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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998, 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)
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DELAWARE 88-029318
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2000 LAS VEGAS BOULEVARD SOUTH 89104
LAS VEGAS, NEVADA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (702) 382-4446
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01 per share
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On January 27, 1997, Registrant and its wholly-owned subsidiary
Stratosphere Gaming Corp. filed voluntary petitions for Chapter 11
Reorganization in the United States Bankruptcy Court for the District of Nevada.
The Registrant's Restated Second Amended Plan of Reorganization became effective
on October 14, 1998, and on that date all of its old equity securities were
canceled and 2,030,000 shares of new Common Stock were issued to the holders of
the Registrant's 14 1/4% First Mortgage Notes. Since October 14, 1998, there
has been extremely limited trading of the Registrant's new Common Stock on the
over the counter bulletin board.
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ITEM 1. BUSINESS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of Stratosphere Corporation (the "Company") could differ
materially from the Company's historical results of operations and those
discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified
in "Certain Factors."
OVERVIEW
The Company owns and operates the Stratosphere Tower, Casino & Hotel
("Stratosphere") which is centered around the Stratosphere Tower (the "Tower"),
the tallest free-standing observation tower in the United States. Standing 1,149
feet above the Las Vegas Strip, the Tower is visible from most all directions,
including to visitors flying into Las Vegas. The Tower's Pod (the "Pod"), a
12-story building that begins at the 771-foot level, features a 360-seat
revolving restaurant, a 220-seat cocktail lounge, indoor and outdoor observation
decks and two amusement rides located over 900 feet in the air, a roller coaster
and a simulated "Big Shot" (the "Thrill Rides").
The Company currently is operating with, among other things, the Tower, a
hotel with 1,444 rooms and suites, a 97,000 square foot casino featuring
approximately 1,700 slot machines, 37 table games, 6 poker tables, a sports
book, a keno lounge, a 160,000 square foot second level containing a retail
center of approximately 46 shops and a 650 seat Broadway Showroom, a 250-seat
entertainment lounge and parking for approximately 4,000 cars (collectively,
"Phase I"). Stratosphere opened for business on April 29, 1996.
On January 27, 1997 ("Petition Date"), the Company and its wholly-owned
subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with the Company,
the "Debtors") filed voluntary petitions for Chapter 11 Reorganization pursuant
to the United States Bankruptcy Code ("Bankruptcy Proceedings"). As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of the Company and SGC. The Company
and SGC acted as debtors-in-possession on behalf of their respective bankrupt
estates and were authorized as such to operate their business subject to
Bankruptcy Court supervision. On June 9, 1998, the Bankruptcy Court entered an
order (the "Confirmation Order") confirming the Restated Second Amended Plan of
Reorganization filed by the Debtors (the "Restated Second Amended Plan"). On
October 14, 1998, the Restated Second Amended Plan became effective (the
"Effective Date"). All material conditions precedent to the Restated Second
Amended Plan becoming binding were satisfied on or before September 27, 1998.
Accordingly, the Company reflected the effect of the Restated Second Amended
Plan as of September 27, 1998, in the consolidated financial statements included
in this Form 10-K.
Pursuant to the Restated Second Amended Plan becoming effective, the
Company canceled all prior equity interests (including 58.4 million shares of
Common Stock, all options and warrants). The Company exchanged 2,030,000 shares
of new Common Stock (represents 100% of the Common Stock as of the Effective
Date) for the secured portion of the 14 1/4% First Mortgage Notes (estimated at
$120.6 million). Approximately 89.6% of the new Common Stock has been issued to
Carl C. Icahn related entities. The remaining portion of the 14 1/4% First
Mortgage Notes claim (approximately $104 million), the balance of the note due
Grand Casinos, Inc. (approximately $52.4 million) and all other general
unsecured claims were discharged in exchange for a cash payment of $6.0 million.
Allowed priority claims (estimated at $.9 million) have been paid in full. The
discharge and settlement of these claims resulted in a gain of $153.4 million,
which has been reflected as an extraordinary item on the Consolidated Statement
of Operations for the period ended September 27, 1998. The amount of the gain is
based on the Company's estimate of the amount of claims that will ultimately be
allowable by the Bankruptcy Court, and is not based on the total of actual
claims filed. In the event additional unsecured claims are allowed by the
Bankruptcy Court, it will not increase the cash the Company is required to
distribute for full debt discharge. A portion of the $6.9 million to be
distributed has been reserved for potential future settlement of unsecured claim
disputes (approximately $1.8 million).
Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to a global settlement agreement ("Settlement Agreement") with
the holders of the Vegas World Vacation Packages
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("Package Holders"). The Settlement Agreement required the approvals of the
Bankruptcy Court and Nevada State District Court. Upon obtaining the necessary
approvals, the Settlement Agreement became effective on June 23, 1998. Pursuant
to the terms of the Settlement Agreement, the Company provides room nights,
tower elevations and beverages (at the casino bars) to the Package Holders
identified in Exhibit A to the Settlement Agreement. The Company estimates the
total cost of providing such services to be approximately $3.3 million. The
Company received from Bob Stupak the Deed to the Stupak Center (estimated fair
market value of $350,000), $.4 million of cash and the remaining three million
shares of old Common Stock held in the escrow account previously established by
Bob Stupak. The Stupak receivable of $3.9 million ($800,000 of which was
unreserved) was written-off. The Company has not attributed any value to the
treasury stock received as it was canceled upon the Restated Second Amended Plan
becoming effective. The net estimated cost of the Settlement Agreement of $3.3
million is reflected as a Reorganization Item in the accompanying Consolidated
Statements of Operations.
The Company, as part of the Restated Second Amended Plan, has sought to
assume its Development and Lease Agreement with Strato-Retail LLC ("Master
Lease"). Strato-Retail LLC has opposed the assumption of the Master Lease and
the Bankruptcy Court allowed confirmation and consummation of the Restated
Second Amended Plan to occur prior to concluding the hearings on the Company's
motion to assume the Master Lease. Evidentiary hearings were conducted on
January 28, 29 and March 5, 1999, and a decision is expected in several months.
In the event the Company is allowed to assume the Master Lease, the Company will
be required to complete the construction of Phase II and expects that
Strato-Retail LLC will be required to reimburse the Company for $7.9 million. In
addition, the Company will be required to pay to Strato-Retail LLC damages for
any pre-petition date breaches of the Master Lease as the Bankruptcy Court
determines. In the event the amount the Bankruptcy Court determines necessary to
cure pre-petition breaches, if any, is unacceptable to the Company, the Company
maintains the right to reject the Master Lease, in which event, any damages
resulting from such rejection will be deemed a pre-petition unsecured claim to
be paid in accordance with the Restated Second Amended Plan. In the event of the
rejection of the Master Lease, Strato-Retail LLC would then have the option of
continuing under the Master Lease and possessing Phase I of the Premises or
terminating the Master Lease and vacating Phase I of the Premises.
In accordance with the Restated Second Amended Plan, as of the Effective
Date, the Stratosphere Litigation L.L.C. ("LLC") was formed. The administrator
for the LLC is Thomas A. Lettero and the Board of Managers is Carl C. Icahn,
Robert J. Mitchell and Russell Glass. The LLC was formed for the purpose of
pursuing (1) all claims and causes of action of the holders of the Original
First Mortgage Notes and the Indenture Trustee and (2) rights, claims and causes
of action which the Company may have against any person which the Company
determined to transfer to the LLC for prosecution. Upon the Effective Date of
the Restated Second Amended Plan, all individual causes of action of holders of
Original First Mortgage Notes related to the Standby Equity Commitment were
assigned to the LLC.
In January 1999, the LLC and IBJ Whitehall Bank & Trust Company, f/k/a/ IBJ
Schroder Bank & Trust Company, as Indenture Trustee ("IBJ Whitehall") entered
into that certain Assignment of Claims whereby IBJ Whitehall acknowledged the
Restated Second Amended Plan in its entirety and acknowledged the transfer by
the holders of the Original First Mortgage Notes to the LLC of any and all
claims and causes of action including any and all claims, causes of action,
counter-claims, defenses, affirmative defenses and setoffs that IBJ Whitehall
had asserted or could have asserted in those certain proceedings entitled IBJ
Schroder v. Grand Casinos, Inc., United States District Court, District of
Nevada, Case No. CV-S-97-01252-DWH (RJJ) (the "Grand Litigation"). Additionally,
IBJ Whitehall expressly reconfirmed the transfer and assignment to the LLC of
any and all claims and causes of action it held respecting the Original First
Mortgage Notes. Furthermore, the LLC expressly reaffirmed its acceptance of the
claims and causes of action of the holders of the Original First Mortgage Notes.
THE TOWER
At 1,149 feet in height, the Tower is the tallest free-standing observation
tower in the United States and the tallest free-standing structure west of the
Mississippi River. From the indoor and outdoor observation decks, lounge and
restaurant, Tower visitors have dramatic views of the Las Vegas Strip, downtown
and the
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surrounding Las Vegas Valley. Visitors travel to the observation decks in four
high speed, double-decked elevators, which travel at 1,800 feet per minute, and
which have an aggregate capacity of 128 visitors.
The Pod is a 12-story 105,000 square foot building that begins at the
771-foot level of the Tower. The Pod, which has a maximum capacity of 2,700
visitors at any one time, has an indoor and outdoor observation deck and is
currently open from 10:00 a.m. to 1:00 a.m. Sunday through Thursday and 10:00
a.m. to 2:00 a.m. on Friday and Saturday.
The Pod's third and fourth levels contain conference and meeting rooms that
are rented out for business or social occasions. Level six contains a 360-seat
revolving restaurant. Levels seven, eight and nine feature a 220-seat cocktail
lounge and indoor and outdoor observation decks. The Pod also contains gift
shops and several free-standing kiosks featuring souvenirs and food products
designed to capitalize on the unique nature of the Tower.
Level twelve is the staging area for the Thrill Rides. The first ride, the
"Big Shot," propels riders from the 921-foot level of the Pod approximately 180
feet straight up the mast of the Tower, in a harnessed seat, and allows for a
controlled free fall back to the landing platform. The second ride, a roller
coaster, the "High Roller," begins at the 909-foot level and transports up to 36
passengers at a time along tracks wrapped around the top portion of the Pod.
THE CASINO AREA
Stratosphere's casino contains approximately 97,000 square feet of gaming
space, with approximately 1,700 slot machines, 37 table games, 6 poker tables, a
sports book and keno lounge. Stratosphere's bar and lounge facilities have been
positioned for convenient access to the gaming areas.
Although the Company does not emphasize credit play, credit is available to
high-stakes wagerers on a discretionary basis. Slot and table game customers are
able to join a frequent players club, which awards benefits including cash and
complimentary room, food and beverage based upon the customer's level of play.
THE RETAIL-ENTERTAINMENT CENTER
The Retail-Entertainment Center, located on the second floor of the Base
Building, currently occupies approximately 160,000 square feet, of which 57,000
square feet is currently undeveloped. The retail area offers various restaurants
and shops and, in combination with the 650 seat show room that currently offers
afternoon and evening shows, is designed to appeal to the wide spectrum of
visitors who come to Las Vegas.
THE HOTEL
The Hotel currently has 1,444 rooms and suites. The Hotel has five themed
restaurants, The Top of The World located in the Pod, the 434-seat "Stratosphere
Buffet," a 200-seat "Montana's Cafe and Grille," "Roxy's 50's Diner," and "Tower
of Pasta," a restaurant serving Italian cuisine. Stratosphere has parking for
over 4,000 cars.
BUSINESS AND MARKETING STRATEGY
The Company utilizes the unique characteristics of the Tower to attract
visitors. Hotel rooms, entertainment and food and beverage products are priced
to appeal to the value conscious, mid-market Las Vegas visitor. Aggressive
advertising and promotional campaigns are maintained to maximize hotel room
occupancy and visitation to the Tower. The Company employs a direct mail program
targeting customers in its database with a variety of product offerings,
including incentives to visit the Company's facilities on a frequent basis.
COMPETITION
The casino/hotel industry is highly competitive. The Las Vegas market
includes several world class destination resorts, with numerous other tourist
attractions. Major Las Vegas casino/hotels are themselves
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tourist attractions, including Bellagio, Mandalay Bay, Mirage, Caesars Palace,
MGM Grand, Treasure Island, Monte Carlo, New York New York, Luxor and the Rio.
Each of these resorts compete with the Company in its ability to attract
visitors to the Tower.
The Company's hotel and food and beverage operations compete directly with
the Excalibur, Circus Circus, Stardust, Sahara, Riviera and Palace Station as
each of these properties target the budget-minded, mid-market Las Vegas visitor.
Management believes that its ability to expand its target market is limited due
to the lack of recreational facilities (pool and spa), meeting and convention
facilities. In addition, future visitation to the Tower could be negatively
impacted with the fourth quarter 1999 opening of "Paris" (a Bally's Park Place
project) that will feature a 500 foot replica of the Eiffel Tower.
Certain states have recently legalized, and others may legalize casino
gaming in specific areas, and passage of the Indian Gaming Regulatory Act in
1988 has led to rapid increases in Native American gaming operations. Such
proliferation of gaming activities could materially and adversely affect the
Company's business. In particular, the legalization of casino gaming in or near
any metropolitan area from which the Company intends to attract customers could
have a material adverse effect on the Company's business.
EMPLOYEES
The Company currently employs approximately 2,100 full and part-time
associates, of which approximately 1,000 are covered by a collective bargaining
agreement.
The existing collective bargaining agreements between the Culinary Worker's
Union, Local 226 and Bartenders, Local 165 expired June 1, 1997. On December 10,
1998, the Company and Local 226 and Local 165 reached a tentative agreement that
became effective on June 1, 1997. Pursuant to the agreement, the Company paid
the affected employees approximately $1.0 million in retroactive increases on
December 23, 1998. This amount had been previously accrued on the consolidated
balance sheet. The agreement expires on May 31, 2002, and provides for future
increases of between 3% and 4% annually.
On October 15, 1998, management reached an agreement with Operating
Engineers, Local 501 union. Such agreement is not expected to have a material
adverse effect on future labor costs.
The Company generally enjoys good relations with its employees.
NEVADA GAMING REGULATION
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local ordinances
and regulations. Gaming operations in Nevada are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board") and various other county and
city regulatory agencies, including the City of Las Vegas, collectively referred
to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, 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 Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's proposed gaming
operations.
The Company is registered with the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own the
stock of SGC. SGC is licensed by the Nevada Gaming Authorities and is a
corporate licensee (a "Corporate Licensee") under the terms of the Nevada Act.
The
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gaming license requires the periodic payment of fees and taxes and is not
transferable. The Company and SGC have obtained the various registrations,
approvals, permits, findings of suitability and licenses required in order to
engage in gaming activities in Nevada.
