the Indenture Trustee prior to the fifth
(5th) anniversary of the Effective Date, shall be deemed to
have forfeited all rights and Claims in respect of such
instrument and shall not participate in any distribution
hereunder, and all property in respect of such forfeited
distribution, including interest accrued thereon, shall
revert to Reorganized Stratosphere notwithstanding any
federal or state escheat laws to the contrary.
5.1.4. DISTRIBUTION RECORD DATE At the close of business on the
Distribution Record Date, the transfer ledgers of the
Indenture Trustee shall be closed, and there shall be no
further changes in the record holders of the Original First
Mortgage Notes. Reorganized Stratosphere and the Indenture
Trustee shall have no obligation to recognize any transfer
of such Original First Mortgage Notes occurring after the
Distribution Record Date. Reorganized Stratosphere and the
Indenture Trustee shall be entitled instead to recognize and
deal for all purposes hereunder with only those record
holders stated on the transfer ledgers as of the close of
business on the Distribution Record Date.
5.1.5. DELIVERY OF DISTRIBUTIONS. Distributions of New Common
Stock shall be made by the Indenture Trustee to holders of
Original First Mortgage Notes at the addresses contained in
the official records of the Indenture Trustee. Distribution
of New common Stock shall not be made until the Indenture
Trustee receives written notice from Debtors or Reorganized
Stratosphere of all requisite Gaming Authority approvals.
If any holder's distribution is returned as undeliverable,
no further distributions to such holder shall be made unless
and until the Indenture Trustee is notified of such holder's
then current address, at which time all missed distributions
shall be made to such holder without interest. Undeliverable
distributions shall be returned to Reorganized Stratosphere,
until such distributions are claimed. All claims for
undeliverable distributions shall be made on or before the
fifth (5th) anniversary of the Effective Date. After such
date, all unclaimed property shall revert to Reorganized
Stratosphere and the
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Claim of any holder or successor to such holder with respect
to such property shall be discharged and forever barred
notwithstanding any federal or state escheat laws to the
contrary.
5.1.6. FEES AND EXPENSES. On the Effective Date, all then unpaid
reasonable fees, costs, charges, and any other expenses
under the Original First Mortgage Indenture, including any
reasonable fees and expenses of professionals retained by
the Indenture Trustee as agreed to by Stratosphere or
otherwise approved by the Bankruptcy Court, shall be paid by
the Debtors to the Indenture Trustee.
5.1.7. SECTION 363 (K) RIGHT TO CREDIT BID. In the event that an
Alternative Transaction Proposal is presented by Debtors or
is considered by the Bankruptcy Court at the Confirmation
Hearing, the Indenture Trustee shall have the right (if
appropriate under the circumstances) pursuant to Section
363(k) of the Bankruptcy Code to credit bid against the
Allowed Claim of the holders of Original First Mortgage
Notes in the event that an Alternative Transaction Proposal
or any other sale proposal is considered by the Bankruptcy
Court at the Confirmation Hearing.
5.2. CLASS 7 - HELLER CAPITAL LEASE CLAIMS. On the Effective
Date, in full satisfaction and settlement of the Heller Capital
Lease Claims, Reorganized Stratosphere and Reorganized Gaming Corp.
shall execute and deliver to Heller the Heller Amended Capital
Lease. The Heller Amended Capital Lease shall provide for the same
payment schedule as the Heller Capital Lease but shall not include
the financial covenants as set forth in Section 13.16 of the Heller
Capital Lease. In addition, Reorganized Stratosphere and
Reorganized Gaming Corp. shall execute and deliver to Heller and any
such other and further documentation necessary to implement the
terms and conditions of the Heller Amended Capital Lease. In
addition, any other terms, conditions, warranty or covenant of the
Heller Capital Lease which would be deemed breached or violated by
the transaction proposed in this Plan shall be deemed cured on the
Effective Date.
5.3. CLASS 8 - CAPITAL LEASE CLAIMS. On the Effective Date, in
full satisfaction and settlement of the Capital Lease Claims,
Reorganized Stratosphere and Reorganized Gaming Corp., as
applicable, shall execute and deliver to First Security and the
Capital Lease Bank Group the Amended Capital Lease Agreement and the
Amended Participation Agreement. The Amended Participation
Agreement shall provide for the same payment schedule as the
Original Participation Agreement but shall not include Section 5.16
of the Original Participation Agreement. In addition, any other
terms, conditions, warranty or covenant of the Original
Participation Agreement or Original Capital Lease Agreement which
would be deemed breached or violated by the transaction proposed by
this Plan shall be deemed cured on the Effective Date.
5.4. CLASS 9 - GENERAL UNSECURED CLAIMS. Each holder of an
Allowed Class 9 General Unsecured Claim shall receive the lesser of
such holder's Allowed General Unsecured Claim or such holder's Pro
Rata share of $6,000,000 Cash, upon
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the latest of: (i) the Effective Date, or as soon thereafter as
practicable; (ii) the tenth (10th) Business Day after such Claim is
Allowed, or as soon thereafter as practicable; and (iii) such date
as the holder of such Claim and Reorganized Stratosphere or
Reorganized Gaming Corp., as the case may be, have agreed or shall
agree.
5.5. CLASS 10 - RELIABLE STEEL LIEN CLAIM The holder of the
Reliable Steel Lien Claim shall receive $125,000 Cash on the
Effective Date in full satisfaction and settlement of their Reliable
Steel Claim and the Reliable Steel Adversary Action
5.6. CLASS 12 - EQUITY INTERESTS AND EQUITY INTERESTS RELATED
CLAIMS Each holder of an Interest and each holder of an Equity
Interest Related Claim shall receive nothing, and the Equity
Interest shall be canceled and terminated without further act or
action under any applicable agreement, law, regulation, order or
rule.
6. MEANS FOR IMPLEMENTATION OF PLAN
6.1. NEW COMMON STOCK. On the Effective Date, Reorganized
Stratosphere shall have Ten Million (10,000,000) shares of New
Common Stock authorized of which two million thirty thousand
(2,030,000) shares shall be issued and outstanding, all of which
shares of New Common Stock shall, in accordance with this Plan, be
issued to holders of Original First Mortgage Notes upon receipt of
requisite Gaming Authority approvals. Any Person who receives ten
percent (10%) or more of New Common Stock under this Plan will only
have such registration rights for such New Common Stock as provided
for in a registration rights agreement which may be proposed by
Stratosphere in its sole discretion prior to the Effective Date.
6.2. CANCELLATION OF OLD COMMON STOCK. On the Effective Date, the
Old Common Stock shall be canceled and extinguished, and holders of
the Old Common Stock shall not receive any equity or other interests
in Reorganized Stratosphere or any other consideration in exchange
for the cancellation and extinguishment of the Old Common Stock.
6.3. SATISFACTION AND CANCELLATION OF ORIGINAL FIRST MORTGAGE
NOTES AND ORIGINAL FIRST MORTGAGE SECURITY DOCUMENTS. On the
Effective Date, the Original First Mortgage shall be canceled and
extinguished and Original First Mortgage Security Documents and
Original Subsidiary Guarantee released, reconveyed and extinguished
in part, in exchange for the shares of New Common Stock to be
delivered to the Indenture Trustee on the Distribution Date. Other
than (i) the right to receive the two million thirty thousand
(2,030,000) shares of New Common Stock on the Distribution Date; and
(ii) the right to participate in Class 9 distributions, the holders
of the Original First Mortgage Notes shall not receive any equity or
other interest in Reorganized Stratosphere or any other
consideration in exchange for the cancellation and extinguishment of
the Original First Mortgage Notes, Original First Mortgage Security
Documents and Original Subsidiary Guarantee.
6.4. NO FRACTIONAL SHARES. No fractional shares of New Common
Stock shall be
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issued. The number of shares of New Common Stock issuable to any
holder of Original First Mortgage Notes will be rounded to the
nearest whole number with .50 shares being rounded up.
6.5. INTERIM MANAGEMENT AGREEMENT On or before the Effective Date
subject to requisite Gaming Authority approvals, Stratosphere may
enter into the Interim Management Agreement pursuant to which the
designated manager shall manage the day-to-day operations of
Stratosphere until the Effective Date. In the event that the
Interim Management Agreement is not effectuated, Debtors' management
shall remain in place until the Effective Date.
6.6. PHASE II. Subsequent to the Effective Date, the decision as
to construction and/or completion of Phase II, the scope and design
of Phase II and the means and method to finance Phase II will rest
with Reorganized Stratosphere. Nothing contained in this Plan or
the Confirmation Order is intended to or will dictate or restrict
Reorganized Stratosphere in this regard. Approval of the Bankruptcy
Court after the Effective Date concerning Phase II will not be
required nor necessary
6.7. NEW CERTIFICATE OF INCORPORATION AND BYLAWS. As of the
Effective Date, the certificates of incorporation and bylaws of the
Debtors shall be amended and restated substantially in the forms of
the Reorganized Stratosphere Articles, Reorganized Stratosphere
By-Laws, Reorganized Gaming Corp. By-Laws, and Reorganized Gaming
Corp. Articles, which provide for, among other things, the
authorization of any and all acts necessary to effectuate this Plan
including, without limitation, the issuance of the New Common Stock.
Such restated certificates of incorporation and by-laws shall also
provide, pursuant to Section 1123(a) and (b) of the Bankruptcy Code,
for: (i) a provision prohibiting the issuance of non-voting equity
securities; (ii) the board of directors of Reorganized Stratosphere
to be comprised of seven (7) director, and the board of directors
and of Reorganized Gaming Corp. to be comprised of three (3)
directors, each to be nominated by holders of a majority in face
amount of the Original First Mortgage Notes no later than five (5)
days prior to the commencement of the Confirmation Hearing, and if
not so nominated, by Stratosphere prior to the commencement of the
Confirmation Hearing; (iii) if applicable, a provision as to the
class of securities issued pursuant to this Plan or thereafter
possessing voting power, for an appropriate distribution of such
power among such classes, including, in the case of any class of
equity securities having a preference over another class of equity
securities with respect to dividends, adequate provisions for the
election of directors representing such preferred class in the event
of a default in the payment of such dividends; and (iv) a provision
providing that any transaction that, directly or indirectly,
involves a fifteen percent (15%) or more stockholder of Reorganized
Stratosphere or Affiliate of such stockholder in a manner distinct
from other stockholders of Reorganized Stratosphere, may not be
affected unless the board of directors of Reorganized Stratosphere
obtains a fairness opinion from a nationally recognized investment
bank. For purposes of (iv), if a fifteen percent (15%) or more
stockholder of Reorganized Stratosphere owns, directly or indirectly
fifteen percent (15%) of the common stock of the other entity to
such transaction or otherwise is an affiliate of
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such entity, such transaction shall be deemed within the terms and
conditions of (iv). The initial members of the board of directors
of Reorganized Stratosphere and Reorganized Gaming Corp., as the
case maybe, shall serve until such director, or their successors
are elected at a properly noticed and constituted stockholders'
meetings of Reorganized Stratosphere and Reorganized Gaming
Corp.
6.8. NO CORPORATE ACTION REQUIRED. As of the Effective Date: (i)
the adoption of the Reorganized Stratosphere Articles, Reorganized
Stratosphere By-Laws, Reorganized Gaming Corp. Articles, Reorganized
Gaming Corp. By-Laws or similar constituent documents for
Reorganized Stratosphere and Reorganized Gaming Corp.; (ii) the
selection of directors and officers for Reorganized Stratosphere and
Reorganized Gaming Corp.; (iii) the adoption, execution, delivery
and implementation of all contracts, leases, instruments, releases
and other agreements related to or contemplated by this Plan; and
(iv) the other matters provided for under or in furtherance of this
Plan involving corporate action to be taken by or required of the
Debtors, Reorganized Stratosphere or Reorganized Gaming Corp. shall
be deemed to have occurred and be effective as provided herein, and
shall be authorized and approved in all respects without further
order of the Bankruptcy Court or any requirement of further action
by the stockholders or directors of the Debtors, Reorganized
Stratosphere and Reorganized Gaming Corp. As of the Effective Date,
the term of each of the officers and directors of the Debtors not
continuing in office, if any, shall terminate pursuant to the
Confirmation Order without any further action by the stockholders or
directors of the Debtors, Reorganized Stratosphere or Reorganized
Gaming Corp.