As a Registered Corporation, the Company is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require. In addition, no
person may become a stockholder of, or receive, any percentage of profits from
SGC without first obtaining licenses and approvals from the Nevada Gaming
Authorities.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or SGC in
order to determine whether such individual is suitable or should be licensed as
a business associate of SGC. Officers, directors and certain key employees of
SGC must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in the activities of SGC may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or SGC, the companies involved would have to sever
all relationships with such person. In addition, the Nevada Commission may
require the Company or SGC to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company and SGC are required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, liens, sales
of securities and similar financing transactions by SGC are required to be
reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by SGC, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition, the
Company, SGC and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate the Company's gaming property and, under certain circumstances, earnings
generated during the supervisor's appointment (except for reasonable rental
value of the premises) could be forfeited to the state of Nevada. Limitation,
conditioning or suspension of the licenses of SGC could (and revocation of any
gaming license of SGC would) materially adversely affect the Company.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated and have his suitability as a beneficial holder of
the Registered Corporation's voting securities determined if the Nevada
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 investigation incurred by the Nevada Gaming Authorities in
conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing. Mr.
Icahn has been approved as a shareholder and controlling shareholder. Under
certain circumstances, an "institutional investor," as defined in the Nevada
Act, which acquires more
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than 10%, but not more than 15%, of a Registered Corporation's voting
securities, or more than 10% of a Registered Corporation's voting securities as
a result of a proceeding under the United States Bankruptcy Code, may apply to
the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes only.
An institutional investor shall not be deemed to hold voting securities for
investment purpose 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 Corporation, any change in
the Registered Corporation's corporate charter, bylaws, management, policies or
operations, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
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 (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. 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.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
of the Company beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The 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 it, it (i) pays that
person any dividend or interest upon voting securities of the Company, (ii)
allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise, or (iv) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his voting
securities including, if necessary, the immediate purchase of said voting
securities for cash at fair market value.
The Nevada Commission may, in its 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 a Registered Corporation if it
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the state of Nevada. If the Nevada 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 cost
of its approvals, if without the prior approval of the Nevada Commission, it:
(i) pays to the unsuitable person any dividend, interest, or any distribution
whatsoever; (ii) recognizes any voting right by such unsuitable person in
connection with such securities; (iii) 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 Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada 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 Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company will also be required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the stock certificates of the Company to
bear a legend indicating that the securities are subject to the Nevada Act.
However, to date, the Nevada Commission has not imposed such a requirement on
the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or 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. Approval
of a public offering does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada
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Board as to the accuracy or adequacy of the prospectus or the investment merits
of the securities offered. Any representation to the contrary is unlawful.
Changes in control of a Registered Corporation 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 Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction. The acquisition of control of the Company, as a result of the
Restated Second Amended Plan, received the prior approval of the Nevada
Commission upon the recommendation of the Nevada Board.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or 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: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the serving or selling of food or refreshments or
the selling of merchandise. Nevada licensees that hold a license to manufacture
or distribute gaming devices 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 persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada 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 or
associations that are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, employ, contract with or associate with a person in the
foreign operation who has been denied a license or finding of suitability in
Nevada on the grounds of personal unsuitability.
NEVADA LIQUOR REGULATIONS
The sale of alcoholic beverages at Stratosphere is subject to licensing and
regulation by the City of Las Vegas. All licenses are revocable and are
transferable only with prior approval of the City of Las Vegas. The
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<PAGE> 9
City of Las Vegas has full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action may (and revocation would) have a
material adverse effect on the operations of the Company.
CERTAIN FACTORS
In addition to factors discussed elsewhere in this Annual Report on Form
10-K, the following are important factors that could cause results or events to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company.
BANKRUPTCY. On January 27, 1997, the Company and SGC filed voluntary
petitions for Chapter 11 Reorganization pursuant to the United States Bankruptcy
Code. As of that date, the Bankruptcy Court assumed jurisdiction over the assets
of the Company and SGC. The Company and SGC acted as debtors-in-possession on
behalf of their respective bankrupt estates were authorized as such to operate
their business subject to Bankruptcy Court supervision. On June 9, 1998, the
Bankruptcy Court entered the Confirmation Order confirming the Restated Second
Amended Plan. On October 14, 1998, the Restated Second Amended Plan became
effective. All material conditions precedent to the Restated Second Amended Plan
becoming binding were satisfied on or before September 27, 1998. Accordingly,
the Company reflected the effect of the Restated Second Amended Plan as of
September 27, 1998, in the consolidated financial statements included in this
Form 10-K.
Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including 58.4
million shares of Common Stock, all options and warrants). The Company exchanged
2,030,000 shares of new Common Stock (represents 100% of the Common Stock as of
the Effective Date) for the secured portion of the 14 1/4% First Mortgage Notes
(estimated at $120.6 million). Approximately 89.6% of the new Common Stock has
been issued to Carl C. Icahn related entities. The remaining portion of the
14 1/4% First Mortgage Notes claim (approximately $104 million), the balance of
the note due Grand Casinos, Inc. (approximately $52.4 million) and all other
general unsecured claims were discharged in exchange of a cash payment of $6.0
million. Allowed priority claims (estimated at $.9 million) have been paid in
full. The discharge and settlement of these claims resulted in a gain of $153.4
million, which has been reflected as an extraordinary item on the consolidated
statement of operations for the period ended September 27, 1998. The amount of
the gain is based on the Company's estimate of the amount of claims that will
ultimately be allowable by the Bankruptcy Court, and is not based on the total
of actual claims filed. In the event additional unsecured claims are allowed by
the Bankruptcy Court, it will not increase the cash the Company is required to
distribute for full debt discharge. A portion of the $6.9 million to be
distributed has been reserved for potential future settlement of unsecured claim
disputes (approximately $1.8 million).
Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to the Settlement Agreement with the Package Holders. The
Settlement Agreement required the approvals of the Bankruptcy Court and Nevada
State District Court. Upon obtaining the necessary approvals, the Settlement
Agreement became effective on June 23, 1998. Pursuant to the terms of the
Settlement Agreement, the Company provides room nights, tower elevations and
beverages (at the casino bars) to the Package Holders identified in Exhibit A to
the Settlement Agreement. The Company estimates the total cost of providing such
services to be approximately $3.3 million. The Company received from Bob Stupak
the Deed to the Stupak Center (estimated fair market value of $350,000), $.4
million of cash and the remaining three million shares of Common Stock held in
the escrow account previously established by Bob Stupak. The Stupak receivable
of $3.9 million ($800,000 of which was unreserved) was written-off. The Company
has not attributed any value to the treasury stock received as it was canceled
upon the Restated Second Amended Plan becoming effective. The net estimated cost
of the Settlement Agreement of $3.3 million is reflected as a Reorganization
Item in the accompanying Consolidated Statements of Operations.
The Company, as part of the Restated Second Amended Plan, has sought to
assume the Master Lease with Strato-Retail LLC. Strato-Retail LLC has opposed
the assumption of the Master Lease and the Bankruptcy Court allowed confirmation
and consummation of the Restated Second Amended Plan to occur prior to
concluding the hearings on the Company's motion to assume the Master Lease.
Evidentiary hearings
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<PAGE> 10
were conducted on January 28, 29 and March 5, 1999, and a decision is expected
in several months. In the event the Company is allowed to assume the Master
Lease, the Company will be required to complete the construction of Phase II and
expects that Strato-Retail LLC will be required to reimburse the Company for
$7.9 million. In addition, the Company will be required to pay to Strato-Retail
LLC damages for any pre-petition date breaches of the Master Lease as the
Bankruptcy Court determines. In the event the amount the Bankruptcy Court
determines necessary to cure pre-petition breaches, if any, is unacceptable to
the Company, the Company maintains the right to reject the Master Lease, in
which event, any damages resulting from such rejection will be deemed a
pre-petition unsecured claim to be paid in accordance with the Restated Second
Amended Plan. In the event of the rejection of the Master Lease, Strato-Retail
LLC would then have the option of continuing under the Master Lease and
possessing Phase I of the Premises or terminating the Master Lease and vacating
Phase I of the Premises.
In accordance with the Restated Second Amended Plan, as of the Effective
Date, the LLC was formed. The administrator for the LLC is Thomas A. Lettero and
the Board of Managers is Carl C. Icahn, Robert J. Mitchell and Russell Glass.
The LLC was formed for the purpose of pursuing (1) all claims and causes of
action of the holders of the Original First Mortgage Notes and the Indenture
Trustee and (2) rights, claims and causes of action which the Company may have
against any person which the Company determined to transfer to the LLC for
prosecution. Upon the Effective Date of the Restated Second Amended Plan all
individual causes of action of holders of Original First Mortgage Notes related
to the Standby Equity Commitment were assigned to the LLC.
In January 1999, the LLC and IBJ Whitehall, as Indenture Trustee, entered
into that certain Assignment of Claims whereby IBJ Whitehall acknowledged the
Plan in its entirety and acknowledged the transfer by the holders of the
Original First Mortgage Notes to the LLC of any and all claims and causes of
action including any and all claims, causes of action, counter-claims, defenses,
affirmative defenses and setoffs that IBJ Whitehall had asserted or could have
asserted in the Grand Litigation. Additionally, IBJ Whitehall expressly
reconfirmed the transfer and assignment to the LLC of any and all claims and
causes of action it held respecting the Original First Mortgage Notes.
Furthermore, the LLC expressly reaffirmed its acceptance of the claims and
causes of action of the holders of the Original First Mortgage Notes.
NEED FOR ADDITIONAL FINANCING. Completion of the unfinished 1,000 bay hotel
tower and other amenities (Phase II) of the project remains on hold. Completion
of Phase II may be critical for the Company to remain competitive in the
long-term. The Company estimates that the construction to complete Phase II will
take approximately ten months and cost approximately $80.0 million. The Company
does not have in place any financing arrangements for Phase II in the event it
determines to proceed with the project.
RISKS OF NEW CONSTRUCTION. Major construction projects (and particularly on
the size, complexity and scale of Phase II) entail significant risks, including
shortages of materials or skilled labor, unforeseen engineering, environmental
and/or geological problems, work stoppages, weather interference, unanticipated
cost increases and non-availability of construction equipment. Construction,
equipment or staffing problems or difficulties in obtaining any of the requisite
licenses, permits, allocations and authorizations from regulatory authorities
could increase the total cost, or delay or prevent the construction or opening
of Phase II or otherwise affect the design and features of Phase II. Delays in
completing Phase II may result in increased completion costs.
COMPETITION. The casino/hotel industry is highly competitive. Hotels
located on or near the Las Vegas Strip compete primarily with other Las Vegas
strip hotels and with a few major hotels in downtown Las Vegas. The Hotel and
the Casino also competes with a large number of hotels and motels located in and
near Las Vegas. The Tower competes with all other forms of entertainment,
lodging and recreational activities in and near Las Vegas. Many of the Company's
competitors are larger than the Company and have greater name recognition and
may have greater resources. Lack of completion of Phase II may put the Company
at a competitive disadvantage.
POSSIBLE CONFLICTS OF INTEREST. Mr. Icahn (including certain related
entities) is actively involved in the gaming industry and currently owns 89.6%
of Stratosphere Corporation Common Stock. Casinos owned or managed by Mr. Icahn
may directly or indirectly compete with the Company. In addition, the potential
for
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<PAGE> 11
conflicts of interest exists among the Company and Mr. Icahn for future business
opportunities. Mr. Icahn may intend to pursue other business opportunities and
there is no agreement requiring that such additional business opportunities be
presented to the Company.
ITEM 2. PROPERTIES
The Company currently owns approximately 24.5 acres of land on or near the
Las Vegas Strip. The Company entered into an Owner Participation Agreement (the
"Owner Participation Agreement") with the City of Las Vegas Downtown
Redevelopment Agency (the "Redevelopment Agency") in December 1994. In the
reorganization proceedings referred to above, the Owner Participation Agreement
was assumed prior to confirmation of the Restated Second Amended Plan. This
property and the property the Company is seeking to acquire pursuant to the
Owner Participation Agreement (approximately 1 acre) lie within the downtown
redevelopment district, an area designated by the City for economic
redevelopment and urban renewal, and the Company believes that it will be
successful in its acquisition. While the Company believes that through the
City's power of eminent domain or through negotiations with current owners, all
remaining property will be acquired, there can be no assurance that all such
property will be acquired or that such property will be acquired within the
Company's budget. The Company has acquired all but two parcels of property being
sought by the City for the Company. The City is currently taking all steps
necessary to acquire these two parcels but there can be no assurance that it
will succeed in acquiring such parcels. The City's right to acquire these two
properties was determined to be invalid in Nevada District Court and is
currently on appeal to the Nevada Supreme Court. On January 23, 1998, the Nevada
Supreme Court issued an Order of Limited Remand ordering the District Court to
hold an evidentiary hearing within sixty (60) days of the date of the Order on
the issues of the Debtors' intent to accept or reject the Owner Participation
Agreement and, if the Owner Participation Agreement is rejected, whether the
City of Las Vegas Downtown Redevelopment Agency intends to acquire the property
independently of the Company. The Company informed the District Court that it
intended to assume the Owner Participation Agreement and the District Court
concluded its evidentiary hearing. The Company believes that, if necessary, it
can independently acquire the remaining parcels although the asking price may be
more than the Company is willing to pay or, in the alternative, continue
operating with the facility and property it currently owns.
The Company has also built a park, which was deeded to the City of Las
Vegas. Additionally, as required by the Owner Participation Agreement, the
Company acquired and is prepared to convey to the City a building known as the
Stupak Center which is used by the City as a community center. The Company
previously donated $100,000 to the Redevelopment Agency pursuant to the Owner
Participation Agreement to fund renovation of the Stupak Center as a multi-use
facility, including a day care center. Pursuant to the Owner Participation
Agreement, the Company has also agreed to provide relocation assistance and that
15% of the new jobs generated by Stratosphere between opening day April 29,1996
and April 26, 1998, would be made available to employ persons residing in the
immediate vicinity of Stratosphere.
The Company entered into the Master Lease with Strato-Retail LLC pursuant
to which Strato-Retail LLC was required to develop approximately 160,000 square
feet of the second floor of the building in which the Tower is located into a
retail and entertainment center. The Master Lease provided for base rent plus
percentage rent. Strato-Retail LLC paid the Company approximately $9.9 million
for the construction of the Phase I retail shell and, pursuant to the Master
Lease, is obligated to pay $7.9 million for the construction of the Phase II
expansion of the retail shell. Strato-Retail failed to pay any portion of the
Phase II expansion costs and construction of Phase II has halted prior to
completion. The Company, as part of the Restated Second Amended Plan, has sought
to assume the Master Lease. Strato-Retail LLC has opposed the assumption of the
Master Lease and the Bankruptcy Court allowed confirmation and consummation of
the Restated Second Amended Plan to occur prior to concluding the hearings on
the Company's motion to assume the Master Lease. Evidentiary hearings were
conducted on January 28 and 29, 1999, and a decision is expected in several
months. In the event the Company is allowed to assume the Master Lease, the
Company will be required to complete the construction of Phase II and expects
that Strato-Retail LLC will be required to reimburse the Company for $7.9
million. In addition, the Company will be required to pay to Strato-Retail LLC
damages, if any, for any pre-petition date breaches of the Master Lease as the
Bankruptcy Court
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<PAGE> 12
determines. In the event the amount the Bankruptcy Court determines necessary to
cure pre-petition breaches, if any, is unacceptable to the Company, the Company
maintains the right to reject the Master Lease, in which event, any damages
resulting from such rejection will be deemed a pre-petition unsecured claim to
be paid in accordance with the Restated Second Amended Plan. In the event of the
rejection of the Master Lease, Strato-Retail LLC would then have the option of
continuing under the Master Lease and possessing the Phase I retail space or
terminating the Master Lease and vacating the premises.
ITEM 3. LEGAL PROCEEDINGS
On August 5, 1996, a complaint was filed in the United States District
Court for the District of Nevada (Michael Caesar, et al. v. Stratosphere
Corporation, et al.) against the Company, Lyle A. Berman (a former officer and
director of the Company and officer and director of Grand), Robert E. Stupak (a
former officer and director of the Company), Thomas A. Lettero (an officer and
current director of the Company), Thomas G. Bell (a former director of the
Company), Andrew S. Blumen (a former officer and director of the Company), and
Grand. The complaint purports to seek relief on behalf of a class of plaintiffs
who purchased the Company's Common Stock during the period from December 19,
1995, through July 22, 1996, inclusive. The complaint alleged that the
defendants made misrepresentations and engaged in other wrongdoings. In addition
to the Caesar case above, eight additional cases making the same claims against
the same defendants (and in one instance also against Stanley Taube, a former
director of the Company and also a former officer and director of Grand) have
been filed. On January 15, 1997, the court ordered these eight additional
lawsuits to be consolidated with the Caesar lawsuit under the caption "In re
Stratosphere Corporation Securities Litigation."
On February 14, 1997, Plaintiffs filed a Consolidated and Amended Class
Action Complaint naming as defendants Grand, Bob Stupak, Lyle A. Berman, Stanley
M. Taube, David R. Wirshing, Thomas A. Lettero, Andrew S. Blumen, Thomas G.
Bell, Bob Stupak Enterprises, BT Securities Corporation and Montgomery
Securities, Inc. The Consolidated and Amended Class Action Complaint alleged
causes of action under the federal securities laws and Nevada law for purported
misrepresentations during the period between December 19, 1995, and July 22,
1996. The litigation was brought on behalf of a putative class of purchasers of
the Company's securities during that time period. The Consolidated and Amended
Class Action Complaint did not name the Company as a defendant, presumably due
to the automatic stay imposed by the Company's bankruptcy filing and because any
claims of plaintiffs against the Company would be resolved in the Bankruptcy
Proceedings. By virtue of the confirmation and consummation of the Restated
Second Amended Plan, the Company was discharged from any liability to Plaintiffs
or Defendants with Plaintiffs and Defendants receiving nothing under the
Restated Second Amended Plan.
On March 14, 1997, the Plaintiffs in the consolidated federal litigation
discussed above (the "Securities Litigation Claimants") filed a complaint
against the Company in an adversary proceeding in the context of the Bankruptcy
Proceedings. The Securities Litigation Claimants alleged that the Company made
misrepresentations and engaged in other wrongdoings during the period between
December 19, 1995, and July 22, 1996, in violation of the federal securities
laws and Nevada law. The complaint was dismissed as part of the confirmation
proceedings of the Restated Second Amended Plan and all claims of the Securities
Litigation Claimants were discharged.
On August 16, 1996, a complaint was filed in District Court, Clark County,
Nevada (Victor Opitz et al. v. Stratosphere Corporation et al.) against the
Company, Grand, Robert B. Stupak (a former officer and director of the Company),
Lyle A. Berman (a former officer and director of the Company and an officer and
director of Grand) and Stanley Taube (a former director of the Company and a
former director of Grand). The complaint purports to seek relief on behalf of a
class of plaintiffs who purchased stock during the period from December 19,
1995, to July 22, 1996. The complaint alleged the defendants made
misrepresentations and engaged in other wrongdoing. By virtue of the
confirmation and consummation of the Restated Second Amended Plan, the Company
was discharged from any liability arising out of the complaint with all other
parties to the action receiving nothing under the Restated Second Amended Plan.
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<PAGE> 13
McDonalds Corporation filed a proof of claim in the Bankruptcy Proceedings
in which it asserted both an administrative and a general unsecured claim. The
Debtors have filed an objection to the claim, and the matter is currently
pending. The amount of the allowed general unsecured claim, if any, is not
material and will be treated under the Restated Second Amended Plan with all
other general unsecured claims. However, McDonalds has asserted an
administrative claim of $410,843 for guaranteed income pursuant to a lease
during the administrative period of the Bankruptcy Proceedings. In the event
McDonalds is able to establish an allowed administrative claim, such claim would
be paid by the Debtors upon entry of a final order approving the claim. The
Debtors have filed a Motion for Summary Judgment to disallow the claim, which
motion is set to be heard by the Bankruptcy Court in March 1999. In the event
the Motion for Summary Judgment is denied and the Bankruptcy Court orders a
trial on the merits, trial is currently set for June 1999. Based upon the legal
requirements of the Bankruptcy Code for an administrative claim, the Debtors
believe they will prevail on the objection to the McDonalds' claim.
RAS Builders ("RAS") filed a Proof of Claim in the Bankruptcy Proceedings
based on a previously recorded mechanic's lien in the amount of $72,524. The
mechanic's lien was recorded against the real property owned by the Debtors
after RAS Builders constructed certain tenant improvements for a subtenant
located in the Phase I retail shopping center master leased to Strato-Retail
LLC. The Company filed an adversary complaint in the Bankruptcy Proceedings
against RAS Builders to avoid the lien, and further sought indemnification from
the Company's tenant, Strato-Retail LLC in the event the Company is required to
satisfy the RAS lien. Trial is currently set for June 1999. The Company believes
that it can successfully defeat the lien, or alternatively, in the event that it
is required to satisfy the lien, the Company will be reimbursed by either
Strato-Retail LLC or the subtenant.
In addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to February 24, 1994, there was no established trading market for the
Company's securities. On February 24, 1994, the Company's Common Stock ("Old
Common Stock") commenced trading on the NASDAQ Small Cap Market under the symbol
TOWV and the Pacific Stock Exchange under the symbol TOW. On June 24, 1994, the
Old Common Stock commenced trading on the NASDAQ National Market. The symbol was
changed to TOWVQ to indicate that the Company had begun operating under
Bankruptcy Proceedings on January 27, 1997. The Old Common Stock was delisted
from the Pacific Stock Exchange on December 3, 1996, and was delisted from the
National Market System on March 31, 1997, and began trading on the over the
counter bulletin board. All trading of the Company's Old Common Stock ceased as
of October 14, 1998, when such Old Common Stock was canceled pursuant to the
Restated Second Amended Plan. On October 14, 1998, pursuant to the Restated
Second Amended Plan, the Company issued 2,030,000 shares of new Common Stock
("New Common Stock"). There has been extremely limited trading volume of the new
Common Stock since October 14, 1998. Since February 1999, (first trading of the
New Common Stock) prices have ranged from $20 to $23.
The Company has never paid any cash dividends with respect to the Old
Common Stock or new Common Stock. The Company had 8 stockholders of record as of
March 2, 1999 for New Common Stock.
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<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY PREDECESSOR COMPANY
------------- -----------------------------------------------------------------------
SEPTEMBER 28, DECEMBER 29, FISCAL FISCAL YEAR ENDED
1998 THROUGH 1997 THROUGH YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29, -----------------------
STATEMENT OF OPERATIONS DATA: 1998 1998 1997 1996 1995 1994
- ----------------------------- ------------- ------------- ------------ ------------ ---------- ----------
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues(a)................ $ 30,586 $ 99,386 $ 137,516 $ 108,739 $ 60 $ 107
Costs and expenses............. 30,636 93,802 134,711 439,905(b) 947 1,050
--------- --------- ---------- ---------- ---------- ----------
Income (loss) from
operations................... (50) 5,584 2,805 (331,166) (887) (943)
Other expense (income)......... 134 2,021 22,120 17,677 3,776 (665)
--------- --------- ---------- ---------- ---------- ----------
Income(loss) before
extraordinary item........... (184) 3,563 (19,315) (348,843) (4,663) (278)
--------- --------- ---------- ---------- ---------- ----------
Extraordinary item:
Gain on pre-petition debt
discharge.................. -- 153,437(c) -- -- -- --
Net Income (Loss) $ (184) $ 157,000 $ (19,315) $ (348,843) $ (4,663) $ (278)
========= ========= ========== ========== ========== ==========
Basic income (loss) per common
share:
Before extraordinary item.... $ (0.09) * $ (0.33) $ (6.00) $ (0.12) $ (0.01)
Extraordinary item........... -- * -- -- -- --
Net income (loss) per share.... $ (0.09) * $ (0.33) $ (6.00) $ (0.12) $ (0.01)
========= ========= ========== ========== ========== ==========
Weighted average common shares
outstanding.................. 2,030,000 * 58,393,105 58,134,811 37,583,065 30,000,000
========= ========= ========== ========== ========== ==========
Total Assets................... $ 155,546 $ 165,109 $ 155,976 $ 181,080(b) $ 433,906 $ 111,841
Long-term capital lease
obligations.................. 8,979 11,150 --(d) 19,540 -- --
Long-term debt................. 242 288 444(d) 253,000 203,000 --
</TABLE>
- ---------------
* Earnings per share is not presented for the nine months ended September 27,
1998 because such presentation would not be meaningful. The Old Common Stock
was canceled and the New Common Stock was issued pursuant to the Restated
Second Amended Plan.
(a) The Company began operations on April 29, 1996.
(b) The reduction of total assets and increase in costs and expenses is the
result of a $295.9 million write-down of fixed assets recorded pursuant to
adoption of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," for the year ended December 29, 1996.
(c) Represents gain on the discharge of pre-petition debt pursuant to the
Restated Second Amended Plan becoming effective.
(d) As a result of the restructuring and implementation of the guidance provided
by the AICPA Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," all pre-petition liabilities
including long-term debt and obligations under capital leases have been
included in liabilities subject to compromise from the Petition Date to the
Effective Date. Liabilities subject to compromise totaled $299,208,988 on
December 28, 1997.
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<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of the Company could differ materially from the Company's
historical results of operations and those discussed in the forward-looking
statements
OVERVIEW
The Company operates an integrated casino, hotel and entertainment facility
and a 1,149 foot, free-standing observation tower in Las Vegas, Nevada. As of
March 1, 1999, the operations included approximately 1,700 slot machines, 37
table games, 6 poker tables, a sports book, keno lounge, 1,444 hotel rooms and
five themed restaurants.
RESTRUCTURING
On January 27, 1997, the Debtors filed voluntary petitions for Chapter 11
Reorganization pursuant to the United States Bankruptcy Code. As of that date,
the Bankruptcy Court assumed jurisdiction over the assets of the Company and
SGC. The Company and SGC acted as debtors-in-possession on behalf of their
respective bankrupt estates and were authorized as such to operate their
business subject to Bankruptcy Court supervision. On June 9, 1998, the
Bankruptcy Court entered the Confirmation Order, confirming the Restated Second
Amended Plan. On October 14, 1998, the Restated Second Amended Plan became
effective. All material conditions precedent to the Restated Second Amended Plan
becoming binding were satisfied on or before September 27, 1998. Accordingly,
the Company reflected the effect of the Restated Second Amended Plan as of
September 27, 1998, in the consolidated financial statements included in this
Form 10-K.
Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including 58.4
million shares of Common Stock, all options and warrants). The Company exchanged
2,030,000 shares of new Common Stock (represents 100% of the Common Stock as of
the Effective Date) for the secured portion of the 14 1/4% First Mortgage Notes
(estimated at $120.6 million). Approximately 89.6% of the new Common Stock has
been issued to Carl C. Icahn related entities. The remaining portion of the 14
1/4% First Mortgage Notes claim (approximately $104 million), the balance of
the note due Grand Casinos, Inc. (approximately $52.4 million) and all other
general unsecured claims were discharged in exchange of a cash payment of $6.0
million. Allowed priority claims (estimated at $.9 million) have been paid in
full. The discharge and settlement of these claims resulted in a gain of $153.4
million, which has been reflected as an extraordinary item on the Consolidated
Statement of Operations for the period ended September 27, 1998. The amount of
the gain is based on the Company's estimate of the amount of claims that will
ultimately be allowable by the Bankruptcy Court, and is not based on the total
of actual claims filed. In the event additional unsecured claims are allowed by
the Bankruptcy Court, it will not increase the cash the Company is required to
distribute for full debt discharge. A portion of the $6.9 million to be
distributed has been reserved for potential future settlement of unsecured claim
disputes (approximately $1.8 million).
Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to the Settlement Agreement with the Package Holders. The
Settlement Agreement required the approvals of the Bankruptcy Court and Nevada
State District Court. Upon obtaining the necessary approvals, the Settlement
Agreement became effective on June 23, 1998. Pursuant to the terms of the
Settlement Agreement, the Company provides room nights, tower elevations and
beverages (at the casino bars) to the Package Holders identified in Exhibit A to
the Settlement Agreement. The Company estimates the total cost of providing such
services to be approximately $3.3 million. The Company received from Bob Stupak
the Deed to the Stupak Center (estimated fair market value of $350,000), $.4
million of cash and the remaining three million shares of Common Stock held in
the escrow account previously established by Bob Stupak. The Stupak receivable
of $3.9 million ($800,000 of which was unreserved) was written off. The Company
has not attributed any value to the treasury stock received as it was canceled
upon the Restated Second Amended Plan becoming effective. The net estimated cost
of the Settlement Agreement of $3.3 million is reflected as a Reorganization
Item in the accompanying Consolidated Statements of Operations.
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<PAGE> 17
The Company, as part of the Restated Second Amended Plan, has sought to
assume the Master Lease with Strato-Retail LLC. Strato-Retail LLC has opposed
the assumption of the Master Lease and the Bankruptcy Court allowed confirmation
and consummation of the Restated Second Amended Plan to occur prior to
concluding the hearings on the Company's motion to assume the Master Lease.
Evidentiary hearings were conducted on January 28, 29 and March 5, 1999, and a
decision is expected in several months. In the event the Company is allowed to
assume the Master Lease, the Company will be required to complete the
construction of Phase II and expects that Strato-Retail LLC will be required to
reimburse the Company for $7.9 million. In addition, the Company will be
required to pay to Strato-Retail LLC damages for any pre-petition date breaches
of the Master Lease as the Bankruptcy Court determines. In the event the amount
the Bankruptcy Court determines necessary to cure pre-petition breaches, if any,
is unacceptable to the Company, the Company maintains the right to reject the
Master Lease, in which event, any damages resulting from such rejection will be
deemed a pre-petition unsecured claim to be paid in accordance with the Restated
Second Amended Plan. In the event of the rejection of the Master Lease,
Strato-Retail LLC would then have the option of continuing under the Master
Lease and possessing Phase I of the Premises or terminating the Master Lease and
vacating Phase I of the Premises.