6.9. DIRECTORS AND OFFICERS. On the Effective Date, the operation
of Reorganized Stratosphere and Reorganized Gaming Corp. shall
become the general responsibility of their respective boards of
directors, who shall thereafter have responsibility for the
management, control and operation or Reorganized Stratosphere and
Reorganized Gaming Corp. The names of the initial seven members of
the board of directors and the executive officers of Reorganized
Stratosphere shall be disclosed at or prior to the commencement of
the Confirmation Hearing. All such directors and executive officers
of Reorganized Stratosphere and Reorganized Gaming Corp. shall be
deemed to have been elected or appointed, as the case may be,
pursuant to the Confirmation Order, but shall not take office until
the Effective Date. Those directors and officers not continuing in
office after the Effective Date, if any, shall be deemed removed
therefrom without cause as of the Effective Date pursuant to the
Confirmation Order and shall be indemnified by Reorganized
Stratosphere for all actions taken by such directors and officers
while acting as directors and officers for Debtor from the Petition
Date. The existing directors of Stratosphere and Gaming Corp.,
should they choose to do so, will continue to serve as directors of
Stratosphere and Gaming Corp. from and after the Confirmation Date
until the Effective Date. During the period from the Confirmation
Date until the Effective Date, but not beyond the Effective Date,
all the existing directors of Stratosphere will be compensated at
$10,000 per quarter and $1,000 per meeting of the Board of Directors
for so long as they continue to serve as directors of Stratosphere.
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7. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.1. EXECUTORY CONTRACTS. All executory contracts set forth on
the schedule of rejected executory contracts attached to this Plan
as Exhibit "2," that exist between the Debtors and any Person shall
be deemed rejected by Reorganized Stratosphere or Reorganized Gaming
Corp., as the case may be, as of the Effective Date, except for any
executory contract: (i) that has been rejected pursuant to an order
of the Bankruptcy Court entered prior to the Confirmation Date; or
(ii) as to which a motion for approval of the rejection of such
executory contract, if applicable, has been filed with the
Bankruptcy Court prior to the Confirmation Date.
7.2. UNEXPIRED LEASES. All unexpired leases set forth on the
schedule of rejected leases attached to this Plan as Exhibit "3,"
that exist between the Debtors and any Person shall be deemed
rejected by Reorganized Stratosphere or Reorganized Gaming Corp., as
the case may be, as of the Effective Date, except for any unexpired
lease: (i) that has been rejected pursuant to an order of the
Bankruptcy Court entered prior to the Confirmation Date; or (ii)
as to which a motion for approval of the rejection of such unexpired
lease, if applicable, has been filed with the Bankruptcy Court prior
to the Confirmation Date.
7.3. APPROVAL OF ASSUMPTION OR REJECTION. Entry of the
Confirmation Order shall constitute: (i) the approval, pursuant to
Section 365(a) of the Bankruptcy Code, of the assumption of the
executory contracts and unexpired leases not listed on Exhibits "2"
and "3" or otherwise rejected during the Chapter 11 Cases; and (ii)
the approval, pursuant to Section 365(a) of the Bankruptcy Code, of
the rejection of the executory contracts and unexpired leases
rejected pursuant to this Plan or otherwise during the Chapter 11
Cases. Notwithstanding anything contained herein to the contrary,
the Debtors shall have the right to add or delete any executory
contract or unexpired lease that is initially a rejected executory
contract or a rejected unexpired lease on Exhibits "2" and "3."
7.4. CURE OF DEFAULTS. On the Effective Date or as soon
thereafter as is practicable, Reorganized Stratosphere or
Reorganized Gaming Corp., as the case may be, shall Cure any
defaults under any executory contract or unexpired lease assumed
pursuant to this Plan in accordance with Section 365(b)(1) of the
Bankruptcy Code.
7.5. POST-PETITION DATE CONTRACTS AND LEASES. Executory contracts
and unexpired leases entered into and other obligations incurred
after the Petition Date by the Debtors shall be performed by the
Debtors, Reorganized Stratosphere, or Reorganized Gaming Corp., as
applicable, in the ordinary course of their business.
7.6. BAR DATE. All proofs of Claims with respect to Claims
arising from the rejection of any executory contract or unexpired
lease shall be filed with the Bankruptcy Court no later than thirty
(30) days after the Confirmation Date. Any Claim not filed within
such time shall be forever barred.
7.7. INDEMNIFICATION OBLIGATIONS. Any obligations of the Debtors
to indemnify any
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officer, director or employee serving as a fiduciary of any employee
benefit plan or program of the Debtors, pursuant to charter,
by-laws, contract or applicable state law shall be deemed to be, and
shall be treated as, an executory contract and assumed by
Reorganized Stratosphere and Reorganized Gaming Corp., as the case
may be, on the Effective Date. Any obligation of the Debtors to
indemnify, reimburse, or limit the liability of any officer,
director, employee, agent, professional, financial advisor, or
underwriter of any securities issued by the Debtors prior to the
Petition Date shall: (i) be rejected, canceled, and discharged
pursuant to this Plan as of the Effective Date; and (ii) be
subordinated pursuant to Section 510 of the Bankruptcy Code,
provided however, that the board of directors of Reorganized
Stratosphere is authorized to assume such obligation on or after the
Effective Date.
8. PRESERVATION OF LITIGATION CLAIMS
In accordance with Section 1123(b)(3) of the Bankruptcy Code, and
except as otherwise expressly provided herein, Reorganized Stratosphere and
Reorganized Gaming Corp. shall retain and may, in their sole discretion,
enforce, sue on, settle or compromise (or decline to do any of the following)
all claims, rights or causes of action, suits, and proceedings, whether in law
or in equity, whether known or unknown, that the Debtors or the Estate may hold
against any Person, including, but not limited to, those listed on Exhibit 1 to
this Plan. Reorganized Stratosphere and Reorganized Gaming Corp. may pursue
such retained litigation claims in accordance with their respective best
interests.
9. EFFECTIVE DATE TRANSACTIONS
Effective Date transactions, in addition to other matters as set forth
in this Plan, include the following: (a) a notice of effectiveness of this Plan
to be filed with the Bankruptcy Court and served; and (b) dismissal of the
Reliable Steel Adversary Action. .
10. CONDITIONS PRECEDENT
10.1. CONDITIONS TO CONFIRMATION. The following are conditions
precedent to confirmation of this Plan:
a) The Bankruptcy Court shall have entered an order approving
the Disclosure Statement with respect to this Plan in form and
substance reasonably acceptable to the Debtors; and
b) The Confirmation Order shall be in form and substance
reasonably acceptable to the Debtors.
10.2. CONDITIONS TO EFFECTIVENESS. The following are conditions
precedent to the occurrence of the Effective Date:
a) The Confirmation Date shall have occurred and the
Confirmation Order shall, among other things, provide that:
27
<PAGE> 165
i) The provisions of the Confirmation Order are
nonseverable and mutually dependent;
ii) All executory contracts or unexpired leases assumed
by Reorganized Stratosphere and Reorganized Gaming Corp.
during the Chapter 11 Cases or under this Plan shall remain in
full force and effect for the benefit of Reorganized
Stratosphere and Reorganized Gaming Corp. notwithstanding any
provision in such contract or lease (including those described
in Sections 365(b)(2) and (f) of the Bankruptcy Code) that
prohibits such assignment or transfer or that enables, permits
or requires termination of such contract or lease;
iii) Except as expressly provided in this Plan, the
Debtors are discharged effective upon the Effective Date from
any "debt" (as that term is defined in Section 101(12) of the
Bankruptcy Code), and the Debtors' liability in respect
thereof is extinguished completely, whether reduced to
judgment or not, liquidated or unliquidated, contingent or
noncontingent, asserted or unasserted, fixed or unfixed,
matured or unmatured, disputed or undisputed, legal or
equitable, or known or unknown, or that arose from any
agreement of the Debtors that has either been assumed or
rejected in the Chapter 11 Cases or pursuant to this Plan, or
obligation of the Debtors incurred before the Confirmation
Date, or from any conduct of the Debtors prior to the
Confirmation Date, or that otherwise arose before the
Confirmation Date, including, without limitation, all
interest, if any, on any such debts, whether such interest
accrued before or after the Petition Date; and
iv) This Plan does not provide for the liquidation of
all or substantially all of the property of the Debtors and
its confirmation is not likely to be followed by the
liquidation of Reorganized Stratosphere or Stratosphere Gaming
Corp. or the need for further financial reorganization;
b) The Confirmation Order shall be a Final Order, except that
Debtors reserve the right to cause the Effective Date to occur
notwithstanding the pendency of an appeal of the Confirmation
Order, under circumstances that would moot such appeal;
c) No request for revocation of the Confirmation Order under
Section 1144 of the Bankruptcy Code shall have been made, or, if
made, shall remain pending;
d) The Bankruptcy Court in the Confirmation Order shall have
approved the retention of jurisdiction provisions in Article 12 of
this Plan;
e) All documents necessary to implement the transactions
contemplated by this Plan shall be in form and substance reasonably
acceptable to the Debtors;
f) Sufficient Effective Date Cash exists to make required
distributions to holders or Allowed Claims required on the
Distribution Dates; and
28
<PAGE> 166
g) The Debtors shall have received any and all required
approvals by the Gaming Authorities to consummate this Plan;
provided however, that Gaming Authorities approval of; (i) four (4)
of the seven (7) nominees to the board of directors of Reorganized
Stratosphere; (ii) two (2) of the three (3) nominees to the board of
directors of Reorganized Gaming Corp.; and (iii) the suitability of
holders of Original First Mortgage Notes who would acquire control
of Reorganized Stratosphere or who would receive more than ten
percent (10%) of the New Common Stock as a condition precedent to
the issuance and distribution of not less than one million fifteen
thousand (1,015,000) shares of New Common Stock to such holders in
Class 6 shall be deemed sufficient.
11. TITLE TO PROPERTY; DISCHARGE; INJUNCTION
11.1. REVESTING OF ASSETS. Subject to the provisions of this
Plan, the property of the Estate (including all rights and causes of
action relating to the Standby Equity Commitment) shall revest in
Reorganized Stratosphere and Reorganized Gaming Corp. on the
Effective Date. As of the Effective Date, all such property of the
Debtors shall be free and clear of all liens, Claims and Equity
Interests of holders thereof, except as otherwise provided herein.
From and after the Effective Date, Reorganized Stratosphere and
Reorganized Gaming Corp. may operate their business, and may use,
acquire and dispose of their property free of any restrictions of
the Bankruptcy Code, including the employment of and payment to
professionals, except as otherwise provided in this Plan or the
Confirmation Order.
11.2. DISCHARGE. Except as provided in this Plan or the
Confirmation Order, the rights afforded under this Plan and the
treatment of Claims and Equity Interests under this Plan shall be in
exchange for and in complete satisfaction, discharge and release of
all Claims and termination of all Equity Interests, including any
interest accrued on Claims from the Petition Date. Except as
provided in this Plan or the Confirmation Order, Confirmation shall:
(a) discharge the Debtors, Reorganized Stratosphere, and
Reorganized Gaming Corp. from all Claims or other debts that arose
before the Confirmation Date, and all debts of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or
not: (i) a proof of Claim based on such debt is filed or deemed
filed pursuant to Section 501 of the Bankruptcy Code; (ii) a Claim
based on such debt is allowed pursuant to Section 502 of the
Bankruptcy Code; or (iii) the holder of a Claim based on such debt
has accepted this Plan; and (b) terminate all Equity Interests and
other rights of holders of Equity Interests in the Debtors.