In accordance with the Restated Second Amended Plan, as of the Effective
Date, the LLC was formed. The administrator for the LLC is Thomas A. Lettero and
the Board of Managers is Carl C. Icahn, Robert J. Mitchell and Russell Glass.
The LLC was formed for the purpose of pursuing (1) all claims and causes of
action of the holders of Original First Mortgage Notes and the Indenture Trustee
and (2) rights, claims and causes of action which the Company may have against
any person which the Company determined to transfer to the LLC for prosecution.
Upon the Effective Date of the Restated Second Amended Plan all individual
causes of action of holders of Original First Mortgage Notes related to the
Standby Equity Commitment were assigned to the LLC.
In January 1999, the LLC and IBJ Whitehall Bank, as Indenture Trustee,
entered into that certain Assignment of Claims whereby IBJ Whitehall
acknowledged the Plan in its entirety and acknowledged the transfer by the
holders of the Original First Mortgage Notes to the LLC of any and all claims
and causes of action including any and all claims, causes of action,
counter-claims, defenses, affirmative defenses and setoffs that IBJ Whitehall
had asserted or could have asserted in the Grand Litigation. Additionally, IBJ
Whitehall expressly reconfirmed the transfer and assignment to the LLC of any
and all claims and causes of action it held respecting the Original First
Mortgage Notes. Furthermore, the LLC expressly reaffirmed its acceptance of the
claims and causes of action of the holders of the Original First Mortgage Notes.
Pursuant to the guidance of AICPA SOP 90-7, "fresh start reporting" has
been reflected as of September 27, 1998, in the Consolidated Financial
Statements included in this Form 10-K (see Note 2 to the consolidated financial
statements).
17
<PAGE> 18
RESULTS OF OPERATIONS
The following discussion regarding the operating results of the Company
will be limited to a comparison of fiscal years 1998 and 1997 due to the fact
that operations commenced on April 26, 1996 and any comparisons to the year
ending 1996 would not be relevant. The comparison of operating results for
fiscal year 1998 and 1997 is performed by comparing the operating results for
the 1998 combined pre and post-reorganization periods to the actual results of
fiscal year 1997 since operations have remained similar and such comparison
would not be misleading.
COMPARISON OF OPERATING RESULTS FOR FISCAL YEAR 1998 AND 1997
<TABLE>
<CAPTION>
COMBINED
POST AND PREDECESSOR
PRE-REORGANIZATION COMPANY FISCAL
FISCAL YEAR ENDED YEAR ENDED
DECEMBER 27, 1998 DECEMBER 28, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Casino................................................. $ 55,534,156 $ 62,981,160
Hotel.................................................. 23,998,362 24,006,537
Food and beverage...................................... 33,760,459 33,143,254
Tower, retail and other income......................... 29,295,219 30,339,898
------------ ------------
Gross Revenues........................................... 142,588,196 150,470,849
Less: Promotional allowances........................... 12,616,103 12,955,013
------------ ------------
Net Revenues............................................. 129,972,093 137,515,836
------------ ------------
Costs and Expenses:
Casino................................................. 25,516,446 27,838,121
Hotel.................................................. 7,879,652 8,554,553
Food and beverage...................................... 23,252,141 25,552,348
Other operating expenses............................... 11,751,683 11,755,549
Depreciation and amortization.......................... 8,108,215 7,843,230
Selling, general and administrative.................... 47,930,436 53,166,758
------------ ------------
Total Costs and Expenses............................ 124,438,573 134,710,559
------------ ------------
Income From Operations................................... 5,533,520 2,805,277
------------ ------------
Other income (expense):
Interest income........................................ 203,270 47,674
Interest expense....................................... (1,532,380) (5,491,686)
Gain (Loss) on sale of assets.......................... (71,704) 14,186
------------ ------------
Total Other Expense, net............................ (1,400,814) (5,429,826)
------------ ------------
Income (Loss) Before Reorganization Items, Income Taxes
and Extraordinary Item................................. 4,132,706 (2,624,549)
Reorganization Items:.................................... (754,075) (16,690,482)
------------ ------------
Income (Loss) Before Income Taxes and Extraordinary
Item................................................... 3,378,631 (19,315,031)
Provision (Benefit) for Income Taxes..................... -- --
Extraordinary Gain on Pre-petition Debt Discharge........ 153,436,882 --
------------ ------------
Net Income (Loss)........................................ $156,815,513 $(19,315,031)
============ ============
</TABLE>
REVENUES
Casino revenues of $55.5 million for fiscal year 1998 were $7.4 million
(12%) less than the same period in 1997. Management attributes the decline to an
increased number of casinos implementing similar favorable
18
<PAGE> 19
gaming odds promotions offered by the Company. Management anticipates increased
competition with the opening of several new mega-resorts on the Las Vegas Strip
during the next twelve months. Casino marketing efforts have been directed
toward the development of several promotional events and direct mail programs.
Casino revenues represented 39% and 42% of total gross revenues for the 1998 and
1997 fiscal years, respectively.
Hotel revenues of $24.0 million for fiscal year 1998 were consistent with
the same period in 1997. Hotel occupancy was 91% during 1998 as compared to 88%
in 1997. The hotel occupancy mix shifted during 1998 to more rooms being
occupied by casino customers on a complimentary basis. Casino complimentaries
increased from 10% of total rooms occupied in 1997 to 15% in 1998. The average
rate per guest room was $49.91 during 1998 as compared to $51.31 in 1997. Hotel
revenues averaged 17% and 16% of total gross revenues during 1998 and 1997,
respectively. Management anticipates increased competition for hotel room sales
during the next twelve months with the increase of approximately 15,000 newly
constructed hotel rooms in the Las Vegas market.
Tower visitations (including the Top of The World dining) totaled 2.4
million during the 1998 fiscal year as compared to 2.7 million for the same
period in 1997. The revenue impact of the decline in visitations was partially
offset by an increase in ride admissions from 1.0 million for 1997 to 1.2
million during 1998. The increase in ride revenues was due primarily to the
implementation programs to increase the number of multiple rides per visitor.
COST AND EXPENSES
Casino operating costs declined approximately 8% from $27.8 million for
fiscal year 1997 to $25.5 million for 1998. The majority of this expense
reduction was due to reduced labor costs associated with reducing the table
games offered from 53 to 37 during April 1998, which was partially offset with
the opening of the 6 game poker room. Management does not anticipate further
significant labor reductions.
Hotel operating costs declined approximately 8% from $8.6 million for
fiscal year 1997 to $7.9 million for 1998. The reduction in hotel operating
costs is due to more room nights being provided to casino customers on a
complimentary basis in 1998, the cost of which is included in promotional
allowances.
Food and beverage operating costs declined approximately 9% from $25.6
million for fiscal year 1997 to $23.3 million for 1998. The majority of the
expense reduction was the result of reduced labor costs and the implementation
of several purchasing programs aimed at reducing the cost of sales. Management
does not anticipate significant expense reductions in future periods.
Selling, general and administrative expenses declined approximately 10%
from $53.2 million for fiscal year 1997 to $47.9 million for 1998. The majority
of cost savings during 1998 were realized through a $2.1 million reduction in
labor expenses, $.8 million reduction in advertising expenses and $.4 million
reduction in bad debt expense. In addition, the 1997 amounts included
approximately $1.2 million of non-recurring charges related to tax audits,
assessments and pre-petition restructuring costs.
OTHER FACTORS AFFECTING EARNINGS
Interest expense was $1.5 million for fiscal year 1998 as compared to $5.5
million for 1997. The reduction in interest expense is due to the $2.4 million
of interest related to the 14 1/4% First Mortgage Notes for the pre-petition
period in 1997, $.5 million of interest related to the Grand Note and a $.9
million reduction in interest associated with the capital lease obligations. The
Company ceased accruing interest on the Grand Note and the 14 1/4% First
Mortgage Notes as of the Petition Date. Pursuant to the Restated Second Amended
Plan (see Note 2 to the Consolidated Financial Statements included in this Form
10-K), principal and interest payments associated with the capital lease
obligations will continue. The Grand Note and the 14 1/4% First Mortgage Notes
have been cancelled. Future period interest will be limited to the capital lease
obligation interest and interest related to any additional Company financings
(see Liquidity and Capital Resources).
The Company recorded expenses from reorganization items of $.8 million for
fiscal year 1998 as compared to $16.7 million for 1997 (see Note 3 to the
consolidated financial statements included in this
19
<PAGE> 20
Form 10-K). Since the Effective Date, professional fees incurred have been
classified as selling, general and administrative expenses. Management estimates
that current reorganization expense accruals will be sufficient to cover the
post-Effective Date reorganization related efforts.
The Company recorded a $153.4 million extraordinary gain on the discharge
of debt associated with the Company's emergence from Chapter 11 bankruptcy
proceedings (see Note 2 to the consolidated financial statements included in
this Form 10-K).
LIQUIDITY AND CAPITAL RESOURCES
DEBT
Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company issued 2,030,000 shares of the New Common Stock (100% of
shares as of the Effective Date) to the holders of the 14 1/4% First Mortgage
Notes in exchange for the secured portion of their debt (estimated at $120.6
million). The remaining portion of the 14 1/4% First Mortgage Note claim
(approximately $104.0 million), the balance of the Note due Grand Casinos, Inc.
(approximately $52.4 million) and all other general unsecured claims will be
discharged in exchange of a cash payment of $6.0 million. As of March 10, 1999,
approximately $4.3 million had been paid in respect to these claims. The balance
has been reserved pending resolution of claim disputes.
In addition, pursuant to the Restated Second Amended Plan, the Company will
continue to make payments on its capital lease obligations; however, the
financial covenants related to these agreements have been removed and the
agreements amended. The Company will be required to make a final payment of
approximately $6.9 million on its capital lease obligations on April 30, 1999.
To the extent necessary, the Company believes it can obtain new financing
sufficient to fund the final capital lease payment.
SHAREHOLDERS' EQUITY
Pursuant to the Restated Second Amended Plan, all equity interests
(including the 58.4 million shares of Old Common Stock, options and warrants) in
the Company held prior to the Effective Date were canceled. On the Effective
Date the Company issued the 2,030,000 of New Common Stock shares representing
100% of the Common Stock of the Company to the holders of the 14 1/4% First
Mortgage Notes in exchange for the secured portion of their claim (approximately
$120.6 million). Approximately 89.6% of the New Common Stock has been issued to
Carl C. Icahn related entities.
The Company has not implemented a stock option plan and has not paid any
dividends.
CASH FLOW, WORKING CAPITAL AND CAPITAL EXPENDITURES
The Company had unrestricted cash balances of $12.6 million as of December
27, 1998. The Company has relied on unrestricted cash balances and its ability
to generate cash flow from operations to fund its working capital needs.
The Company generated $10.3 million and $1.6 million from operating
activities for the nine months ended September 27, 1998 (predecessor company)
and three months ended December 27, 1998 (successor company), respectively. The
combined cash generated of $11.9 million and $6.0 million of unrestricted cash
were used to fund payments on capital lease obligations of $9.0 million,
payments to creditors pursuant to the Restated Second Amended Plan of $5.2
million and $3.7 million of capital expenditures.
With the Restated Second Amended Plan becoming effective on October 14,
1998, the Company was required to provide payment of $6.0 million to general
unsecured creditors and approximately $.9 million to creditors with priority
claims. As mentioned above, the Company has currently paid $5.2 million related
to the settlement of these claims and will pay the balance upon settlement of
disputed claims (see Note 16 to the consolidated financial statements included
in this Form 10-K). The Company estimates that its current level of cash and
anticipated funds from operations will be adequate to fund its cash
requirements.
20
<PAGE> 21
The Company anticipates completing various casino enhancement projects
during 1999. Included in these projects is a new race and sports book,
entertainment lounge and installation of an escalator to the 650 seat showroom.
The Company estimates the expenditures to be approximately $3.0 million. The
Company anticipates funding the enhancements and other miscellaneous capital
expenditures from operating activities during 1999 or incorporating a portion of
the costs in the refinancing of the Company's capital lease obligations.
YEAR 2000
The Company's hardware configuration, casino operating system, hotel
property management and financial accounting system upgrades have been
completed. These upgrades, combined with other operating systems that are
already year 2000 compliant, represent completion of the Company's most critical
systems. Management continues to assess all other information support systems
throughout the Company, as well as those systems it relies on from its primary
vendors. The Company plans to be Year 2000 compliant with all remaining internal
systems prior to the end of the 1999 third quarter. Management currently
estimates that the combined upgrades and purchases of new systems may total
approximately $3.0 million. Approximately $2.1 million has been spent as of
December 27, 1998. There can be no assurance based on future assessment or other
changed circumstances that the amount estimated will represent the actual costs
incurred. In addition, the Company's ability to upgrade its software timely is
largely dependent on the performance of its software vendors.
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-K 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).
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets at December 27, 1998 (Successor
Company), September 27, 1998
(Successor Company) and December 28, 1997 (Predecessor
Company)............................................... F-3
Consolidated Statements of Operations for the period
September 28, 1998 through December 27, 1998 (Successor
Company), December 29, 1997 through September 27, 1998
(Predecessor Company) and Fiscal Years Ended December 28,
1997 and December 29, 1996
(Predecessor Company)..................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the period from January 1, 1996 through September 27,
1998 (Predecessor Company) and September 28, 1998 through
December 27, 1998 (Successor Company)..................... F-5
Consolidated Statements of Cash Flows for the period
September 28, 1998 through December 27, 1998 (Successor
Company), December 29, 1997 through September 27, 1998
(Predecessor Company) and fiscal years ended December 28,
1997 and December 29, 1996 (Predecessor Company).......... F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Stratosphere Corporation:
We have audited the accompanying consolidated balance sheets of
Stratosphere Corporation (a Delaware corporation) and subsidiaries (the
"Successor Company" see Note 2) as of December 27, 1998 and September 27, 1998,
and the related statements of operations, shareholders' equity (deficit) and
cash flows for the three months ended December 27, 1998. We have also audited
the accompanying consolidated balance sheet of the Predecessor Company as of
December 28, 1997 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the nine months ended
September 27, 1998, and the years ended December 28, 1997 and December 29, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2 to the consolidated financial statements,
effective October 14, 1998, the Company emerged from protection under Chapter 11
of the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was
confirmed by the Bankruptcy Court on June 9, 1998. In accordance with AICPA
Statement of Position 90-7, the Company adopted "Fresh Start Reporting" whereby
its assets, liabilities and new capital structure were adjusted to reflect
estimated fair values as of September 27, 1998. As a result, the consolidated
financial statements for the periods subsequent to September 27, 1998 reflect
the Successor Company's new basis of accounting and are not comparable to the
Predecessor Company's pre-reorganization consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, (a) the financial position of the
Successor Company as of December 27, 1998 and September 27, 1998, and the
results of their operations and their cash flows for the three months ended
December 27, 1998, and (b) the financial position of the Predecessor Company as
of December 28, 1997, and the results of their operations and their cash flows
for the nine months ended September 27, 1998, and the years ended December 28,
1997 and December 29, 1996, all in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 12, 1999
F-2
<PAGE> 24
STRATOSPHERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
---------------------------- ------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
1998 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,623,817 $ 15,879,443 $ 20,326,317
Cash and cash equivalents-restricted.............. 2,218,270 7,382,904 471,273
Investments-restricted............................ 3,291,342 3,253,733 3,139,469
Accounts receivable, net.......................... 2,618,618 2,778,681 2,479,512
Other current assets.............................. 5,426,622 6,814,286 5,753,608
------------ ------------ ------------
Total Current Assets................................ 26,178,669 36,109,047 32,170,179
------------ ------------ ------------
Property and Equipment, Net......................... 126,172,780 125,699,999 122,381,979
------------ ------------ ------------
Other Assets:
Deferred financing costs-net...................... 194,385 299,735 624,156
Other receivable.................................. 3,000,000 3,000,000 --
Related party receivable-net...................... -- -- 800,000
------------ ------------ ------------
Total Other Assets.................................. 3,194,385 3,299,735 1,424,156
------------ ------------ ------------
Total Assets........................................ $155,545,834 $165,108,781 $155,976,314
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable-trade............................ $ 1,406,654 $ 1,534,094 $ 1,124,425
Current installments of long-term debt............ 148,017 148,017 148,017
Current installments of capital lease
obligations.................................... 8,979,055 8,979,055 --
Accrued interest.................................. 123,853 162,830 263,457
Accrued payroll and related expenses.............. 5,145,703 6,958,457 5,778,505
Other accrued expenses............................ 12,754,074 17,936,664 6,156,276
------------ ------------ ------------
Total Current Liabilities........................... 28,557,356 35,719,117 13,470,680
------------ ------------ ------------
Long-Term Liabilities:
Long-term note payable-less current
installments................................... 94,204 140,426 296,033
Capital lease obligations-less current
installments................................... -- 2,171,090 --
------------ ------------ ------------
Total Long-Term Liabilities......................... 94,204 2,311,516 296,033
------------ ------------ ------------
Liabilities Subject to Compromise................... -- -- 299,208,988
------------ ------------ ------------
Total Liabilities................................... 28,651,560 38,030,633 312,975,701
============ ============ ============
Commitments and Contingencies
Shareholders' Equity (Deficit):
Preferred stock, $.01 par value; authorized
3,000,000, -0-and 10,000,000 shares; no shares
issued and outstanding at December 27, 1998,
September 27, 1998 and December 28, 1997,
respectively
New common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
2,030,000...................................... 20,300 20,300 --
Old common stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
58,393,105..................................... -- -- 583,931
Additional paid-in-capital........................ 127,057,848 127,057,848 218,546,069
Accumulated (deficit)............................. (183,874) -- (376,129,387)
------------ ------------ ------------
Total Shareholders' Equity (Deficit)................ 126,894,274 127,078,148 (156,999,387)
------------ ------------ ------------
Total Liabilities and Shareholders' Equity
(Deficit)......................................... $155,545,834 $165,108,781 $155,976,314
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 25
STRATOSPHERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
------------- --------------------------------------------
SEPTEMBER 28, DECEMBER 29, FISCAL YEAR FISCAL YEAR
1998 THROUGH 1997 THROUGH ENDED ENDED
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1998 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Casino.................................................... $13,147,299 $ 42,386,857 $ 62,981,160 $ 47,901,144
Hotel..................................................... 5,929,323 18,069,039 24,006,537 19,698,730
Food and beverage......................................... 8,327,898 25,432,561 33,143,254 26,825,729
Tower, retail and other income............................ 6,396,712 22,898,507 30,339,898 25,541,729
----------- ------------ ------------ -------------
Gross Revenues.............................................. 33,801,232 108,786,964 150,470,849 119,967,332
Less: Promotional allowances.............................. 3,214,833 9,401,270 12,955,013 11,228,465
----------- ------------ ------------ -------------
NET REVENUES................................................ 30,586,399 99,385,694 137,515,836 108,738,867
----------- ------------ ------------ -------------
COSTS AND EXPENSES:
Casino.................................................... 6,196,825 19,319,621 27,838,121 21,474,255
Hotel..................................................... 1,852,430 6,027,221 8,554,553 7,082,100
Food and beverage......................................... 5,916,556 17,335,585 25,552,348 22,416,703
Other operating expenses.................................. 2,716,052 9,035,632 11,755,549 9,444,697
Depreciation and amortization............................. 2,115,559 5,992,656 7,843,230 11,477,925
Pre-opening costs amortization............................ -- -- -- 23,909,146
Impairment of long-lived assets........................... -- -- -- 295,946,633
Selling, general and administrative....................... 11,839,190 36,091,246 53,166,758 48,153,596
----------- ------------ ------------ -------------
Total Costs and Expenses................................ 30,636,612 93,801,961 134,710,559 439,905,055
----------- ------------ ------------ -------------
INCOME (LOSS) FROM OPERATIONS............................... (50,213) 5,583,733 2,805,277 (331,166,188)
----------- ------------ ------------ -------------
OTHER INCOME (EXPENSE):
Interest income........................................... 203,270 -- 47,674 3,992,108
Interest expense (Contractual Interest for the three and
nine months ended December 27 and September 27, 1998
estimated at $306,799 and $34,176,185, respectively.)... (306,798) (1,225,582) (5,491,686) (21,761,565)
Gain (Loss) on sale of assets............................. (30,133) (41,571) 14,186 93,025
----------- ------------ ------------ -------------
Total Other Expense, net................................ (133,661) (1,267,153) (5,429,826) (17,676,432)
----------- ------------ ------------ -------------
Income (Loss) Before Reorganization Items, Income Taxes and
Extraordinary Item........................................ (183,874) 4,316,580 (2,624,549) (348,842,620)
Reorganization Items:....................................... -- (754,075) (16,690,482) --
----------- ------------ ------------ -------------
Income (Loss) Before Income Taxes and Extraordinary Item.... (183,874) 3,562,505 (19,315,031) (348,842,620)
Provision (Benefit) for Income Taxes........................ -- -- -- --
Extraordinary Gain on Prepetition Debt Discharge............ -- 153,436,882 -- --
----------- ------------ ------------ -------------
NET INCOME (LOSS)........................................... (183,874) $156,999,387 $(19,315,031) $(348,842,620)
=========== ============ ============ =============
BASIC INCOME (LOSS) PER COMMON SHARE
Before extraordinary item................................. $ (0.09) * $ (0.33) $ (6.00)
Extraordinary item........................................ -- * -- --
----------- ------------ ------------ -------------
Net....................................................... $ (0.09) * $ (0.33) $ (6.00)
=========== ============ ============ =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 2,030,000 * 58,393,105 58,134,811
=========== ============ ============ =============
</TABLE>
- ---------------
* Earnings per share is not presented for the nine months ended September 27,
1998 because such presentation would not be meaningful. The Old Common Stock
was cancelled and the New Common Stock was issued pursuant to the Restated
Second Amended Plan.
See notes to consolidated financial statements.
F-4
<PAGE> 26
STRATOSPHERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL SHAREHOLDERS'
COMMON TREASURY PREFERRED PAID-IN ACCUMULATED EQUITY
STOCK STOCK STOCK CAPITAL DEFICIT (DEFICIT)
-------- -------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995
(Predecessor Company)................ $563,611 $ -- $ -- $199,697,889 $ (7,971,736) $ 192,289,764
Net loss............................... -- -- -- -- (348,842,620) (348,842,620)
Exercise of 134,833 stock options...... 1,348 -- -- 571,692 -- 573,040
Exercise of 81,596 common stock
purchase warrants.................... 816 -- -- 722,590 -- 723,406
Cost of secondary stock offering....... -- -- -- (248,047) -- (248,047)
Purchase of land for common stock...... 18,156 -- -- 18,186,604 -- 18,204,760
Unrealized holding loss on
investment........................... -- -- -- (143,085) -- (143,085)
-------- -------- -------- ------------ ------------- -------------
Balances at December 29, 1996
(Predecessor Company)................ 583,931 -- -- 218,787,643 (356,814,356) (137,442,782)
Net loss............................... -- -- -- -- (19,315,031) (19,315,031)
Vegas World acquisition (leasehold
settlement) cost..................... -- -- -- (240,000) -- (240,000)
Unrealized holding loss on
investment........................... -- -- -- (1,574) -- (1,574)
-------- -------- -------- ------------ ------------- -------------
Balances at December 28, 1997
(Predecessor Company)................ 583,931 -- -- 218,546,069 (376,129,387) (156,999,387)
Purchase of treasury stock resulting
from Vegas World Vacation Package
settlement........................... -- (30,000) -- 30,000 -- --
-------- -------- -------- ------------ ------------- -------------
Balances at September 27, 1998
(Predecessor Company)................ $583,931 $(30,000) $ -- $218,576,069 $(376,129,387) $(156,999,387)
======== ======== ======== ============ ============= =============
Balances at September 27, 1998
(Predecessor Company)................ $583,931 $(30,000) $ -- $218,576,069 $(376,129,387) $(156,999,387)
Cancellation of old common stock
pursuant to the plan of
reorganization....................... (583,931) 30,000 -- 553,931 -- --
Issuance of new common stock pursuant
to the plan of reorganization........ 20,300 -- -- -- -- 20,300
Elimination of accumulated deficit
pursuant to the plan of
reorganization....................... -- -- -- (219,130,000) 219,130,000 --
Additional paid-in-capital pursuant to
the plan of reorganization........... -- -- -- 127,057,848 -- 127,057,848
Net income............................. -- -- -- -- 156,999,387 156,999,387
-------- -------- -------- ------------ ------------- -------------
Balances at September 27, 1998
(Successor Company).................. 20,300 -- -- 127,057,848 -- 127,078,148
Net loss............................... -- -- -- -- (183,874) (183,874)
-------- -------- -------- ------------ ------------- -------------
Balances at December 27, 1998
(Successor Company).................. $ 20,300 $ -- $ -- $127,057,848 $ (183,874) $ 126,894,274
======== ======== ======== ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 27
STRATOSPHERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY PREDECESSOR COMPANY
------------- --------------------------------------------
SEPTEMBER 28, DECEMBER 29, FISCAL YEAR FISCAL YEAR
1998 THROUGH 1997 THROUGH ENDED ENDED
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1998 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (183,874) $ 156,999,387 $(19,315,031) $(348,842,620)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 2,215,649 6,299,366 8,404,854 13,407,234
Amortization of pre-opening costs................... -- 23,909,146
Extraordinary gain on prepetition debt discharge.... -- (153,436,882) -- --
Reorganization Items:
Write-off of debt issuance costs.................. -- -- 11,210,108 --
Professional Fees................................. -- 2,916,261 5,500,000 --
Management Retention Expense...................... -- 194,625 820,000 --
Vegas World Vacation Package Settlement........... -- 3,346,793 -- --
Adjust accounts to fair value..................... -- (8,597,847) -- --
Increase in allowed claims........................ -- 3,708,184 -- --
Interest Earned on Accumulated Cash During Chapter
11 Proceedings.................................. -- (813,941) (839,626) --
Provision for doubtful accounts..................... 24,330 139,192 272,481 3,166,829
Impairment of long-lived assets..................... -- -- -- 295,946,633
(Gain) loss on sale or disposal of assets 30,133 41,571 (14,187) 214,495
Changes in operating assets and liabilities:
Accounts and other receivable..................... 135,733 (2,638,361) 1,992,195 (278,951)
Other current assets.............................. 1,387,664 (1,060,678) 373,717 (4,070,428)
Accounts payable-trade (pre-petition)............. -- -- (902,924) --
Accounts payable-trade (post-petition)............ (127,440) 409,810 1,124,425 912,041
Accrued expenses (pre-petition)................... -- -- (7,715,597) --
Accrued expenses (post-petition).................. (1,864,425) 12,977,147 8,340,789 28,931,755
------------ ------------- ------------ -------------
Net Cash Provided by (Used in) Operating Activities
Before Reorganization Items......................... 1,617,768 20,484,627 9,251,204 13,296,134
------------ ------------- ------------ -------------
Increases (decreases) to Cash Resulting from
Reorganization Items:
Pre-petition claims payable pursuant to amended
plan.............................................. -- (7,382,904) -- --
Professional fees paid.............................. -- (2,783,491) (2,679,802) --
Management Retention Disbursements.................. -- (835,875) 217,250 --
Interest Earned on Accumulated Cash During Chapter
11 Proceedings.................................... -- 813,941 839,626 --
------------ ------------- ------------ -------------
NET CASH (USED IN) REORGANIZATION ITEMS................. -- (10,188,329) (1,622,926) --
------------ ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... 1,617,768 10,296,298 7,628,278 13,296,134
------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in cash and cash equivalents-restricted...... 5,164,634 (6,911,631) (472,847) 109,913,662
Change in investments-restricted.................... (37,609) (114,264) (461,125) 2,678,344
Change in securities available for sale............. -- -- 2,000,905 3,140,045
Payments for property and equipment................. (2,658,073) (1,062,400) (1,403,341) (191,301,881)
Change in construction payables..................... -- -- (544,133) (32,664,947)
Pre-opening costs................................... -- -- -- (18,112,284)
Increase in related party receivable and other...... -- -- (168,697) (3,777,687)
Cash proceeds from sale of property and equipment... 39,600 308,000 1,585,827 --
------------ ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..... 2,508,552 (7,780,295) 536,589 (130,124,748)
------------ ------------- ------------ -------------
</TABLE>
F-6
<PAGE> 28
STRATOSPHERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY PREDECESSOR COMPANY
------------- --------------------------------------------
SEPTEMBER 28, DECEMBER 29, FISCAL YEAR FISCAL YEAR
1998 THROUGH 1997 THROUGH ENDED ENDED
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1998 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock-net.......... -- -- -- 1,296,446
Payments to creditors pursuant to plan of
reorganization.................................... (5,164,634) -- -- --
Costs of secondary stock offering................... -- -- -- (248,046)
Debt issuance and deferred financing costs.......... -- -- (6,250) (760,707)
Proceeds from issuance of long-term debt............ -- -- -- 1,170,375
Payments on long-term debt.......................... (46,222) (155,607) (429,103) (741,272)
Payments on capital lease obligations subject to
compromise........................................ (2,171,090) (6,807,270) (10,266,760) (5,000,000)
Increase in affiliate payable -- -- 544,759 1,074,852
Proceeds from the issuance of debt to affiliate..... -- -- -- 50,000,000
Vegas World acquisition (leasehold settlement)
costs............................................. -- -- (240,000) --
------------ ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... (7,381,946) (6,962,877) (10,397,354) 46,791,648
------------ ------------- ------------ -------------
Net (decrease) in cash and cash equivalents............. (3,255,626) (4,446,874) (2,232,487) (70,036,966)
Cash and cash equivalents -- beginning of period........ 15,879,443 20,326,317 22,558,804 92,595,770
------------ ------------- ------------ -------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.............. $ 12,623,817 $ 15,879,443 $ 20,326,317 $ 22,558,804
============ ============= ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest-net of capitalized interest.................. $ 240,425 $ 1,004,556 $ 2,097,540 $ 2,014,243
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in purchase of land.......... $ -- $ -- $ -- $ 18,204,760
Increase in land and building from reduction in notes
receivable from stockholder......................... $ -- $ 350,000 $ -- $ --
Cancellation of old common stock pursuant to the plan
of reorganization................................... $ -- $ (583,931) $ -- $ --
Issuance of new common stock pursuant to the plan of
reorganization...................................... $ -- $ 20,300 $ -- $ --
Discharge of first mortgage notes..................... $ -- $(203,000,000) $ -- $ --
Discharge of note payable -- affiliate................ $ -- $ (50,000,000) $ -- $ --
Purchase of equipment through capital lease............. $ -- $ -- $ 444,050 $ 33,224,175
Preferential distribution to stockholder.............. $ -- $ -- $ (240,000) $ --
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 29
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The accompanying 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 operates an integrated
casino, hotel and entertainment facility and a 1,149 foot, free-standing
observation tower located in Las Vegas, Nevada.