11.3. INJUNCTION. Except as provided in this Plan or the
Confirmation Order, as of the Confirmation Date, all entities that
have held, currently hold or may hold a Claim or other debt or
liability that is discharged or an Equity Interest or other right of
an equity security holder that is terminated pursuant to the terms
of this Plan are permanently enjoined from taking any of the
following actions on account of any such discharged Claims, debts or
liabilities or terminated Equity Interests or rights: (i)
commencing or continuing in any manner any action or other
proceeding against the Debtors, Reorganized Stratosphere,
Reorganized Gaming Corp. or their
29
<PAGE> 167
respective property; (ii) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order
against the Debtors, Reorganized Stratosphere Reorganized Gaming
Corp. or their respective property; (iii) creating, perfecting or
enforcing any lien or encumbrance against the Debtors, Reorganized
Stratosphere, Reorganized Gaming Corp. or their respective property;
(iv) asserting a setoff, right of subrogation or recoupment of any
kind against any debt, liability or obligation due to the Debtors,
Reorganized Stratosphere, Reorganized Gaming Corp. or their
respective property; and (v) commencing or continuing any action, in
any manner or any place, that does not comply with or is
inconsistent with the provisions of this Plan or the Bankruptcy
Code.
11.4. EXCULPATION. Neither Debtors, Reorganized Stratosphere,
Reorganized Gaming Corp., Majority Original Holders nor any
Statutory Committee, nor any of their respective present or former
members, directors, officers, employees, advisors, attorneys or
agents, shall have or incur any liability to any holder of a Claim
or Equity Interest, or any other party in interest, or any of their
respective agents, employees, representatives, financial advisors,
attorneys or Affiliates, or any of their successors or assigns, for
any act or omission in connection with, relating to, or arising out
of, the Chapter 11 Cases, the pursuit of confirmation of this Plan,
the consummation of this Plan, except for their willful misconduct,
and in all respects shall be entitled to reasonably rely upon the
advice of counsel with respect to their duties and responsibilities
under this Plan or in the context of the Chapter 11 Cases. No
holder of a Claim or Equity Interest, or any other party in
interest, including their respective agents, employees,
representatives, financial advisors, attorneys or Affiliates, shall
have any right of action against Debtors, Reorganized Stratosphere,
Reorganized Gaming Corp., Majority Original Holders, Statutory
Committee or any of their respective present or former members,
officers, directors, employees, advisors, attorneys or agents, for
any act or omission in connection with, relating to, or arising out
of, the Chapter 11 Cases, the pursuit of confirmation of this Plan,
the consummation of this Plan or the administration of this Plan,
except for their willful misconduct.
12. RETENTION OF JURISDICTION
12.1. JURISDICTION. Notwithstanding the entry of the Confirmation
Order and the occurrence of the Effective Date, the Bankruptcy Court
shall retain such jurisdiction over the Chapter 11 Cases after the
Effective Date as is legally permissible, including jurisdiction to:
a) Allow, disallow, determine, liquidate, classify, estimate
or establish the priority or secured or unsecured status of any
Claim, including the resolution of any request for payment of any
Administrative Claim and the resolution of any and all objections
to the allowance or priority of Claims;
b) Grant or deny any applications for allowance of
compensation or reimbursement of expenses authorized pursuant to
the Bankruptcy Code or this Plan;
30
<PAGE> 168
c) Resolve any matters related to the assumption, assignment
or rejection of any executory contract or unexpired lease to which
the Debtors are a party and to hear, determine and, if necessary,
liquidate, any Claims arising therefrom or cure amounts related
thereto;
d) Ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of this Plan;
e) Decide or resolve any motions, adversary proceedings
(including the Standby Equity Commitment), contested or litigated
matters and any other matters and grant or deny any applications or
motions involving the Debtors that may be pending on the Effective
Date;
f) Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of this Plan and all
contracts, instruments, releases and other agreements or documents
created in connection with this Plan or the Disclosure Statement,
except as otherwise provided herein;
g) Resolve any cases, controversies, suits or disputes that
may arise in connection with the consummation, interpretation or
enforcement of this Plan or any Person's obligations incurred in
connection with this Plan;
h) Modify this Plan before or after the Effective Date
pursuant to Section 1127 of the Bankruptcy Code or modify the
Disclosure Statement or any contract, instrument, release or other
agreement or document created in connection with this Plan or the
Disclosure Statement; or remedy any defect or omission or reconcile
any inconsistency in any Bankruptcy Court order, this Plan, the
Disclosure Statement or any contract, instrument, release or other
agreement or document created in connection with this Plan or the
Disclosure Statement, in such manner as may be necessary or
appropriate to consummate this Plan, to the extent authorized by
the Bankruptcy Code;
i) Issue injunctions, enter and implement other orders or take
such other actions as may be necessary or appropriate to restrain
interference by any entity with consummation or enforcement of this
Plan, except as otherwise provided herein;
j) Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified,
stayed, reversed, revoked or vacated;
k) Determine any other matters that may arise in connection
with or relate to this Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release or other
agreement or document created in connection with this Plan or the
Disclosure Statement, except as otherwise provided herein;
l) Enter an order closing the Chapter 11 Cases; and
31
<PAGE> 169
m) Initiate and prosecute Avoidance Actions and continue to
prosecute pending Avoidance Actions and any other claim or cause of
action of Debtors, including but not limited to, those against
Stupak and any of his Affiliates and Grand and any of its
Affiliates.
13. MODIFICATION, AMENDMENT, AND WITHDRAWAL OF PLAN; ALTERNATIVE TRANSACTIONS
13.1. MODIFICATION AND AMENDMENT. Prior to Confirmation,
Stratosphere and Gaming Corp. may alter, amend or modify this Plan
or any Exhibits thereto under Section 1127(a) of the Bankruptcy Code
at any time. After the Confirmation Date and prior to substantial
consummation of this Plan as defined in Section 1101(2) of the
Bankruptcy Code, Stratosphere and Gaming Corp. may, under Section
1127(b), (c) and (d) of the Bankruptcy Code, institute proceedings
in the Bankruptcy Court to remedy any defect or omission or
reconcile any inconsistencies in this Plan, the Disclosure Statement
or the Confirmation Order, to make appropriate adjustments and
modifications to this Plan, the Confirmation Order to the Plan
Supplement exhibits as a result of comments or actions of the SEC of
Gaming Authorities, and such matters as may be necessary to carry
out the purposes and effects of this Plan so long as such
proceedings do not materially adversely affect the treatment of
holders of Claims under this Plan.
13.2. ALTERNATIVE TRANSACTIONS. During the period commencing upon
the filing of this Plan with the Bankruptcy Court and up until the
commencement of the Confirmation Hearing, Stratosphere and
Stratosphere Gaming, will, upon the execution of appropriate
confidentiality agreements, respond to inquiries from, engage in
discussions with and provide information to any Person interested in
the final restructuring of the Debtors in lieu of the transaction
contained in this Plan. At the Confirmation Hearing Debtors shall
disclose to the Bankruptcy Court information concerning all
Alternative Transactions. Proposals received and the Bankruptcy
Court may in its own discretion consider such Alternative
Transaction Proposal. In the event that prior to the Confirmation
Hearing an Alternative Transaction Proposal is received,
Stratosphere shall notify the Majority Original Holders of such
Alternative Transaction Proposal, whether written or oral, which
notice shall identify the parties to such Alternative Transaction
Proposal and set forth in reasonable detail the terms and conditions
of such Alternative Transaction Proposal and Debtors reserve the
right to submit such Alternative Transaction Proposal to the
Bankruptcy court for determination as to such Alternative
Transaction Proposal containing economic terms and conditions more
favorable to the Debtors and Creditors than the transaction proposed
by this Plan. Debtors reserve the right to alter, amend or modify
this Plan as provided for above in Section 13.1 prior to
Confirmation or during the Confirmation Hearing to reflect such
Alternative Transaction Proposal.
32
<PAGE> 170
14. MISCELLANEOUS
14.1. FILING OF OBJECTIONS TO CLAIMS. After the Effective Date,
objections to Claims shall be made and objections to Claims made
previous thereto shall be pursued by Reorganized Stratosphere or
Reorganized Gaming Corp., as the case may be, or any other party
properly entitled to do so after notice to Reorganized Stratosphere
and approval by the Bankruptcy Court. Any objections made after the
Effective Date shall be filed and served not later than forty-five
(45) days after the Effective Date; provided, however, that such
period may be extended by order of the Bankruptcy Court for good
cause shown.
14.2. SETTLEMENT OF OBJECTIONS AFTER EFFECTIVE DATE. From and
after the Effective Date, Reorganized Stratosphere or Reorganized
Gaming Corp., as the case may be, may litigate to judgment, propose
settlements of, or withdraw objections to, all pending or filed
Disputed Claims, and Reorganized Stratosphere or Reorganized Gaming
Corp., as applicable, may settle or compromise any Disputed Claim
without notice and a hearing and without approval of the Bankruptcy
Court.
14.3. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; TIMING. Each
of the officers of the Debtors, Reorganized Stratosphere, and
Reorganized Gaming Corp. is authorized and directed under the
resolutions of the boards of directors of the Debtors, Reorganized
Stratosphere, or Reorganized Gaming Corp., as the case may be, to
execute, deliver, file or record such contracts, instruments,
releases and other agreements or documents and to take such actions
as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of this Plan and any securities
issued pursuant to this Plan. All transactions that are required to
occur on the Effective Date under the terms of this Plan shall be
deemed to have occurred simultaneously. The Debtors, Reorganized
Stratosphere and Reorganized Gaming Corp. are authorized and
directed to do such acts and execute such documents as are necessary
to implement this Plan.
14.4. EXEMPTION FROM TRANSFER TAXES. Pursuant to Section 1146(c)
of the Bankruptcy Code, the issuance, transfer or exchange of equity
securities or other Estate property under this Plan shall not be
subject to any stamp, real estate, transfer, mortgage, recording or
other similar tax.
14.5. REVOCATION OR WITHDRAWAL OF THIS PLAN. If this Plan is
withdrawn or revoked, then this Plan shall be deemed null and void
and nothing contained herein shall be deemed to constitute a waiver
of any Claims by or against the Debtors or any other Person nor
shall the withdrawal or revocation of this Plan prejudice in any
manner the rights of the Debtors or any Person in any further
proceedings involving the Debtors. In the event this Plan is
withdrawn or revoked, nothing set forth herein shall be deemed an
admission of any sort and this Plan and any transaction contemplated
thereby shall not be admitted into evidence in any proceeding.
33
<PAGE> 171
14.6. BINDING EFFECT. This Plan shall be binding upon, and shall
inure to the benefit of, the Debtors, and the holders of all
Claims and Equity Interests and their respective successors and
assigns.
14.7. GOVERNING LAW. Except to the extent that the Bankruptcy Code
or other federal law is applicable or as provided in any
document contained in the Plan Supplement or in any document which
remains unaltered by this Plan, the rights, duties and obligations
of the Debtors and any other Person arising under this Plan shall
be governed by, and construed and enforced in accordance with, the
internal laws of the State of Nevada without giving effect to
Nevada's choice of law provisions.
14.8. INTERCOMPANY CLAIMS. Except with respect to the Original
Subsidiary Guarantee, any intercompany Claims between or
against Stratosphere and Gaming Corp., as the case may be, shall
remain unaltered by this Plan, and such intercompany Claims shall
be paid or otherwise satisfied in the ordinary course of business.