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 Stratosphere Corporation and
SGC. Stratosphere Corporation and SGC had been acting as debtors-in-possession
on behalf of their respective estates, and have been authorized as such to
operate their business subject to Bankruptcy Court supervision. On June 9, 1998,
the Bankruptcy Court entered an order (the "Confirmation Order") confirming the
Restated Second Amended Plan of Reorganization filed by the Debtors (the
"Restated Second Amended Plan"). On October 14, 1998, the Restated Second
Amended Plan became effective ("Effective Date"). All material conditions
precedent to the Restated Second Amended Plan becoming binding were satisfied on
or before September 27, 1998. Accordingly, the Company has reflected the effect
of the Restated Second Amended Plan as of September 27, 1998, in the
accompanying consolidated financial statements.
BASIS OF PRESENTATION
The Company has implemented the guidance provided by the American Institute
of Certified Public Accountants Statement of Position 90-7 "Financial Reporting
By Entities In Reorganization Under The Bankruptcy Code" ("AICPA SOP 90-7") and
as such, adopted "fresh start reporting" as of September 27, 1998, in the
preparation of the accompanying consolidated financial statements. The Company's
emergence from Chapter 11 proceedings resulted in a new reporting entity with no
retained earnings or accumulated deficit as of September 27, 1998. Accordingly,
the Company's consolidated financial statements for periods prior to September
27, 1998 are not comparable to consolidated financial statements presented on or
subsequent to September 27, 1998. A black line has been drawn on the
accompanying consolidated financial statements to distinguish between the
pre-reorganization and post-reorganization entity (see Note 2).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Stratosphere
Corporation and all subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
The Company recognizes revenues in accordance with industry practice.
Casino revenue is the net win from gaming activities (the difference between
gaming wins and losses). Casino revenues are net of accruals for anticipated
payouts of progressive and certain other slot machine jackpots. Revenues include
the retail value of rooms, food and beverage and other items that are provided
to customers on a complimentary basis. A corresponding amount is deducted as
promotional allowances. The cost of such complimentaries included as casino
expenses is as follows (in thousands):
F-8
<PAGE> 30
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY PREDECESSOR COMPANY
------------- -------------------------------------------
SEPTEMBER 28, DECEMBER 29, FISCAL YEAR FISCAL YEAR
1998 THROUGH 1997 THROUGH ENDED ENDED
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1998 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Food and Beverage......................... $ 1,011 $ 3,316 $ 4,795 $ 3,339
Rooms..................................... 465 1,276 1,220 458
Other..................................... 20 155 358 59
-------- -------- -------- --------
$ 1,496 $ 4,747 $ 6,373 $ 3,856
======== ======== ======== ========
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in banks, interest
bearing deposits, money market funds and investments purchased with an original
maturity of 90 days or less. Cash and cash equivalents restricted as of December
27, 1998 consist primarily of funds reserved for final settlement of unsecured
claims pursuant to the Restated Second Amended Plan.
INVESTMENTS RESTRICTED
Investments restricted at December 27, 1998, September 27, 1998, and
December 28, 1997 consists primarily of funds pledged for workers' compensation
benefits.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost (see Note 6), except in the case
of capitalized lease assets, which are stated at the lower of the present value
of the future minimum lease payments or fair market value at the inception of
the lease. Expenditures for additions, renewals and improvements are capitalized
and depreciated over their useful lives. Costs of repairs and maintenance are
expensed when incurred. Leasehold acquisition costs are amortized over the
shorter of their estimated useful lives or the term of the respective leases
once the assets are placed in service.
Depreciation and amortization of property and equipment is computed using
the straight-line method over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 39 years
Furniture, fixtures and equipment........................... 3-15 years
Land improvements........................................... 15 years
</TABLE>
The Company's policy is to capitalize interest incurred on debt during the
course of qualifying construction projects. Such costs are amortized over the
related assets' estimated useful lives. Capitalized interest totaled $13,954,854
during fiscal year 1996. There was no capitalized interest during fiscal years
1997 and 1998.
RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121").
F-9
<PAGE> 31
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to SFAS 121, the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset or a group of assets may not be recoverable. Assets are grouped and
evaluated for impairment at the lowest level for which there are identifiable
cash flows that are largely independent of the cash flows of other groups of
assets. The Company deems an asset to be impaired if a forecast of undiscounted
future operating cash flows directly related to the asset, including disposal
value if any, is less than its carrying amount. If an asset is determined to be
impaired, the loss is measured as the amount by which the carrying amount of the
asset exceeds fair value. The Company generally measures value by discounting
estimated cash flows. Considerable management judgment is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
DEBT ISSUANCE COSTS
Deferred debt issuance costs represent direct costs and expenses of
$15,205,738 that were incurred in connection with the Company's offering of
$203,000,000 14 1/4% First Mortgage Notes. Prior to the Petition Date such
amount was amortized using the effective interest method or a method which
approximates the effective interest method. For the fiscal year ended December
29, 1996, $2,113,383 of debt issuance cost was amortized. On the Petition Date
the Company expensed unamortized deferred debt issuance costs. The December 28,
1997 consolidated statement of operations included $11.2 million of debt
issuance costs write-offs classified as "Reorganization Items." There was no
amortization of debt issuance cost for the three months ended December 27, 1998
and nine months ended September 27, 1998.
PRE-OPENING COSTS
Pre-opening costs incurred prior to the opening were capitalized and
amortized to expense using the straight line method over the six months
following the opening. These costs include payroll, training and marketing costs
incurred prior to commencement of operations. Amortization of pre-opening costs
totaled $23,909,146 for fiscal year ended December 29, 1996. There was no
amortization of pre-opening costs for the three months ended December 27, 1998,
nine months ended September 27, 1998 and fiscal year ended December 28, 1997.
SALES, ADVERTISING AND PROMOTION
Sales, advertising and promotion costs are expensed as incurred and totaled
$1,823,198, $5,826,080, $8,126,094 and $6,651,727 for the three months ended
December 27, 1998, nine months ended September 27, 1998, fiscal years 1997 and
1996, respectively.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Based on the application of significant judgment, actual
results could differ from those estimates.
EARNINGS (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128") in 1997. However, there is no effect on the EPS calculation as all
Common Stock and equivalents have been canceled as of the Effective Date.
Pursuant to the Restated Second Amended Plan 2,030,000 new Common Stock shares
were issued on the Effective Date. There were no other Common Stock equivalents
as of December 27, 1998.
F-10
<PAGE> 32
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications, having no effect on net losses, have been made
to the prior years consolidated financial statements to conform with the current
fiscal year presentation.
FISCAL YEAR-END
The Company has adopted a 52- or 53-week accounting period. The Company's
fiscal year is the 52 weeks ending on the last Sunday in December. The fiscal
years ended December 27, 1998, December 28, 1997 and December 29, 1996 all
comprised 52 week years.
(2) RESTRUCTURING
Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including 58.4
million shares of Common Stock, all options and warrants). The Company exchanged
2,030,000 shares of new Common Stock (represents 100% of the Common Stock as of
the Effective Date) for the secured portion of the 14 1/4% First Mortgage Notes
(estimated at $120.6 million). Approximately 89.6% of the new Common Stock has
been issued to Carl C. Icahn related entities. The remaining portion of the 14
1/4% First Mortgage Notes claim (approximately $104 million), the balance of
the note due Grand Casinos, Inc. (approximately $52.4 million) and all other
general unsecured claims were discharged in exchange for cash payments which
will total $6.0 million. Allowed priority claims (estimated at $.9 million) have
been paid in full. The discharge and settlement of these claims resulted in a
gain of $153.4 million, which has been reflected as an extraordinary item on the
consolidated statement of operations for the period ended September 27, 1998.
The amount of the gain is based on the Company's estimate of the amount of
claims that will ultimately be allowable by the Bankruptcy Court, and is not
based on the total of actual claims filed. In the event additional unsecured
claims are allowed by the Bankruptcy Court, it will not increase the cash the
Company is required to distribute for full debt discharge. A portion of the $6.9
million to be distributed has been reserved for potential future settlement of
unsecured claim disputes (approximately $1.8 million).
Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to a global settlement agreement ("Settlement Agreement") with
the holders of the Vegas World Vacation Packages ("Package Holders"). The
Settlement Agreement required the approvals of the Bankruptcy Court and Nevada
State District Court. Upon obtaining the necessary approvals, the Settlement
Agreement became effective on June 23, 1998. Pursuant to the terms of the
Settlement Agreement, the Company provides room nights, tower elevations and
beverages (at the casino bars) to the Package Holders identified in Exhibit A to
the Settlement Agreement. The Company estimates the total cost of providing such
services to be approximately $3.3 million. The Company received from Bob Stupak
the Deed to the Stupak Center (estimated fair market value of $350,000), $.4
million of cash and the remaining three million shares of Common Stock held in
the escrow account previously established by Bob Stupak. The Stupak receivable
of $3.9 million ($800,000 of which was unreserved) was written off. The Company
has not attributed any value to the treasury stock received as it was canceled
upon the Restated Second Amended Plan becoming effective. The net estimated cost
of the Settlement Agreement of $3.3 million is reflected as a Reorganization
Item in the accompanying Consolidated Statements of Operations. The cost of room
night and beverages provided pursuant to the settlement agreement totaled $3.2
million for the periods ended December 27, 1998 and September 27, 1998.
The Company, as part of the Restated Second Amended Plan, has sought to
assume the Master Lease. Strato-Retail LLC has opposed the assumption of the
Master Lease and the Bankruptcy Court allowed confirmation and consummation of
the Restated Second Amended Plan to occur prior to concluding the hearings on
the Company's motion to assume the Master Lease. Evidentiary hearings were
conducted on January 28, 29 and March 5, 1999, and a decision is expected in
several months. In the event the Company is allowed to assume the Master Lease,
the Company will be required to complete the construction of Phase II
F-11
<PAGE> 33
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and expects that Strato-Retail LLC will be required to reimburse the Company for
$7.9 million. In addition, the Company will be required to pay to Strato-Retail
LLC damages for any pre-petition date breaches of the Master Lease as the
Bankruptcy Court determines. In the event the amount the Bankruptcy Court
determines necessary to cure pre-petition breaches, if any, is unacceptable to
the Company, the Company maintains the right to reject the Master Lease, in
which event, any damages resulting from such rejection will be deemed a
pre-petition unsecured claim to be paid in accordance with the Restated Second
Amended Plan. In the event of the rejection of the Master Lease, Strato-Retail
LLC would then have the option of continuing under the Master Lease and
possessing Phase I of the Premises or terminating the Master Lease and vacating
Phase I of the Premises.
In accordance with the Restated Second Amended Plan, as of the Effective
Date, the Stratosphere Litigation L.L.C. ("LLC") was formed. The administrator
for the LLC is Thomas A. Lettero and the Board of Managers is Carl C. Icahn,
Robert J. Mitchell and Russell Glass. The LLC was formed for the purpose of
pursuing (1) all claims and causes of action of the holders of Original First
Mortgage Notes and the Indenture Trustee and (2) rights, claims and causes of
action which the Company may have against any person which the Company
determined to transfer to the LLC for prosecution. Upon the Effective Date of
the Restated Second Amended Plan all individual causes of action of holders of
Original First Mortgage Notes related to the Standby Equity Commitment were
assigned to the LLC.
In January 1999, the LLC and IBJ Whitehall Bank & Trust Company, f/k/a/ IBJ
Schroder Bank & Trust Company, as Indenture Trustee ("IBJ Whitehall") entered
into that certain Assignment of Claims whereby IBJ Whitehall acknowledged the
Plan in its entirety and acknowledged the transfer by the holders of the
Original First Mortgage Notes to the LLC of any and all claims and causes of
action including any and all claims, causes of action, counter-claims, defenses,
affirmative defenses and setoffs that IBJ Whitehall had asserted or could have
asserted in those certain proceedings entitled IBJ Schroder v. Grand Casinos,
Inc., United States District Court, District of Nevada, Case No.
CV-S-97-01252-DWH (RJJ) (the "Grand Litigation"). Additionally, IBJ Whitehall
expressly reconfirmed the transfer and assignment to the LLC of any and all
claims and causes of action it held respecting the Original First Mortgage
Notes. Furthermore, the LLC expressly reaffirmed its acceptance of the claims
and causes of action of the holders of the Original First Mortgage Notes.
FRESH START REPORTING
Pursuant to the guidance of AICPA SOP 90-7, "fresh start reporting" has
been reflected as of September 27, 1998, in the accompanying consolidated
financial statements, since: i) the sum of the allowed claims, plus
post-petition liabilities, exceeded the reorganization value of the
pre-confirmation assets of the emerging entity; ii) the Company experienced a
change of control as defined in AICPA SOP 90-7. AICPA SOP 90-7 requires that
under these circumstances a new reporting entity be created (referred to as the
"Successor Company" in the Consolidated Financial Statements) and the assets and
liabilities be recorded at their fair values.
In support of the restructuring process, the Debtors retained an
independent valuation advisor (the "Valuation Advisor") to appraise the
Stratosphere Hotel & Casino Complex (the "Resort"). On March 24, 1997, Valuation
Advisor issued an appraisal report (hereinafter, the "Appraisal Report") to the
Company's bankruptcy counsel. The Appraisal Report estimates the "as is" 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 (as of March 24, 1997). 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.
In preparing the Appraisal Report, standard appraisal techniques were used
in conformity with the guidelines of the Uniform Standards of Appraisal Practice
as promulgated by the Appraisal Foundation. The
F-12
<PAGE> 34
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Appraisal Report utilizes two of the typical appraisal approaches to value; the
"Income Approach" and the "Sales Comparison Approach." The "Cost Approach" was
omitted from the Appraisal Report because it was viewed that, in this instance,
it did not provide a reliable indication of value. The ultimate valuation
conclusions contained in the Appraisal Report were based primarily on the Income
Approach, with only limited weight given to the Sales Comparison Approach. The
value estimate included in the Appraisal Report was relied upon by management in
determining the reorganization value and relates solely to the assets that are
directly relevant to the operation of the Resort (exclusive of the working
capital account balances) and does not include, or relate to, "peripheral" or
"extraneous" assets owned by the Company. The primary examples of such assets
are the parcels of land (which total approximately 5 acres) located on and near
Las Vegas Boulevard South, directly across the street from the Resort
(collectively, the "Sulinda Parcels"). Accordingly, management has separately
analyzed the assets that are not covered by the Appraisal Report and have
estimated the value thereof for the purpose of determining the reorganization
value of the emerging entity ($45.1 million). Underlying management's estimate
of reorganization value are a number of assumptions (including those contained
in the Appraisal Report) that, although considered reasonable by management, are
inherently subject to significant economic and competitive uncertainties beyond
the control of management, and are based upon business decisions which could be
subject to change.
The discharge of debt and "fresh start reporting" have been reflected in
the accompanying September 27, 1998, consolidated financial statements. The
Company's post-reorganization consolidated balance sheet as of September 27,
1998 reflects the adoption of "fresh start reporting" and becomes the opening
balance sheet for "reorganized" Stratosphere Corporation. The effect on the
consolidated balance sheet as of September 27, 1998, is reflected in the
following table:
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD THE PLAN OF REORGANIZATION
----------------------------------------------------
PREDECESSOR SUCCESSOR
COMPANY DEBT FRESH COMPANY
BALANCE SHEET DISCHARGE START BALANCE SHEET
------------- --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents.................... $ 26,516 $ -- $ -- $ 26,516
Accounts Receivable, net................... 2,779 -- -- 2,779
Other current assets....................... 6,814 -- -- 6,814
--------- -------- -------- --------
Total Current Assets......................... 36,109 -- -- 36,109
--------- -------- -------- --------
Property & Equipment, Net.................... 117,102 -- 8,598 125,700
--------- -------- -------- --------
Other Assets (includes Other Receivables).... 300 3,000 -- 3,300
--------- -------- -------- --------
TOTAL ASSETS................................. $ 153,511 $ 3,000 $ 8,598 $165,109
========= ======== ======== ========
</TABLE>
F-13
<PAGE> 35
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD THE PLAN OF REORGANIZATION
----------------------------------------------------
PREDECESSOR SUCCESSOR
COMPANY DEBT FRESH COMPANY
BALANCE SHEET DISCHARGE START BALANCE SHEET
------------- --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable -- trade.................. $ 1,534 $ -- $ -- $ 1,534
Current installments of long-term debt..... 148 -- -- 148
Current installments of capital lease...... -- 8,979 -- 8,979
Accrued interest........................... -- 163 -- 163
Accrued payroll & related.................. 6,958 -- -- 6,958
Other accrued expenses..................... 10,554 7,383 -- 17,937
--------- -------- -------- --------
Total Current Liabilities.................... 19,194 16,525 -- 35,719
--------- -------- -------- --------
Long-Term Liabilities:
Long-term note payable -- less current..... 141 -- -- 141
Capital lease obligations -- less
current................................. -- 2,171 -- 2,171
--------- -------- -------- --------
Total Long-Term Liabilities.................. 141 2,171 -- 2,312
--------- -------- -------- --------
Liabilities Subject to Compromise:
Accounts payable -- trade.................. 348 (348) -- --
Accrued payroll & related exp.............. 58 (58) -- --
Affiliate payable.......................... 4,708 (4,708) -- --
Other accrued expenses..................... 5,688 (5,688) -- --
Capital lease obligations.................. 11,313 (11,313) -- --
14 1/4% First Mortgage Notes............... 224,096 (224,096) -- --
Note payable to affiliate.................. 50,000 (50,000) -- --
--------- -------- -------- --------
Total Liabilities Subject to Compromise...... 296,211 (296,211) -- --
--------- -------- -------- --------
Total Liabilities............................ 315,546 (277,515) -- 38,031
--------- -------- -------- --------
Shareholders' Equity (Deficit):
Common Stock -- old........................ 584 (584) -- --
Common Stock -- new (2,030,000 shares)..... -- 20 -- 20
Treasury Stock............................. (30) 30 -- --
Additional Paid in Capital................. 218,576 127,612 (219,130) 127,058
Accumulated earnings (deficit)............. (381,165) 153,437 227,728 --
--------- -------- -------- --------
Total Shareholders' Equity (Deficit)......... (162,035) 280,515 8,598 127,078
--------- -------- -------- --------
Total Liabilities & Shareholders' Equity
(Deficit).................................. $ 153,511 $ 3,000 $ 8,598 $165,109
========= ======== ======== ========
</TABLE>
F-14
<PAGE> 36
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following proforma consolidated statements of operations reflect the
results of operations as if the reorganization had been effective December 29,
1997 (the beginning of the 1998 fiscal year):
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998
--------------------------------------------
AS REPORTED ADJUSTMENTS PROFORMA
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues........................................... $129,972 $ -- $129,972
Costs and Expenses:
Other expenses....................................... 68,400 -- 68,400
Depreciation and amortization........................ 8,108 228(1) 8,336
Selling, general and administrative.................. 47,930 -- 47,930
-------- --------- --------
Total costs and expenses............................... 124,438 228 124,666
-------- --------- --------
Income From Operations................................. 5,534 (228) 5,306
-------- --------- --------
Other income (expense):
Interest expense..................................... (1,532) -- (1,532)
Other income (expense)............................... 131 -- 131
-------- --------- --------
Total other expense, net............................... (1,401) -- (1,401)
-------- --------- --------
Reorganization Items................................... (754) 754(2) --
Income (Loss) Before Income Taxes and Extraordinary
Item................................................. 3,379 526 3,905
-------- --------- --------
Provision (Benefit) for Income Taxes................... -- -- --
Extraordinary gain on discharge of Pre-petition
liabilities.......................................... 153,437 (153,437)(3) --
Net Income (Loss)...................................... $156,816 $(152,911) $ 3,905
======== ========= ========
Basic Income (Loss) per Common Share (2,030,000 new
common shares)....................................... -- -- $ 1.92
======== ========= ========
</TABLE>
- ---------------
(1) Estimated depreciation effect of adjustments to asset fair values for the
fiscal year ended December 27, 1998
(2) Elimination of effect of reorganization items
(3) Elimination of the gain on pre-petition debt discharge
F-15
<PAGE> 37
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) REORGANIZATION ITEMS
Reorganization Items consisted of the following for the nine month period
ended September 27, 1998 and fiscal year ended December 28, 1997 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
1998 1997
------------- ------------
<S> <C> <C>
Adjust accounts to fair value............................... $(8,598) $ --
Settlement of vacation package claims....................... 3,347 --
Write-off of debt issuance costs............................ -- 11,210
Professional fees........................................... 2,916 5,500
Interest earned on accumulated cash during Chapter 11
proceedings............................................... (814) (840)
Increase in allowed claims.................................. 3,708 --
Management retention compensation........................... 195 820
------- -------
$ 754 $16,690
======= =======
</TABLE>
Cash interest earned since the Petition Date, January 27, 1997 through
September 27, 1998, totals $1,665,711.
Costs and expenses related to the reorganization of the Company have been
separately classified as Reorganization Items in the consolidated statements of
operations since the Petition Date. Prior to the Petition Date, such costs and
expenses (to the extent incurred) were classified as selling, general and
administrative in the consolidated statement of operations. Future unreserved
professional fees, if any, have again been classified as selling, general and
administrative expense beginning September 28, 1998 (the post-effective date
period).
(4) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following as of December 27, 1998,
September 27, 1998 and December 28, 1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
----------------------------- ------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
1998 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Hotel and related.................................. $1,004 $ 890 $ 664
Gaming............................................. 874 862 947
Other.............................................. 1,197 1,459 1,162
------ ------ ------
Total.............................................. 3,075 3,211 2,773
Less allowance for doubtful accounts............... (456) (432) (293)
------ ------ ------
$2,619 $2,779 $2,480
====== ====== ======
</TABLE>
F-16
<PAGE> 38
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) OTHER CURRENT ASSETS
Other current assets consists of the following as of December 27, 1998,
September 27, 1998 and December 28, 1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
----------------------------- ------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
1998 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Inventory.......................................... $2,868 $2,771 $2,781
Prepaid expenses................................... 2,559 4,043 2,973
------ ------ ------
$5,427 $6,814 $5,754
====== ====== ======
</TABLE>
(6) PROPERTY AND EQUIPMENT -- NET
Property and equipment consist of the following as of December 27, 1998,
September 27, 1998 and December 28, 1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
----------------------------- ------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
1998 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Land and improvement, including land held for
development...................................... $ 21,811 $ 21,811 $ 21,427
Building and improvements.......................... 66,374 66,366 66,717
Furniture, fixtures and equipment.................. 23,840 21,264 36,732
Construction in progress........................... 16,259 16,259 16,263
-------- -------- --------
128,284 125,700 141,139
Less accumulated deprecation and amortization...... (2,111) -- (18,757)
-------- -------- --------
$126,173 $125,700 $122,382
======== ======== ========
</TABLE>
Included in property and equipment at December 27, 1998, September 27, 1998
and December 28, 1997, are assets recorded under capital leases of $30.7
million, $30.8 million and $31.4 million, respectively. Accumulated depreciation
and amortization at December 27, 1998, September 27, 1998 and December 28, 1997,
includes amounts recorded for capital leases of $948,051, $0 and $6,547,165,
respectively.
In connection with the adoption of SFAS 121, the Company recorded a
non-cash impairment loss of $295.9 million or $5.09 loss per weighted average
common share on December 29, 1996. The impairment loss was measured as the
amount by which the carrying value of the long-lived assets exceeded their
estimated fair market value. Management made an assessment of the fair market
value of each long-lived asset category to reflect the impairment loss. As a
result of the reduced carrying amount of the impaired assets, depreciation and
amortization expense has been reduced for fiscal years 1998 and 1997. Pursuant
to applying "fresh start reporting" as of September 27, 1998, building and
improvement asset values were increased $8.6 million in order to reflect the
estimated fair market value of such assets as of September 27, 1998 (see Note
2).
F-17
<PAGE> 39
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) OTHER ACCRUED EXPENSES
Other accrued expenses, exclusive of pre-petition liabilities subject to
compromise at December 27, 1998, September 27, 1998 and December 28, 1997,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
----------------------------- ------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
1998 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Vacation packages.................................. $ 3,201 $ 3,270 $ --
Accrued liabilities................................ 2,780 2,227 2,020
Accrued restructuring costs........................ 2,448 2,967 2,258
Cash reserved for unpaid bankruptcy claims......... 2,218 7,383 --
Deposits........................................... 899 498 506
Accrued taxes...................................... 507 672 710
Other.............................................. 701 920 662
------- ------- ------
$12,754 $17,937 $6,156
======= ======= ======
</TABLE>
(8) LONG TERM DEBT
A summary of debt outstanding, exclusive of amounts classified to
"Liabilities subject to compromise" at December 27, 1998, September 27, 1998 and
December 28, 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
----------------------------- ------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
1998 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Other.............................................. $ 242 $ 288 $ 444
----- ----- -----
242 288 444
Less current portion............................... (148) (148) (148)
----- ----- -----
Long-term debt-less current portion................ $ 94 $ 140 $ 296
===== ===== =====
</TABLE>
The future aggregate annual maturities of non-affiliate long-term debt at
December 27, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $148
2000........................................................ 94
2001........................................................ --
2002........................................................ --
2003........................................................ --
Thereafter.................................................. --
----
Total $242
====
</TABLE>
(9) LEASES AND CAPITAL LEASE OBLIGATIONS
Pursuant to the Restated Second Amended Plan, the Company has and will
continue payments on its capital and operating lease obligations. In addition,
pursuant to the Restated Second Amended Plan, the Capital and Operating lease
agreements have been amended removing all financial covenants.
F-18
<PAGE> 40
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments, excluding contingent rentals, due under
non-cancelable operating and capital leases for the five years subsequent to
December 27, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL LEASES OPERATING LEASES
- ----------- -------------- ----------------
<S> <C> <C>
1999........................................................ $9,291 $1,604
2000........................................................ -- --
2001........................................................ -- --
2002........................................................ -- --
2003........................................................ -- --
Thereafter.................................................. -- --
------ ------
Total minimum lease payments................................ 9,291 --
Less: amounts representing interest at 7.72%................ (312) --
------ ------
Present value of minimum capital lease payments............. 8,979 --
Less: current installment -- --
------ ------
Obligations under capital leases............................ $8,979 --
====== ======
</TABLE>
Rent expense from the operating leases was $310,171, $1,148,761, $2,131,440
and $1,298,569 for the three month period ended December 27, 1998, the nine
month period ended September 27, 1998 and the fiscal years 1997 and 1996,
respectively.
For fiscal year 1997, the capital lease obligation was classified in
"Liabilities subject to compromise." The prime rate of interest was 7.75% and
8.5% at December 27, 1998 and December 28, 1997, respectively.
(10) MINIMUM LEASE INCOME
The Company has entered into a number of operating leases in relation to
food and beverage and retail outlets. The future minimum lease income receivable
under these leases for the five years subsequent to December 27, 1998, consisted
of the following (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 1,000
2000........................................................ 1,000
2001........................................................ 1,000
2002........................................................ 1,000
2003........................................................ 1,000
Thereafter.................................................. 12,333
-------
$17,333
=======
</TABLE>
(11) SHAREHOLDERS' EQUITY
Pursuant to the Restated Second Amended Plan becoming effective, all equity
interests issued prior to October 14, 1998, were canceled including the Old
Common Stock, options and warrants. New Common Stock of 2,030,000 shares,
representing 100% of the Company's equity, was issued to the holders of the
Company's 14 1/4% First Mortgage Notes (see Note 2). Approximately 89.6% of the
new Common Stock was issued to Carl C. Icahn related entities.
The Company has not implemented a stock option plan.