14.9. MODIFICATION OF PAYMENT TERMS. Reorganized Stratosphere and
Reorganized Gaming Corp. reserve the right to modify the
treatment of any Allowed Claim or Equity Interest in any manner
adverse only to the holder of such Claim or Equity Interest at any
time after the Effective Date upon the prior written consent of
the holder whose Allowed Claim or Equity Interest treatment is
being adversely affected.
14.10. PROVIDING FOR CLAIMS PAYMENT. Distributions to holders of Allowed
Claims in Class 1, 2, 3 and 9 shall be made by the Disbursing
Agent: (i) at the addresses set forth on the proofs of Claim filed
by such holders (or at the last known addresses of such holders if
no proof of Claim is filed or if the Debtor has been notified of a
change of address); (ii) at the addresses set forth in any written
notices of address changes delivered to the Disbursing Agent after
the date of any related proof of Claim; or (iii) at the addresses
reflected in the Schedules if no proof of Claim has been filed and
the Disbursing Agent has not received a written notice of a change
of address. If any holder's distribution is returned as
undeliverable, no further distributions to such holder shall be
made unless and until the Disbursing Agent is notified of such
holder's then current address, at which time all missed
distributions shall be made to such holder without interest.
Amounts in respect of undeliverable distributions made through the
Disbursing Agent shall be returned to Reorganized Stratosphere
until such distributions are claimed. All claims for
undeliverable distributions shall be made on or before the second
anniversary of the Effective Date. After such date, all unclaimed
property shall revert to Reorganized Stratosphere or Reorganized
Gaming Corp., as the case may be, and the Claim of any holder or
successor to such holder with respect to such property shall be
discharged and forever barred notwithstanding any federal or state
escheat laws to the contrary.
14.11. SET OFFS. The Debtors, Reorganized Stratosphere, and Reorganized
Gaming Corp. may, but shall not be required to, set off or
recoup against any Claim or Equity Interest and the payments or
other distributions to be made pursuant to this Plan in respect of
such Claim, claims of any nature whatsoever that arose prior to
the
34
<PAGE> 172
Petition Date which the Debtors may have against the holder of such
Claim or Equity Interest to the extent such Claims may be set off or
recouped under applicable law, but neither the failure to do so nor
the allowance of any Claim or Equity Interest hereunder shall
constitute a waiver or release by the Debtors, Reorganized
Stratosphere or Reorganized Gaming Corp., of any such claim that it
may have against such holder.
14.12. NOTICES. Any notice required or permitted to be provided under
this Plan shall be in writing and served by either: (a) certified
mail, return receipt requested, postage prepaid; (b) hand delivery
or (c) reputable overnight courier service, freight prepaid, to be
addressed as follows:
If to the Debtors: STRATOSPHERE CORPORATION
Las Vegas Boulevard South
Las Vegas, Nevada 89104
Attn: Andrew S. Blumen,
Executive Vice President and
General Counsel
Tel: (702) 383-5298
Fax: (702) 383-4733
With a copy to: GORDON & SILVER, LTD.
Howard Hughes Parkway, 14th Floor
Las Vegas, Nevada 89109
Attn: Gerald M. Gordon, Esq.
Thomas H. Fell, Esq.
Tel: (702) 796-5555
Fax: (702) 369-2666
If to Majority HIGH RIVER LIMITED PARTNERSHIP
Original Holders: AMERICAN REAL ESTATE PARTNERS, L.P.
C/O ICAHN ASSOCIATES GROUP
767 Fifth Avenue
New York, NY 10153
Attn: Jouko Tamminen
Tel: (212) 702-4314
Fax: (212) 750-5815
GRACE BROTHERS LIMITED
Sherman Ave., #900
Evanston, IL 60201
Attn: Bradford T. Whitmore
Tel: (847) 733-0232
Fax: (847) 733-0339
35
<PAGE> 173
With a copy to: BERLACK, ISRAELS & LIBERMAN, LLP
120 W. 45th Street
New York, NY 10036
Attn: Edward S. Weisfelner, Esq.
Tel: (212) 704-0100
Fax: (212) 704-0196
and
JONES, DAY, REAVIS & POGUE
West Wacker
Chicago, ILL 60601
Attn: David S. Kurtz, Esq.
Tel:
Fax: (312) 782-8585
If to the Indenture Trustee: IBJ SCHRODER BANK AND TRUST COMPANY
One State Street
New York, New York 10004
Attn: Max Volmar
Telephone: (212) 858-2428
Fax: (212) 858-2156
With a copy to: BRYAN CAVE LLP
Suite 3600
N. Broadway
St. Louis, Missouri 63102-2750
Attn: Gregory D. Willard, Esq.
Telephone: (314) 259-2000
Fax (314) 259-2020
14.13. STATUTORY COMMITTEE. Any Statutory Committee appointed in the
Chapter 11 Cases shall terminate on the Effective Date and shall
thereafter have no further responsibilities in respect of the
Chapter 11 Cases, except with respect to preparation of filing of
applications for compensation and reimbursement of expenses.
14.14. SEVERABILITY. If any provision of this Plan is found by the
Bankruptcy Court to be invalid, illegal or unenforceable, then, at
the option of Debtors, such provision shall not affect the validity
or legality of any other provision of this Plan which shall remain
effective.
14.15. WITHHOLDING AND REPORTING REQUIREMENTS. In connection with this
Plan and all instruments and securities issued in connection
therewith and distributions thereon, Reorganized Stratosphere, the
Disbursing Agent and the Indenture Trustee, as the case may be,
shall comply with all withholding and reporting requirements imposed
by any federal, state, local, or foreign taxing authority, and all
distributions hereunder shall be subject to any such withholding and
reporting requirements.
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<PAGE> 174
14.16. POST CONFIRMATION REPORTING. Until the entry of the final decree
closing the Chapter 11 Cases, Reorganized Stratosphere and
Reorganized Gaming Corp. shall file with the clerk of the Bankruptcy
Court, not later than four (4) months after the entry of the
Confirmation Order and every six (6) months thereafter, a report of
the action taken by Reorganized Stratosphere and Reorganized Gaming
Corp. and the progress made toward consummation of the confirmed
Plan.
14.17. CRAMDOWN. In the event that any impaired Class is determined to
have rejected this Plan in accordance with Section 1126 of the
Bankruptcy Code, the Debtors will invoke the provisions of Section
1129(b) of the Bankruptcy Code to satisfy the requirements for
confirmation of this Plan.
DATED: October , 1997
Respectfully submitted,
STRATOSPHERE CORPORATION,
a Delaware corporation
By: /s/ Andrew S. Blumen
-----------------------------------
Andrew S. Blumen
Executive Vice President
STRATOSPHERE GAMING CORP.,
a Nevada corporation
By: /s/ Andrew S. Blumen
-----------------------------------
Andrew S. Blumen
Executive Vice President
GORDON & SILVER, LTD.
By: /s/ Gerald M. Gordon
----------------------------------
Gerald M. Gordon,
Attorney for the Debtors-In-Possession
37
<PAGE> 175
EXHIBIT 1
TO
SECOND AMENDED PLAN OF REORGANIZATION
CERTAIN PRESERVED POTENTIAL CAUSES OF ACTION
All defined terms used herein shall have the meanings set forth
in the Plan. The following is a non-exhaustive list of potential parties against
whom Debtors, Reorganized Stratosphere and/or Reorganized Gaming Corp. may hold
a claim or cause of action. Debtors, Reorganized Stratosphere and Reorganized
Gaming Corp. reserve their right to modify this list to amend or add parties or
causes of action, but disclaim any obligation to do so. In addition to the
possible causes of action and claims listed below, Debtors, Reorganized
Stratosphere and Reorganized Gaming Corp. have or may have, in the ordinary
course of their business, numerous causes of action and Claims or rights against
contractors, subcontractors, suppliers and others with whom they deal in the
ordinary course of their business (the "Ordinary Course Claims"). Debtors,
Reorganized Stratosphere and Reorganized Gaming Corp. reserve their right to
enforce, sue on, settle or compromise (or decline to do any of the foregoing)
the Ordinary Course Claims, as well as the claims and causes of action listed
below and all other clams and causes of action. Debtors. Reorganized
Stratosphere and Reorganized Gaming Corp. also have, or may have, and are
retaining, various claims or causes of action arising under or pursuant to its
insurance policies, and all rights arising under, relating to, or in connection
with such policies are expressly reserved and retained.
<TABLE>
<S><C>
1. Robert E. Stupak Indemnification; Derivative; Contractual;
Preference
2. Bob Stupak Enterprises, Inc. Indemnification; Derivative; Contractual
Preference
3. Las Vegas Vacation Club, Inc. Indemnification; Contractual
4. Grand Casinos, Inc. Derivative; Preference; Contractual
5. Taylor International Corporation Negligence; Contractual
(and any and all subcontractors)
6. Any and all construction consultants, Negligence; Contractual
engineering, designers and architects
with respect to the Stratosphere Tower
Hotel and Casino in Las Vegas, Nevada
7. Any underwriters, accountants, or other Negligence; Contractual
professionals employed by Stratosphere
prior to Petition Date
8. Perini Construction Negligence; Contractual
</TABLE>
<PAGE> 176
EXHIBIT 2
TO
SECOND AMENDED PLAN OF REORGANIZATION
REJECTED EXECUTORY CONTRACTS
NONE
<PAGE> 177
EXHIBIT 3
TO
SECOND AMENDED PLAN OF REORGANIZATION
REJECTED LEASES
NONE
<PAGE> 178
EXHIBIT B
<PAGE> 179
SUBJECT TO MODIFICATION
Stratosphere Corporation
Cash Flow Analysis
<TABLE>
<CAPTION>
Fiscal Year Six Months Ended Six Months Ended
1997 % June 30, 1998 % December 29, 1998 %
---------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Departmental Revenue:
Table Games $ 18,092,535 12.0% $ 9,227,182 12.3% $ 8,865,332 12.3%
Slots 44,829,022 29.7% 22,862,810 30.6% 21,966,230 30.6%
Keno 454,127 0.3% 231,598 0.3% 222,516 0.3%
---------------------- --------------------- ----------------------
Total Casino Revenue 63,375,684 41.9% 32,321,590 43.3% 31,054,078 43.3%
---------------------- --------------------- ----------------------
Hotel 23,588,897 15.6% 10,615,320 14.2% 10,199,032 14.2%
Food and Beverage 33,664,254 22.3% 17,017,510 22.8% 16,350,158 22.8%
Entertainment 4,357,806 2.9% 2,222,376 3.0% 2,135,224 3.0%
Stratosphere Tower 16,262,472 10.8% 7,425,600 9.9% 7,133,998 9.9%
Retail 5,501,515 3.6% 2,861,886 3.8% 2,749,656 3.8%
Other Operations 704,194 0.5% 366,320 0.5% 351,956 0.5%
Other Income 3,698,587 2.4% 1,886,234 2.5% 1,812,265 2.5%
---------------------- --------------------- ----------------------
Total Revenue 151,153,409 100.0% 74,716,836 100.0% 71,786,367 100.0%
---------------------- --------------------- ----------------------
Cost of Sales 18,260,870 42.0% 8,840,709 40.0% 8,494,015 40.0%
Payroll and Related Expenses:
Table Games 6,615,649 4.4% 3,034,850 4.1% 3,034,850 4.2%
Slots 3,536,403 2.3% 1,609,790 2.2% 1,609,790 2.2%
Keno 285,881 0.2% 145,148 0.2% 145,146 0.2%
Other Casino 2,009,051 1.3% 923,650 1.2% 923,650 1.3%
---------------------- --------------------- ----------------------
Total Casino 12,446,984 8.2% 5,713,436 7.6% 5,713,436 8.0%
Hotel 7,524,109 5.0% 3,720,990 5.0% 3,720,990 5.2%
Food and Beverage 16,755,842 11.1% 7,732,270 10.3% 7,732,270 10.8%
Entertainment 1,149,016 0.8% 593,776 0.8% 593,776 0.8%
Stratosphere Tower 2,744,774 1.8% 1,385,476 1.9% 1,385,476 1.9%
Retail 1,189,478 0.8% 606,970 0.8% 606,970 0.8%
Other Operations 533,823 0.4% 250,706 0.3% 250,706 0.3%
---------------------- --------------------- ----------------------
Total Payroll and Related Expenses 42,344,026 28.0% 20,003,624 26.8% 20,003,624 27.9%
---------------------- --------------------- ----------------------
Other Operating Expenses
Operating Expenses 20,581,993 13.6% 9,713,189 13.0% 9,332,228 13.0%
Gaming Taxes 5,037,277 3.3% 2,585,727 3.5% 2,484,326 3.5%
---------------------- --------------------- ----------------------
Total Other Operating Expenses 25,619,270 16.9% 12,298,916 16.5% 11,816,554 16.5%
---------------------- --------------------- ----------------------
Indirect Departments Expenses:
Administrative 4,706,068 3.1% 1,950,000 2.6% 2,050,100 2.9%
Finance 4,009,245 2.7% 1,950,000 2.6% 2,050,100 2.9%
Human Resources 9,457,588 6.3% 4,712,500 6.3% 4,712,500 6.6%
Security 4,623,357 3.1% 2,288,000 3.1% 2,288,000 3.2%
Marketing 15,996,741 10.6% 7,000,000 9.4% 7,000,000 9.8%
Facilities & Utilities 12,096,636 8.0% 6,032,000 8.1% 6,443,029 9.0%
---------------------- --------------------- ----------------------
Total Indirect Departments Expenses 50,889,635 33.7% 23,932,500 32.0% 24,543,729 34.2%
---------------------- --------------------- ----------------------
Net Operating Profit / (Loss) 14,039,608 9.3% 9,641,087 12.9% 6,928,445 9.7%
Fixed Expenses 4,608,748 3.0% 2,130,000 2.9% 2,130,000 3.0%
---------------------- --------------------- ----------------------
EBITDARC 9,430,860 6.2% 7,511,087 10.1% 4,798,445 6.7%
Restructuring Costs 6,776,216 4.5% 1,800,000 2.4% 900,000 1.3%
---------------------- --------------------- ----------------------
EBITDA 2,654,644 1.8% 5,711,087 7.6% 3,898,445 5.4%
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Six Months Ended Six Months Ended
1997 % June 30, 1998 % December 29, 1998 %
-------------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Loss on Disposal of Assets (14,186) 0.0% - 0.0% - 0.0%
Pre-Opening Expenses - 0.0% - 0.0% - 0.0%
Depreciation & Amortization 8,687,815 5.7% 4,085,586 5.5% 4,257,443 5.9%
-------------------- ----------------- ---------------------
Total Depreciation & Amortization 8,673,629 5.7% 4,085,586 5.5% 4,257,443 5.9%
-------------------- ----------------- ---------------------
EBIT (6,018,985) -4.0% 1,625,502 2.2% (358,998) -0.5%
Interest Expense: 4,919,871 3.3% 653,174 0.4% 468,631 0.3%
Interest Income 844,215 0.6% 353,816 0.5% 98,842 0.1%
-------------------- ----------------- ---------------------
Net Interest Expense 4,075,656 2.7% 299,358 0.4% 369,789 0.5%
-------------------- ----------------- ---------------------
Tax Provision - 0.0% - 0.0% - 0.0%
-------------------- ----------------- ---------------------
Net Income ($10,094,642) -6.7% $1,326,144 1.8% ($728,787) -1.0%
==================== ================ =====================
Add: Depreciation / Amortization 8,859,378 4,085,586 4,257,443
Interest Expense 4,919,871 653,174 468,631
Increase in Taxes Payable - - -
Decrease in Accounts Receivable 3,153,732 - -
Decrease in Inventory 519,577 - -
Proceeds (& Loss) on disposal of assets 1,705,441 - -
Decrease in Other Assets 1,458,820 - -
Increase in Accrued Interest & Expenses 1,056,823 - -
Increase in Accrued Payroll & Related 2,337,435 - -
Increase in Accounts Payable 5,627,004 - -
Increase in Current Liability 1,905,000 1,800,000 900,000
Increase in Notes Payable - - -
Increase due to Operating Lease Expensed 429,962 836,906 633,066
Equity Contribution - - -
Less: Decrease in Taxes Payable - - -
Increase in Accounts Receivable 1,031,070 - -
Increase in Inventory 17,100 - -
Gain on disposal of assets - - -
Increase in Other Assets 1,608,840 - -
Decrease in Accrued Interest & Expenses 2,510,307 - -
Decrease in Accrued Payroll & Related 3,063,726 - -
Decrease in Accounts Payable 4,258,334 - -
Decrease in Current Liability 84,367 - -
Decrease in Notes Payable 604,403 - -
Decrease due to Lease and Interest Payment 11,712,664 5,896,141 5,507,757
Unsecured/Priority Claims - 7,000,000 -
Restructuring Costs Payment 1,650,000 2,275,000 900,000
Capital Expenditures 743,275 480,000 720,000
Construction Expenditures -- Phase II 1,207,904 - -
------------ ---------- ---------
Net Cash Flow (6,613,588) (6,949,331) (1,597,404)
Cash and Cash Equivalents [27,270,553] 20,656,965 13,707,634 12,110,229
Cash in Escrow - - -
Cash in House (7,209,779) (7,209,779) (7,209,779)
------------ ---------- ---------
Cash In Bank 13,447,186 6,497,855 4,900,450
============ ========= =========
Cash in Bank (Available) 10,637,417 3,619,974 1,952,806
Cash in Bank (Restricted) 2,809,770 2,877,882 2,947,645
</TABLE>
<PAGE> 180
SUBJECT TO MODIFICATION
Stratosphere Corporation
Cash Flow Analysis
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1999 % 2000 %
------------------- ---------------------
<S> <C> <C> <C> <C>
Departmental Revenue:
Table Games $ 18,273,439 12.4% $ 18,730,275 12.5%
Slots 45,277,330 30.8% 45,409,264 30.9%
Keno 458,655 0.3% 470,122 0.3%
------------------- ---------------------
Total Casino Revenue 64,009,425 43.5% 65,609,660 43.6%
------------------- ---------------------
Hotel 20,814,352 14.1% 21,230,639 14.1%
Food and Beverage 33,367,672 22.7% 34,035,025 22.6%
Entertainment 4,357,600 3.0% 4,444,752 3.0%
Stratosphere Tower 14,560,000 9.9% 14,851,200 9.8%
Retail 5,621,512 3.8% 5,733,942 3.8%
Other Operations 732,642 0.5% 747,294 0.5%
Other Income 3,698,500 2.5% 3,772,470 2.5%
------------------- ---------------------
Total Revenue 147,161,702 100.0% 150,424,983 100.0%
------------------- ---------------------
Cost of Sales 17,338,714 40.0% 17,685,488 40.0%
Payroll and Related Expenses:
Table Games 6,221,443 4.2% 6,376,979 4.2%
Slots 3,300,070 2.2% 3,382,571 2.2%
Keno 297,549 0.2% 304,988 0.2%
Other Casino 1,893,483 1.3% 1,940,020 1.3%
------------------- ---------------------
Total Casino 11,712,544 8.0% 12,005,357 8.0%
Hotel 7,628,030 5.2% 7,818,730 5.2%
Food and Beverage 15,851,154 10.8% 16,247,432 10.8%
Entertainment 1,217,241 0.8% 1,247,672 0.8%
Stratosphere Tower 2,840,226 1.9% 2,911,231 1.9%
Retail 1,244,289 0.8% 1,275,396 0.8%
Other Operations 513,947 0.3% 526,796 0.4%
------------------- ---------------------
Total Payroll and Related Expenses 41,007,429 27.9% 42,032,615 27.9%
------------------- ---------------------
Other Operating Expenses
Operating Expenses 19,426,325 13.2% 19,814,851 13.2%
Gaming Taxes 5,171,455 3.5% 5,274,884 3.5%
------------------- ---------------------
Total Other Operating Expenses 24,597,779 16.7% 25,089,735 16.7%
------------------- ---------------------
Indirect Departments Expenses:
Administrative 4,080,102 2.8% 4,161,704 2.8%
Finance 4,080,102 2.8% 4,161,704 2.8%
Human Resources 9,613,500 6.5% 9,805,770 6.5%
Security 4,667,520 3.2% 4,760,870 3.2%
Marketing 14,000,000 9.5% 14,000,000 9.3%
Facilities & Utilities 12,724,530 8.6% 12,979,020 6.6%
------------------- ---------------------
Total Indirect Departments Expenses 49,165,754 33.4% 49,869,069 33.2%
------------------- ---------------------
Net Operating Profit / (Loss) 15,052,027 10.2% 15,748,077 10.5%
Fixed Expenses 4,345,200 3.0% 4,432,104 2.9%
------------------- ---------------------
EBITDARC 10,706,827 7.3% 11,315,973 7.5%
Restructuring Costs - 0.0% - 0.0%
------------------- ---------------------
EBITDA 10,706,827 7.3% 11,315,973 7.5%
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1999 % 2000 %
------------------- ---------------------
<S> <C> <C> <C> <C>
Loss on Disposal of Assets - 0.0% - 0.0%
Pre-Opening Expenses - 0.0% - 0.0%
Depreciation & Amortization 9,950,271 6.8% 10,149,277 6.7%
------------------- ---------------------
Total Depreciation & Amortization 9,950,271 6.8% 10,149,277 6.7%
------------------- ---------------------
EBIT 756,555 0.5% 1,166,696 0.8%
Interest Expense: 243,789 0.2% 3,849 0.0%
Interest Income 58,429 0.0% - 0.0%
------------------- ---------------------
Net Interest Expense 185,360 0.1% 3,849 0.0%
------------------- ---------------------
Tax Provision 298,998 0.2% 755,851 0.5%
------------------- ---------------------
Net Income 272,198 0.2% 406,997 0.3%
=================== =====================
Add: Depreciation / Amortization 9,950,271 10,149,277
Interest Expense 243,789 3,849
Increase in Taxes Payable - -
Decrease in Accounts Receivable - -
Decrease in Inventory - -
Proceeds (& Loss) on disposal of assets - -
Decrease in Other Assets - -
Increase in Accrued Interest & Expenses - -
Increase in Accrued Payroll & Related - -
Increase in Accounts Payable - -
Increase in Current Liability - -
Increase in Notes Payable - -
Increase due to Operating Lease Expensed 609,786 -
Equity Contribution - -
Less: Decrease in Taxes Payable - -
Increase in Accounts Receivable - -
Increase in Inventory - -
Gain on disposal of assets - -
Increase in Other Assets - -
Decrease in Accrued Interest & Expenses - -
Decrease in Accrued Payroll & Related - -
Decrease in Accounts Payable - -
Decrease in Current Liability - -
Decrease in Notes Payable - -
Decrease due to Lease and Interest Payment 10,406,747 -
Unsecured/Priority Claims - -
Restructuring Costs Payment - -
Capital Expenditures 2,800,000 2,800,000
Construction Expenditures -- Phase II - -
---------- -----------
Net Cash Flow (2,130,703) 7,760,122
Cash and Cash Equivalents 9,979,526 17,739,649
Cash in Escrow -
Cash in House (7,209,779) (7,209,779)
---------- -----------
Cash In Bank 2,769,747 10,529,870
========== ===========
Cash in Bank (Available) (322,540) 7,286,061
Cash in Bank (Restricted) 3,092,287 3,243,809
</TABLE>
<PAGE> 181
Subject to Modification
Stratosphere Corporation and Subsidiaries (1)
General Assumptions Underlying the Cash Flow Analysis
For the Years Ending December 31, 1997 Through 2000
================================================================================
The cash analysis (hereinafter, the "Projections") was prepared for
Stratosphere Corporation and its wholly owned subsidiaries (collectively, the
"Company") on a consolidated basis. The Projections represent management's
estimate of the Company's future operating performance based on a number of
assumptions that, although developed and considered reasonable by management,
are inherently subject to significant economic and competitive uncertainties
beyond the control of management. Accordingly, the Company's future operating
and financial results may vary significantly from the Projections.
The Projections are not considered "forecasts" or "projections" as technically
defined by the American Institute of Certified Public Accountants. An
independent public accountant has not audited the Projections, and accordingly,
no opinion, or any other form of assurance, has been expressed in connection
with the Projections.
Certain specific assumptions utilized by management in preparing the
Projections include, but are not limited to, the following:
- - Confirmation of the Plan will occur on or about January 31, 1998;
- - The Effective Date of the Plan will occur on or about June 30, 1998;
- - Revenue and expense estimates reflect myriad information considered and
analyzed by management, including; the Company's actual operating
performance since the commencement of operations on April 29, 1996,
including more recent trends therein; operating and marketing strategies
which have been, or will likely be, implemented; the current condition of
the Las Vegas gaming market; and, the impact of new hotels / casinos
scheduled to come on-line during the period covered by the Projections;
- - Professional fees being incurred in connection with the Chapter 11 Cases
are expected to continue through September 30, 1998;
- - Interest expense is based on the capital structure provided for by the
Plan. No additional indebtedness is contemplated in the Projections;
- - The Company will continue to make payments to the Capital Lease Bank Group
(as scheduled in the Original Participation Agreement) through the
Effective Date;
- - The Company will continue to make payments to Heller (as scheduled in the
Heller Capital Lease) through the Effective Date;
- ---------------------------------
(1) Includes Stratosphere Corporation, Stratosphere Gaming Corp., and the
following non-debtor subsidiaries of Stratosphere Corporation; Stratosphere
Land Corporation; Stratosphere Advertising Agency; Stratosphere-Nevada
Corporation; and 2000 South Las Vegas Boulevard Retail Corporation.
1
<PAGE> 182
- - An analysis of the Company's projected consolidated income tax position
(post reorganization) has not yet been performed. For purposes of the
Projections, it is assumed that any pre-Effective Date net operating
losses not utilized by the Company as of the Effective Date will be
reduced to zero (on the Effective Date) as a result of the discharge of
indebtedness ("DOI") income resulting from the implementation of the Plan.
Management intends to reassess this assumption and make any necessary
adjustments to the Projections once an analysis of the Company's
consolidated tax position has been performed;
- - From and after the Effective Date, the Company will make payments to
holders of Allowed Claims as provided for in the Plan;
- - Total Cash payments to be made on or about the Effective Date are
estimated at approximately $7.4 million; such amount is exclusive of
scheduled payments to be made on or about the Effective Date to holders of
Class 7 and Class 8 Claims and assumes that Administrative Claims for
professional fees incurred through the Effective Date are paid in full as
of the Effective Date;
- - With the exception of Cash, current asset and liability balances are
anticipated to remain relatively constant (on a year-to-year basis) during
the period covered by the Projections;
- - The final payment to the Capital Lease Bank Group of $7.4 million is
anticipated to be made on April 30, 1999, resulting in an estimated cash
shortfall of $322,540 as of December 31, 1999. Management believes there
will be several refinancing alternatives available to the Company to
eliminate such shortfall and provide adequate funding for Company
operations;
- - The completion of Phase II is not contemplated.
2
<PAGE> 183
EXHIBIT C
<PAGE> 184
SUBJECT TO MODIFICATION
STRATOSPHERE CORPORATION AND SUBSIDIARIES [A, B]
LIQUIDATION ANALYSIS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Estimated
Book Value Liquidation Value
Note as of 6/28/98 as of 6/28/98
I. STATEMENT OF ASSETS Reference (Unaudited) (Unaudited)
- ---------------------- --------- ------------- -----------------
<S> <C> <C> <C>
Cash 1 $ 22,532 $ 22,532
Accounts Receivable 2 3,985 3,935
Inventory 3 2,914 2,040
Prepaid Expenses 4 2,550 2,215
Deposits 5 418 418
Property and Equipment, Net
of Accumulated Depreciation 6 118,124 95,402
Other Assets 7 808 5,661
-------- --------
Net Liquidation Proceeds $151,331 $132,203
======== ========
</TABLE>
NOTES:
- ------
[A]. This schedule should be read in conjunction with the accompanying
"Notes to Liquidation Analysis".
[B]. Discrepancies may exist relative to figures elsewhere in the Plan and
Disclosure Statement due to rounding of numbers.
1
<PAGE> 185
SUBJECT TO MODIFICATION
STRATOSPHERE CORPORATION AND SUBSIDIARIES [A, B]
LIQUIDATION ANALYSIS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
II. ALLOCATION OF NET LIQUIDATION PROCEEDS TO SECURED, %
ADMINISTRATIVE, PRIORITY AND UNSECURED CLAIMS AND EQUITY INTERESTS RECOVERY
--------
Net Liquidation Proceeds: $ 132,203
Less: Contingency Reserve --
---------
Net Liquidation Proceeds after Contingency Reserve 132,203
ESTIMATED
ALLOWABLE
CLAIMS
---------
Class 4 - Secured Tax Claims $ -- -- N/A
Class 5 - Miscellaneous Secured Claims 181 (181) 100%
Class 6 - Secured Portion of Original First Mortgage Note Claims 87,813 (87,813) 100%
Class 7 - Heller Capital Lease Claims -- -- N/A
Class 8 - Capital Lease Claims 13,797 (13,797) 100%
Class 10 - Reliable Steel Lien Claim 278 (278) 100%
---------
Net Liquidation Proceeds after Secured Claims 30,134
Chapter 7 Trustee Fees 3,989
Chapter 7 and Chapter 11 Professional Fees and Expenses 3,800
Chapter 7 and Chapter 11 Administrative Claims (Excluding Professional Fees) 9,828
--------
(17,617) 100%
---------
Net Liquidation Proceeds after Chapter 7 and 11 Administrative Claims 12,517
Priority Claims
Class 1 - Priority Wage Claims --
Class 2 - Priority Benefit Plan Contribution Claims --
Class 3 - Priority Customer Deposit Claims --
Priority Tax Claims 1,133
--------
(1,133) 100%
---------
Net Liquidation Proceeds after Priority Claims 11,384
Unsecured Claims
Class 9 - General Unsecured Claims (Excl. Deficiency and Grand Sub. Claim) 3,835 (220) 6%
Class 9 - General Unsecured Claims - Deficiency Claims from Class 6 135,849 (11,164)[C] 8%
Class 9 - General Unsecured Claims - Grand Subordinated Claim 58,646 -- [C] 0%
---------
Net Proceeds Available After Distributions to Claim Holders $ --
=========
Estimated (Shortfall) on Unsecured Claims $(186,946)
---------
Net Proceeds Available to Class 12 - Equity Interests and Equity Interests
- Related Claims $ --
=========
</TABLE>
NOTE:
[A]. This schedule should be read in conjunction with the accompanying "Notes
to Liquidation Analysis".
[B]. Discrepancies may exist relative to figures elsewhere in the Plan and
Disclosure Statement due to rounding of numbers.
[C]. Because of the Original Subordination Agreement executed by Grand in
favor of the Indenture Trustee, the allocation of the proceeds that would
otherwise go to satisfy the Grand Subordinated Claim (included in Class 9) have
been allocated to the holders of unsecured deficiency Claims arising from the
Original First Mortgage Notes (also included in Class 9). See "Notes to
Liquidation Analysis" for further information.
2
<PAGE> 186
SUBJECT TO MODIFICATION
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO LIQUIDATION ANALYSIS
In conjunction with developing the Plan described in the Disclosure
Statement to which this is an exhibit, a liquidation analysis (the "Liquidation
Analysis") has been prepared for Stratosphere Corporation and its wholly owned
subsidiaries (collectively, the "Company"). The Liquidation Analysis may be
helpful to holders of Claims in reaching a determination of whether to accept
or reject the Plan. The Liquidation Analysis has not been audited by an
independent public accountant, and accordingly, no opinion, or any other form
of assurance, has been expressed in connection with the Liquidation Analysis.
All capitalized terms which are not defined herein, or which do not correspond
to a specific caption in the Liquidation Analysis, shall have the meaning
ascribed to them in the Plan unless the context otherwise requires.
The Liquidation Analysis reflects management's estimate of the proceeds
which may be realized by the Estate and the potential recoveries realized by the
holders of Claims and Equity Interests if the assets of the Company were
liquidated and the proceeds distributed in accordance with chapter 7 of the
Bankruptcy Code ("Chapter 7"). Underlying the Liquidation Analysis are a number
of estimates and assumptions that, although developed and considered reasonable
by management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of management, and are based
upon assumptions with respect to liquidation decisions which could be subject to
change. Accordingly, there can be no assurance that the values and the costs
reflected in the Liquidation Analysis would be realized if the Company was, in
fact, to undergo such a liquidation.
The Liquidation Analysis is based on the projected assets held by the
Company as of June 28, 1998 and has been prepared as if Stratosphere Corporation
and Stratosphere Gaming Corp. (collectively the "Debtors") were substantively
consolidated. Accordingly, the Liquidation Analysis includes estimated
liquidation values for assets held directly by the Debtors and the non-Debtor
subsidiaries of Stratosphere (i.e., Stratosphere Land Corporation, Stratosphere
Advertising Agency, Stratosphere Nevada Corporation and 2000 Las Vegas Boulevard
Retail Corporation). It has been hypothetically assumed that a plan of
reorganization could not ultimately be confirmed and that on or about December
28, 1997 ("Conversion Date"), the Debtors' Chapter 11 Cases are converted to
Chapter 7 proceedings. From a timing standpoint, it is anticipated that a
trustee is appointed immediately upon the hypothetical conversion of the cases
("Chapter 7 Trustee").
Subsequent to the Conversion Date, it is anticipated that management will
operate the Stratosphere Tower, Casino & Hotel ("Resort") under the supervision
of the Chapter 7 Trustee until such time as the liquidation process is
substantially complete. It is assumed that the process undertaken to liquidate
the Company's assets will be completed on or about June 29, 1998. The net
liquidation proceeds available to holders of Allowed Secured Claims and Allowed
Secured Tax Claims (if any) are assumed to be distributed on or about July 1,
1998 (the "Secured Claim Distribution Date"). The Chapter 7 Trustee is expected
to conclude substantially all of the Debtors' remaining affairs by December 27,
1998. Net liquidation
1
<PAGE> 187
SUBJECT TO MODIFICATION
proceeds available to holders of all other Allowed Claims are assumed to be
distributed on or about December 28, 1998 ("Distribution Date").
For purposes of the Liquidation Analysis, the Resort is assumed to be
liquidated as a "going-concern", albeit subject to "forced-sale" conditions.
Because of the restricted marketing period imposed by the "forced-sale"
conditions, it is further assumed that a sale of the Resort occurs at a
substantial discount to its otherwise fair market value. Management has
projected revenues, expenses and cash flows (from June 29, 1997) assuming the
Company continues to operate the Resort through June 28, 1998. These projected
operating results are used to estimate certain asset and liability balances as
of June 28, 1998. With the exception of Cash and equivalents thereof
(hereinafter, "Cash Equivalents"), the working capital account balances are
assumed to be at normalized levels as of June 29, 1997. Accordingly, it is
assumed the non-Cash (and non-Cash Equivalent) working capital account
balances will be at similar levels as of June 28, 1998.
Costs that have been specifically identified in connection with the
liquidation of individual assets have been netted against the respective
estimated gross liquidation proceeds derived therefrom. The classification and
dollar amounts of Claims incorporated into the Liquidation Analysis are subject
to modification pending further analysis and the receipt of additional
information with respect to such Claims. Claims which are disputed by the
Company or which are unlikely to be allowed have not been incorporated into the
Liquidation Analysis. With the exception of certain payments to insiders (as
described in Note 7), the issue of recoveries resulting from theoretical
preference claims and fraudulent conveyance actions has not been addressed in
the Liquidation Analysis.
The following notes describe the significant assumptions utilized in
arriving at amounts reflected in the various Liquidation Analysis captions.
NOTE 1 - CASH (AND CASH EQUIVALENTS)
Cash and Cash Equivalents are assumed to have a liquidation value equal to the
projected book value at June 28, 1998.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts Receivable consists primarily of third party receivables and one
related party receivable. The related party receivable is due from an entity
affiliated with Bob Stupak (hereinafter, the "Stupak Receivable"), the former
Chairman of the Board of Directors and Chief Executive Officer of the Company.
The total amount due with respect to the Stupak Receivable is approximately
$3.9 million, of which approximately $3.1 million has been reserved on the
Company's books. The net book balance of the Stupak Receivable ($800,000) is
assumed to be fully collectible, as $800,000 is currently being held in an
escrow account from which management believes the Company is entitled to
collect. It is assumed that the Company will incur legal fees of approximately
$50,000 in connection with efforts to recover the proceeds held in escrow and
that such proceeds (net of legal fees) will be available on or before the
Secured Claim Distribution Date.
2
<PAGE> 188
SUBJECT TO MODIFICATION
The non-related party portion of the Accounts Receivable balance as of June
29, 1997 is believed to be at a normalized level. Accordingly, it is assumed
that the Accounts Receivable balance (excluding related party receivables) as
of June 28, 1998 will be at a similar level. The collection of third party
receivables is based on management's estimation of collection given such
factors as the aging of the receivables and past collection history. The
projected liquidation proceeds are shown net of any incremental collection
costs estimated to be incurred.
NOTE 3 - INVENTORY
Inventory consists primarily of small wares, food products, retail goods and
uniforms. It is assumed that the inventory will be sold to the ultimate
purchaser of the Resort (albeit under "forced-sale" conditions) resulting in an
estimated recovery of 70%.
The Inventory balance as of June 29, 1997 is believed to be at a normalized
level. Accordingly, it is assumed that the Inventory balance as of June 28,
1998 will be at a similar level.
NOTE 4 - PREPAID EXPENSES
Material Prepaid Expense balances were analyzed to assess whether they are
either refundable or transferable. It is assumed in the Liquidation Analysis
that refundable Prepaid Expenses projected as of June 28, 1998 will be
collected in full. Prepaid Expenses which are not refundable but are
transferable to a new owner (of the Resort), are estimated to have a
liquidation value equal to 75% of their projected book value as of June 28,
1998. Prepaid Expenses which are deemed to be neither transferable nor
refundable are assumed to have a liquidation value of zero.
Notwithstanding the analysis described above, to the extent certain Prepaid
Expense balances are considered to be of a non-perpetual nature, such amounts
are assumed to have been applied/setoff against payments which would have
otherwise been made with respect to expenses incurred during the period from
June 29, 1997 through June 28, 1998. It has also been assumed that certain
taxes which are scheduled to be prepaid in late June 1998 are not paid because
such taxes are deemed to be non-refundable and/or non-transferable.
Accordingly, these items are expected to have no book value as of June 28, 1998.
NOTE 5 - DEPOSITS
Material Deposit balances were analyzed to assess whether they are either
refundable or transferable. It is assumed in the Liquidation Analysis that
refundable Deposit balances projected as of June 28, 1998 will be collected in
full. Deposits which are not refundable but are transferable to a new owner (of
the Resort), are estimated to have a liquidation value equal to 75% of their
projected book value as of June 28, 1998. Deposits which are deemed to be
neither transferable nor refundable are assumed to have a liquidation value of
zero.
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Notwithstanding the analysis described above, to the extent certain Deposit
balances are considered to be of a non-perpetual nature, such amounts are
assumed to have been applied/setoff against payments which would have otherwise
been made with respect to expenses incurred during the period from June 29,
1997 through June 28, 1998.
NOTE 6 - PROPERTY AND EQUIPMENT, NET
In support of the restructuring process, the Debtors retained Deloitte &
Touche LLP ("Deloitte") to appraise the Resort. On March 24, 1997, Deloitte
issued an appraisal report (hereinafter, the "Appraisal Report") to Gordon &
Silver Ltd., the Company's bankruptcy counsel. The Appraisal Report estimated
the "as is" going concern market value range of the fee simple interest in the
real and personal property (of the Resort) to be $105 million to $130 million,
with the final point estimate of value being $120 million. The Appraisal Report
assumes a marketing exposure period of 12 to 18 months would be required in
order to realize a sales price at or about the level of the concluded value
estimate. The valuation conclusions contained in the Appraisal Report are based
primarily on an "income approach" analysis and relate solely to the assets
which are directly relevant to the operation of the Resort (exclusive of the
working capital account balances) and do not include, or relate to,
"peripheral" or "extraneous" assets owned by the Company. The primary example
of such assets are the five parcels of land (which total approximately 5 acres)
located on and near Las Vegas Boulevard South, directly across the street from
the Resort (the "Sulinda Parcels"). Accordingly, the value of the Sulinda
Parcels has been separately analyzed in the Liquidation Analysis.
Under the "forced-sale" conditions likely to be imposed by a hypothetical
Chapter 7 Trustee, the exposure time available in which to sell the Resort (as
a going concern) is likely to be substantially less than the 12-18 month range
assumed in the Appraisal Report. Therefore, in order to arrive at a liquidation
value, a discount of 25% was applied to the final point estimate of value
reflected in the Appraisal Report to adjust for the negative impact that a
substantially constrained marketing period would likely have in a Chapter 7
liquidation scenario. In order to determine the net liquidation proceeds
ultimately realized, the estimated transaction costs associated with the
liquidation process were netted against the estimated liquidation value.
As discussed above, the Sulinda Parcels are not deemed to be a component
of the enterprise which is the subject of the Appraisal Report. In 1996,
Stratosphere, through a wholly-owned subsidiary, acquired the Sulinda Parcels
in exchange for over 1 million newly issued shares of the Company's common
stock. The approximate value of the stock issued in consideration for the
Sulinda Parcels was in excess of $10 million at the time of the transaction.
Management estimates that the current fair market value of the Sulinda Parcels
is approximately $6 million. It is assumed, however, that the liquidation value
of the Sulinda Parcels under "forced-sale" conditions is approximately $4.5
million, a discount of approximately 25% from its otherwise estimated fair
market value. In order to arrive at the net liquidation proceeds ultimately
realized, transaction costs are deducted from the estimated liquidation value
of the Sulinda Parcels.
In addition to the Sulinda Parcels, other assets (in this category) which
are not the subject of the Appraisal Report include: (i) funds previously
deposited by the Company into escrow and court supervised accounts in
connection with eminent domain actions filed by the City of Las
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Vegas Downtown Redevelopment Agency ("LVDRA"); and (ii) proceeds due from
Strato Retail LLC ("Strato Retail").
Company proceeds held in escrow and court deposit accounts total approximately
$1.07 million. It is assumed in the Liquidation Analysis that the LVDRA eminent
domain proceedings will be terminated and that the Company will gain access to
these funds on or before June 28, 1998. Existing Liabilities, as well as future
legal and other costs associated with recouping these funds, are projected to
total approximately $370,000, thereby reducing the net liquidation proceeds to
approximately $700,000.
The Company previously entered into a development and lease agreement with
Strato Retail LLC (hereinafter, the "Master Lease"), thereby granting the
rights for developing the retail center located at the Resort to Strato Retail
LLC. Pursuant to the Master Lease, Strato Retail LLC is obligated to make
additional payments (to the Company) totaling $7.9 million in connection with
the second phase expansion of the retail shell ("Second Phase Installment").
Thus far, Strato Retail LLC has failed to make progress payments in respect of
the Second Phase Installment. Strictly for purposes of the Liquidation
Analysis, it is assumed that the Company will realize a 50% recovery on the
Second Phase Installment. Netted from the recovered proceeds are an additional
$1 million to cover incremental construction costs and approximately $450,000
for legal and other costs associated with collecting the Second Phase
Installment.
NOTE 7 - OTHER ASSETS
The primary components of the Other Assets category are: (i) recovery of
certain payments made to insiders during the one year period preceding the
Petition Date; and (ii) certain litigation claims and causes of action the
Company may have against other parties.
While the Liquidation Analysis generally does not address the issue of
recoveries resulting from theoretical preference claims and fraudulent
conveyance actions, potential recoveries resulting from certain significant
payments to insiders which are potentially avoidable have been incorporated
into the Liquidation Analysis. Potential recoveries identified relate
specifically to approximately $5.6 million of payments made to insiders in
respect of antecedent debts during the one-year period preceding the Petition
Date. The Company's bankruptcy counsel believes it is reasonable to project the
recovery of these amounts and therefore such amounts have been incorporated
into the Liquidation Analysis. Legal and other costs associated with pursuing
avoidance actions related to these payments are assumed to be included in the
administrative expenses the Debtors are projected to incur during the pendency
of their respective cases.
Management believes that there are certain legitimate causes of action (against
third parties) for which it may be economically viable for the Debtors, and/or
other parties-in-interest, to ultimately prosecute. One such potential cause of
action relates to the Standby Equity Commitment. For purposes of the Liquidation
Analysis, it is assumed that the right to pursue such causes of action will be
preserved by the Company; however, given the contingent nature of such
potential claims, no recoveries arising therefrom have been incorporated into
the Liquidation Analysis.
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NOTE 8 - INCOME AND RELATED TAXES
It is assumed that the liquidation of the Company's assets will not result in
the recognition of any substantial Federal income tax or any related tax
liability since the aggregate tax basis of the assets to be liquidated is
estimated to substantially exceed the amounts realized from the sale of such
assets. In addition, the Company possesses net operating loss carryovers as
well as certain other attributes that may potentially be used to offset gains
or income recognized by the Company as a result of asset sales or the
cancellation of indebtedness.
Realty transfer tax liability may arise as a result of the liquidation of the
Company's real property. Accordingly, the estimated realty transfer tax
liability has been deducted from the liquidation proceeds derived from the
hypothetical sale of the Company's real property.
NOTE 9 - ALLOCATION OF NET LIQUIDATION PROCEEDS TO SECURED, ADMINISTRATIVE,
PRIORITY AND UNSECURED CLAIMS
The allocation of net liquidation proceeds (in the Liquidation Analysis) is in
accordance with priorities set forth in the Bankruptcy Code.
Miscellaneous Secured Claims (Class 5), Capital Lease Claims (Class 8) and
Reliable Steel Lien Claims (Class 10) are assumed to be satisfied from the
proceeds resulting from the sale of the underlying collateral. It is further
assumed that substantially all of the Company's assets will have been
liquidated prior to the Secured Claim Distribution Date and that the
liquidation value of the underlying collateral approximates the amount of the
Allowed Claims encompassed by each of these Classes. Accordingly, it is not
anticipated that any Miscellaneous Secured Claims, Capital Lease Claims or
Reliable Steel Lien Claims will remain outstanding beyond the Secured Claim
Distribution Date.
Original First Mortgage Note Claims (Class 6) are projected to be satisfied (in
part) from the net liquidation proceeds available from the sale of assets which
serve as collateral for the Original First Mortgage Notes. It is assumed that
the Original First Mortgage Notes are secured by either a first or junior lien
on all Company assets with the exception of: (i) the Sulinda Parcels; and
(ii) Cash and Cash Equivalents; provided however, that to the extent the
Company's inventory, receivables and other non-Cash working capital asset
balances are projected to diminish subsequent to the Petition Date, the lien(s)
securing the Original First Mortgage Notes are assumed to extend to an equal
amount of Cash and Cash Equivalents. It is anticipated that the net liquidation
proceeds arising from the sale of assets collateralizing the Original First
Mortgage Notes will be substantially less than the total amount of the Allowed
Claims arising therefrom. Therefore, to the extent such Claims are not fully
satisfied, the unsecured deficiency portion is included with the General
Unsecured Claims (Class 9). The Allowed Claim arising from the unsecured
deficiency is estimated at approximately $135.8 million.
With respect to the Heller Capital Lease Claims (Class 7), it is contemplated
in the Liquidation Analysis that the operating lease agreement entered into by
Stratosphere Corporation and Stratosphere Gaming Corp. (lessees) and Heller
(lessor) will be assumed by the Debtors and
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SUBJECT TO MODIFICATION
subsequently assigned to the purchaser of the Resort. Because the Debtors are
current with respect to all pre and post-petition amounts due to Heller, no
cure payments are anticipated. Accordingly, for purposes of the Liquidation
Analysis, it is assumed that the Allowed amount of Class 7 Claims is zero.
Chapter 7 Trustee Fees are estimated in accordance with Section 326 of the
Bankruptcy Code. For the purposes of the Liquidation Analysis, the Chapter 7
Trustee Fees are equal to 25% of the first $5,000 disbursed by the Chapter 7
Trustee to parties-in-interest; 10% on any amount distributed in excess of
$5,000, but not in excess of $50,000; 5% on any amount distributed in excess of
$50,000, but not in excess of $1 million; and, 3% on any amount distributed in
excess of $1 million.
Chapter 11 Professional Fees and Expenses are estimated at $500,000 per month
through December 1997. Chapter 7 Professional Fees and Expenses are estimated
at $300,000 per month for the period from the Conversion Date through June 28,
1998 and $100,000 per month thereafter until the Distribution Date. These fees
are projected to be paid approximately every sixty days and are assumed to be
approximately 3-4 months in arrears at the time of payment. For illustrative
purposes only, it is assumed in the Liquidation Analysis that Chapter 7 and
Chapter 11 Professional Fees and Expenses which are outstanding and unpaid as
of June 28, 1998, or which are incurred subsequent to that date, are not paid
until the Distribution Date. The outstanding Chapter 11 and Chapter 7
Professional Fee and Expense balances as of the Distribution Date are estimated
to be $2.0 million and $1.8 million, respectively. In the event that the net
liquidation proceeds available are not sufficient to satisfy all Administrative
Claims relating to professional fees and expenses (inclusive of those arising
from the Chapter 7 proceedings), the outstanding Chapter 7 Professional Fee and
Expense amounts would be paid in full prior to distributions being made in
respect of Administrative Claims relating to any outstanding Chapter 11
Professional Fees and Expenses.
Chapter 7 and 11 Administrative Claims (excluding professional fees and
expenses) include unpaid post-petition liabilities incurred in the ordinary
course of business. The post-petition working capital liability balances at
June 29, 1997 (excluding approximately $2.5 million of professional fees and
expenses related to the Chapter 11 Cases) are believed to be normalized
balances. Thus, it is assumed that the working capital liability balances will
be at similar levels (adjusted for accrued professional fees) at June 28, 1998.
Because the net liquidation proceeds are projected to be sufficient to satisfy
all such Claims in full, the Chapter 7 and Chapter 11 Administrative Claims
have not been segregated and prioritized. In the event that the net liquidation
proceeds available are not sufficient to satisfy all Administrative Claims, the
outstanding Chapter 7 Administrative Claims would be paid in full prior to any
distributions being made in respect of the outstanding Chapter 11
Administrative Claims.
Priority Claims consist of Priority Tax Claims and Priority Non-Tax Claims.
Priority Tax Claims consist of Claims entitled to priority under Section
507(a)(8) of the Bankruptcy Code. Priority Non-Tax Claims (if any) are those
Claims that are not Secured Claims and are specified as having priority in
Sections 507(a)(3), 507(a)(4), 507(a)(5) and 507(a)(6) of the Bankruptcy Code.
The General Unsecured Claims (Class 9) consist of, among other things: (i)
various pre-petition liabilities incurred in the ordinary course of business;
(ii) Claims arising from the rejection of
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SUBJECT TO MODIFICATION
leases and executory contracts; (iii) the Grand Subordinated Claim; and (iv) the
unsecured deficiency Claim arising to the Original First Mortgage Notes. The
Allowed Class 9 Claims are estimated to total approximately $198.3 million, of
which approximately $135.8 million is estimated to arise from the unsecured
deficiency Claim belonging to the holders of the Original First Mortgage Notes
and approximately $58.6 million relates to the Grand Subordinated Claim. It is
assumed that the Claims filed by holders of prepaid vacation packages are not
Allowed Claims and, therefore, amounts related to such Claims are not included
in the Liquidation Analysis.
The net liquidation proceeds available to satisfy the General Unsecured Claims
are allocated amongst the holders of Class 9 Claims on a pari-passu basis.
Because of the Original Subordination Agreement executed by Grand in favor of
the Indenture Trustee, it is assumed in the Liquidation Analysis that all
proceeds that would otherwise be distributed to Grand in respect of the Grand
Subordinated Claim will be distributed on a pro rata basis to holders of Class
9 Claims who are allowed such Claims in respect of an unsecured deficiency
relating to the Original First Mortgage Notes.
The Equity Interests (Class 12) relate to any interest in Stratosphere
represented by any class or series of common or preferred stock issued by
Stratosphere prior to the Effective Date and any warrants, options or rights to
purchase any such common or preferred stock. Due to the shortfall in net
liquidation proceeds available to satisfy the General Unsecured Claims, it is
not contemplated in the Liquidation Analysis that any distributions will be
made to the holders of Equity Interests.
The Equity Interests - Related Claims (also Class 12) consist of any Claim
arising from the rescission of a purchase or sale of an Equity Interest, or for
damages arising from the purchase or sale of an Equity Interest, or any Claim
by any Person that asserts equitable or contractual rights of reimbursement,
contribution or indemnification arising from such a Claim. Pursuant to Section
510(b) of the Bankruptcy Code, the Equity Interests - Related Claims have been
given the same priority as the Equity Interests; however, because of the
contingent nature of the Equity Interests - Related Claims, and due to the
shortfall in net liquidation proceeds available to satisfy such Claims, the
Allowed amount of such the Equity Interests - Related Claims have not been
quantified and incorporated into the Liquidation Analysis.
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EXHIBIT D
<PAGE> 195
STIPULATION AND AGREEMENT
THIS STIPULATION AND AGREEMENT (the "Agreement") is dated and effective
this _____ day of ___________, 1997, between RELIABLE STEEL, INC., a Nevada
corporation ("Reliable Steel) and STRATOSPHERE CORPORATION, a Delaware
corporation, as Debtor and Debtor-in-Possession ("Stratosphere"), under Chapter
11 of Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in
Chapter 11 Case Nos. BK-S-97-20554 (GWZ) pending in the Bankruptcy Court of the
United States District Court for the District of Nevada (the "Reorganization
Case").
RECITALS
1. On or about March 14, 1997, Reliable Steel filed a Proof of Claim
in the Reorganization Case reflecting a secured claim in the amount of
$249,322.85 (the "Proof of Claim").
2. On July 28, 1997, Reliable filed an Amended Complaint against
Stratosphere bearing Adversary Proceeding No. 972160 in the Reorganization
Case. The Adversary Proceeding sets forth, in part, causes of action for: (1)
breach of contract with resultant damages in the amount of $249,322.85; (2)
foreclosure of a mechanic's lien recorded by Reliable Steel against real
property owned by Stratosphere; and (3) a request for a declaratory judgment
that the mechanic's lien is senior in priority to the lien of IBJ Schroder Bank
and Trust Company, as Indenture Trustee (the "Adversary Proceeding").
3. Stratosphere disputes and denies the validity and amount of
Reliable Steel's Proof of Claim, and further disputes and denies the amount of
the contract claim and the validity and priority of the mechanic's lien claim
as set forth in the Adversary Proceeding.
4. Stratosphere and Reliable Steel desire to avoid litigation and to
settle their differences through a plan of reorganization to be filed by
Stratosphere in the Reorganization Case.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agree-
ments contained herein, and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged by both Reliable
Steel and Stratosphere, the parties stipulate and agree as follows:
<PAGE> 196
1. Stratosphere will file a plan of reorganization (the "Plan") in the
Reorganization Case that will provide for a cash payment to Reliable Steel in
the amount of One Hundred Twenty-Five Thousand and no/100 Dollars ($125,000.00)
on the effective date of the Plan, as and for full and final satisfaction and
settlement of the Adversary Proceeding and all claims alleged therein.
2. Beginning the effective date of this Agreement, Reliable Steel and
Stratosphere will use their best efforts to obtain confirmation of the Plan in
accordance with the Bankruptcy Code as soon as practicable in the
Reorganization Case. Reliable Steel and Stratosphere will take all necessary
actions to achieve confirmation. Reliable Steel and Stratosphere shall not
agree to, consent to, or vote for any modification of the Plan that modifies
the payment to Reliable Steel as set forth herein unless such modification has
been agreed to by the other party. Neither Reliable Steel nor Stratosphere
shall vote for, consent to, support or participate in the formulation of any
other plan that provides for different treatment of Reliable Steel's claim in
the Reorganization Case.
3. Simultaneously with the execution of this Agreement or as soon
thereafter as reasonably practicable, Reliable Steel, Stratosphere and IBJ
Schroder Bank and Trust Company, as Indenture Trustee, shall execute a
stipulation and order staying all proceedings under the Adversary Proceeding
pending confirmation of the Plan in accordance with this Agreement. At such
time as a plan of reorganization is confirmed in the Reorganization Case
consistent with the provisions of this Agreement, and after Reliable Steel
receives full payment of its claim as provided herein, the parties shall
execute an additional stipulation and order dismissing the Adversary Proceeding
with prejudice and mutually releasing any and all claims remaining between the
parties.
4. Except for those obligations provided in Paragraphs 1 and 3 of this
Agreement or as otherwise provided in this Agreement, Reliable Steel and
Stratosphere agree to release and forgive one another, and each of their heirs
and administrators, successors, assigns, affiliates and their respective
officers, directors, employees and agents from any and all claims, demands,
losses, damages, actions, causes of action, suits, debts, promises,
liabilities, obligations, liens, costs, expenses, attorneys fees, indemnities,
subrogations (contractual or equitable) or duties, of any nature, character or
description whatsoever whether fixed or contingent, arising from or relating
to, directly or indirectly, any relationship between the parties whether now
known or unknown, including, but not limited to, the matters alleged in the
Adversary Proceeding.
5. This Stipulation and Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
6. THIS STIPULATION AND AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY, AND CONSTRUED AND ENFORCED
UNDER, THE BANKRUPTCY LAWS OF THE UNITED STATES AND THE LAWS OF THE STATE OF
NEVADA.
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7. This Stipulation And Agreement and all of the provisions herein
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns.
8. This Agreement shall terminate and shall be of no further force or
effect if any of the conditions precedent to a resolution of the dispute
between the parties as specified in the Plan or any other proposed mutually
agreeable plan of reorganization for Stratosphere has become incapable of
satisfaction, and compliance with such has not otherwise been waived. In the
event of termination of this Agreement, Reliable Steel and Stratosphere may
forthwith take any such action as each may deem appropriate.
9. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SIGNED AND EFFECTIVE as of the first date written above.
RELIABLE STEEL,
a Nevada corporation
By:
----------------------------------
Its
-------------------------------
STRATOSPHERE CORPORATION,
a Delaware corporation
By:
----------------------------------
Its
-------------------------------
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