F-19
<PAGE> 41
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) INCOME TAXES
The income tax benefit attributable to losses from operations for the three
month period ended December 27, 1998, nine month period ended September 27, 1998
and the fiscal years ended December 28, 1997 and December 29, 1996 differed from
the amounts computed by applying the federal income tax rate of 35% as a result
of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
--------------------------------------- -------------------------------------
SEPTEMBER 28, 1998 DECEMBER 29, 1997 FISCAL YEAR FISCAL YEAR
THROUGH THROUGH ENDED ENDED
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1998 1997 1996
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Current....................... $ -- $ 1,351 $ -- $ --
Deferred benefit.............. (15) (1,351) (122,095) (1,632)
Increase in deferred tax asset
valuation allowance......... 15 -- 122,095 1,632
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
F-20
<PAGE> 42
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TAX ASSETS AND LIABILITIES
The tax effect of significant temporary differences and carryforwards
representing deferred tax assets and liabilities (the difference between
financial statement carrying values and the tax basis of assets and liabilities)
for the Company is as follows at December 27, 1998, September 27, 1998 and
December 28, 1997 (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
------------ -----------------------------
DECEMBER 27, SEPTEMBER 27, DECEMBER 28,
TEMPORARY DIFFERENCES 1998 1998 1997
- --------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Current:
Allowance for doubtful accounts.................. $ 160 $ 145 $ 103
Progressive jackpots............................. 189 183 108
Accrued vacation and employee related............ 757 800 (511)
Outstanding chip and token liability............. (42) (40) 80
Other............................................ (903) (931) (897)
-------- --------- ---------
161 157 (1,117)
-------- --------- ---------
Long-term:
Pre-opening costs................................ 3,995 4,416 5,579
Allowance for doubtful accounts.................. -- 278 1,101
Debt issuance costs.............................. -- 2,628 --
Excess of tax over book basis of assets acquired
in connection with Vegas World Asset
Purchase...................................... -- -- 6,850
Excess of tax over book basis of assets due
primarily to write down of assets............. 75,312 89,267 87,321
-------- --------- ---------
79,307 96,589 100,851
-------- --------- ---------
TOTAL TEMPORARY DIFFERENCES........................ 79,468 96,746 99,734
-------- --------- ---------
Carryforwards:
Net operating losses............................. -- 37,930 35,932
-------- --------- ---------
Total Carryforwards................................ -- 37,930 35,932
-------- --------- ---------
Total temporary differences and carryforwards...... 79,468 134,676 135,666
Valuation allowance................................ (79,468) (134,676) (135,666)
-------- --------- ---------
TOTAL DEFERRED TAX ASSETS (LIABILITIES)............ $ -- $ -- $ --
======== ========= =========
</TABLE>
The Company recorded a valuation allowance at December 27, 1998, September
27, 1998 and December 28, 1997, relating to recorded tax benefits because of the
significant uncertainty as to whether such benefits will ever be realized.
F-21
<PAGE> 43
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes differs from the amount computed
at the federal statutory rate as a result of the following at December 31:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
------------- -------------------------------------------
SEPTEMBER 28, DECEMBER 29, FISCAL YEAR FISCAL YEAR
1998 THROUGH 1997 THROUGH ENDED ENDED
DECEMBER 27, SEPTEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1998 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Federal statutory rate.................... (35)% 35% (35)% (35)%
Permanent differences..................... 27% --% --% --%
Increase (decrease) in deferred tax asset
valuation allowance..................... 8% (35)% 35% 35%
----- ----- ----- -----
--% --% --% --%
===== ===== ===== =====
</TABLE>
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes, the volatility of the industry within
which the Company operates, and certain other factors, the Company has
established a valuation allowance principally for the deductible temporary
differences, including the excess of the tax basis of the Company's assets over
the basis of such assets for financial purposes, which may not be realizable in
future periods. After application of the valuation allowance, the Company's net
deferred tax assets and liabilities are zero. In the event that the Company
recognizes, in subsequent years, the tax benefit of any deferred tax asset that
existed on the date the reorganization became effective, such tax benefit will
be reported as a direct addition to contributed capital.
DISCHARGE OF INDEBTEDNESS INCOME AND TAX ATTRIBUTE REDUCTION
For financial reporting purposes, the Company reported an extraordinary
gain in the amount of $153,436,882 resulting from the cancellation of
indebtedness that occurred from the bankruptcy discharge on the Effective Date.
Pursuant to Section 108 of the Internal Revenue Code, this extraordinary gain is
excluded from income taxation and certain tax attributes of the Company are
eliminated or reduced, up to the amount of such income excluded from taxation.
As a result, the Company's net operating loss carryforwards in the amount of
$115,257,309 ($40,340,058 tax effected) were eliminated and the tax basis in the
Company's assets was reduced by $38,179,573 ($13,362,956 tax effected). The net
operating loss elimination and basis reduction significantly contributed to the
reduction of the deferred tax asset from the Predecessor Company to the
Successor Company.
DEBT ISSUANCE COSTS
Prior to the Effective Date, the Company had recorded a deferred tax asset
for debt issuance costs that was being amortized for tax purposes over the term
of the 14 1/4% First Mortgage Notes. On the Effective Date, the deferred tax
asset for debt issuance costs in the amount of $2,628,007 (tax effected) was
eliminated when the 14 1/4% First Mortgage Notes were exchanged for the New
Common Stock.
SECTION 382 LIMITATION
As of December 28, 1998, the Company has a tax basis in its assets in
excess of its basis for financial reporting purposes that will generate
substantial tax deductions in future periods. As a result of a "change in
ownership" under Internal Revenue Code Section 382, the Company's ability to
utilize depreciation and other tax attributes will be limited to approximately
$6,400,000 per year for the five subsequent years. This limitation is applied to
all built-in losses which exist on the "change of ownership" date, including all
items
F-22
<PAGE> 44
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
giving rise to a deferred tax asset. In addition, the tax basis in the Company's
assets will be further reduced for purposes of the Alternative Minimum Tax.
(13) RELATED PARTY TRANSACTIONS
Carl C. Icahn related entities own approximately 89.6% of the Company's
Common Stock. Since January 1999, Mr. Cassella and Mr. Lettero (Chief Executive
Officer and Chief Financial Officer) of the Company provided "over sight"
management services to Arizona Charlie's (an entity owned 100% by Carl C.
Icahn). The Company will be reimbursed for all payroll and other expenses
attributed to providing such services. There were no billable services performed
during the three months ended December 27, 1998 and the nine months ended
September 27, 1998, respectively.
(14) EMPLOYEE BENEFIT PLAN
Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and
defined benefit pension plans. The Company recorded expenses for such plans of
$1,158,570, $3,254,482, $4,894,922 and $3,500,149 for the three months ended
December 27, 1998, nine months ended September 27, 1998, fiscal years 1997 and
1996, respectively. Sufficient information is not available from the plans'
sponsors to permit the Company to determine its share of unfunded vested
benefits, if any.
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plan allows
employees to defer, within prescribed limits, up to 15% of their income on a
pre-tax basis through contributions to the plan. The Company currently matches,
within prescribed limits, 50% of eligible employees' contributions up to 4% of
their individual earnings. The Company recorded charges for matching
contributions of $55,818, $109,967, $45,707 and $30,955 for the three months
ended December 27, 1998, nine months ended September 27, 1998, fiscal years 1997
and 1996, respectively.
(15) COMMITMENTS
The Company and Mr. Lettero entered into a two-year employment agreement
effective as of May 1, 1998 (the "Lettero Agreement"). The Lettero Agreement
provides that Mr. Lettero will serve as Chief Financial Officer for the Company
and be paid base annual compensation of $300,000. The Lettero Agreement further
provides that if Mr. Lettero is terminated without "Cause" (as defined in the
Lettero Agreement) or there is a "Change of Control" (as defined in the Lettero
Agreement), then Mr. Lettero will receive an immediate severance payment of
$200,000. The Lettero Agreement is terminable by Mr. Lettero at any time by
providing the Company 90 days prior written notice.
(16) CONTINGENCIES
On August 5, 1996, a complaint was filed in the United States District
Court for the District of Nevada (Michael Caesar, et al. v. Stratosphere
Corporation, et al.) against the Company, Lyle A. Berman (a former officer and
director of the Company and officer and director of Grand), Robert E. Stupak (a
former officer and director of the Company), Thomas A. Lettero (an officer and
current director of the Company), Thomas G. Bell (a former director of the
Company), Andrew S. Blumen (a former officer and director of the Company), and
Grand. The complaint purports to seek relief on behalf of a class of plaintiffs
who purchased the Company's Common Stock during the period from December 19,
1995, through July 22, 1996, inclusive. The complaint alleged that the
defendants made misrepresentations and engaged in other wrongdoings. In addition
to the Caesar case above, eight additional cases making the same claims against
the same defendants (and in one instance also against Stanley Taube, a former
director of the Company and also a former officer and director of Grand) have
been filed. On January 15, 1997, the court ordered these eight additional
lawsuits to be consolidated with the Caesar lawsuit under the caption "In re
Stratosphere Corporation Securities Litigation."
F-23
<PAGE> 45
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 14, 1997 the plaintiffs filed a Consolidated and Amended Class
Action Complaint naming as defendants Grand, Bob Stupak, Lyle A. Berman, Stanley
M. Taube, David R. Wirshing, Thomas A. Lettero, Andrew S. Blumen, Thomas G.
Bell, Bob Stupak Enterprises, BT Securities Corporation and Montgomery
Securities, Inc. The Consolidated and Amended Class Action Complaint alleged
causes of action under the federal securities laws and Nevada law for purported
misrepresentations during the period between December 19, 1995, and July 26,
1996. The litigation was brought on behalf of a putative class of purchasers of
Stratosphere Corporation securities during that time period. The Consolidated
and Amended Class Action Complaint did not name the Company as a defendant,
presumably due to the automatic stay imposed by the Company's bankruptcy filing
and because any claims of plaintiffs against the Company would be resolved in
the Bankruptcy Proceedings. By virtue of the confirmation and consummation of
the Restated Second Amended Plan, the Company was discharged from any liability
to Plaintiffs or Defendants with Plaintiffs and Defendants receiving nothing
under the Restated Second Amended Plan.
On March 14, 1997, the plaintiffs in the consolidated federal litigation
discussed above (the "Securities Litigation Claimants") filed a complaint
against the Company in an adversary proceeding in the Bankruptcy Proceedings.
The Securities Litigation Claimants alleged that the Company made
misrepresentations and engaged in other wrongdoings during the period between
December 19, 1995, and July 22, 1996, in violation of the federal securities
laws and Nevada Law. The complaint was dismissed as part of the confirmation
proceedings of the Restated Second Amended Plan and all claims of the Securities
Litigation Claimants were discharged.
On August 16, 1996, a complaint was filed in District Court, Clark County,
Nevada (Victor Opitz et al. v. Stratosphere Corporation et al.) against the
Company, Grand, Robert B. Stupak (a former officer and director of the Company),
Lyle A. Berman (a former officer and director of the Company and an officer and
director of Grand) and Stanley Taube (a former director of the Company and a
former director of Grand). The complaint purports to seek relief on behalf of a
class of plaintiffs who purchased stock during the period from December 19,
1995, to July 22, 1996. The complaint alleges the defendants made
misrepresentations and engaged in other wrongdoing. By virtue of the
confirmation and consummation of the Restated Second Amended Plan, the Company
was discharged from any liability arising out of the complaint, with all other
parties to the action receiving nothing under the Restated Second Amended Plan.
McDonalds Corporation filed a proof of claim in the Bankruptcy Proceedings
in which it asserted both an administrative and a general unsecured claim. The
Debtors have filed an objection to the claim, and the matter is currently
pending. The amount of the allowed general unsecured claim, if any, is not
material and will be treated under the Plan with all other general unsecured
claims. However, McDonalds has asserted an administrative claim of $410,843 for
guaranteed income pursuant to a lease during the administrative period of the
Bankruptcy Proceedings. In the event McDonalds is able to establish an allowed
administrative claim, such claim would be paid by the Debtors upon entry of a
final order approving the claim. The Debtors have filed a Motion for Summary
Judgment to disallow the claim, which motion is set to be heard by the
Bankruptcy Court in March 1999. In the event the Motion for Summary Judgment is
denied and the Bankruptcy Court orders a trial on the merits, trial is currently
set for June 1999. Based upon the legal requirements of the Bankruptcy Code for
an administrative claim, the Debtors believe they will prevail on the objection
to the McDonalds' claim.
RAS Builders ("RAS") filed a Proof of Claim in the Bankruptcy Proceedings
based on a previously recorded mechanic's lien in the amount of $72,524. The
mechanic's lien was recorded against the real property owned by the Debtors
after RAS Builders constructed certain tenant improvements for a subtenant
located in the Phase I retail shopping center master leased to Strato-Retail
LLC. The Company filed an adversary complaint in the Bankruptcy Proceedings
against RAS Builders to avoid the lien, and further sought indemnification from
the Company's tenant, Strato-Retail LLC in the event the Company is required to
satisfy the RAS lien. Trial is currently set for June 1999. Stratosphere
believes that it can successfully defeat
F-24
<PAGE> 46
STRATOSPHERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the lien, or alternatively, in the event that it is required to satisfy the
lien, the Company will be reimbursed by either Strato-Retail LLC or the
subtenant.
The Company has reserved approximately $1.8 million of the $6.0 million
being distributed to general unsecured creditors for claims that have been filed
during the bankruptcy proceedings but disputed by the Company. Included among
the claims for which the approximately $1.8 million is being reserved are claims
filed by Strato-Retail LLC of $60.0 million, McDonalds $4.1 million, Grand
Casinos, Inc. $2.3 million and Vesst Investment Partnership $2.7 million. The
Company has also reserved $.4 million related to the dispute of miscellaneous
secured claims. These claims will be discharged once the disputes are resolved
and regardless of the amount of the claim allowed by the Bankruptcy Court, the
total cash distributed under the Restated Second Amended Plan will not change.
In addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
F-25
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the executive officers and directors of the
Company
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Carl C. Icahn.................. 63 Chairman of the Board
John P. Saldarelli............. 57 Director
Robert J. Mitchell............. 52 Director
Martin Hirsch.................. 44 Director
Daniel A. Cassella............. 52 Chief Executive Officer
Thomas A. Lettero.............. 42 Chief Financial Officer, Treasurer and Secretary
</TABLE>
CARL C. ICAHN has served as Chairman of the Board and a Director of
Starfire Holding Corporation (formerly Icahn Holding Corporation), a
privately-held holding company, and Chairman of the Board and a Director of
various Starfire's subsidiaries, including ACF Industries, Incorporated, a
privately-held railcar leasing and manufacturing company, since 1982 and ACF
Industries Holdings Corp., a privately-held holding company for ACF, since
August 1993. He has also been Chairman of the Board and President of Icahn &
Co., Inc., a registered broker-dealer and a member of the National Association
of Securities Dealers, since 1968. Since November 1990, Mr. Icahn has been
Chairman of the Board of American Property Investors, Inc., the general partner
of American Real Estate Partners, L.P., a public limited partnership that
invests in real estate. In 1979, Mr. Icahn acquired control and presently serves
as Chairman of the Board of Bayswater Realty & Capital Corp., a real estate
investment and development company. Mr. Icahn has been a Director of Cadus
Pharmaceutical Corporation, a public company involved in genetic pharmaceutical
research. Mr. Icahn has served as the Company's Chairman of the Board since
October 14, 1998.
JOHN P. SALDARELLI has served as Vice President, Secretary and Treasurer of
American Property Investors, Inc. (general partner of American Real Estate
Partners) since March 18, 1991. Mr. Saldarelli was also President of Bayswater
Realty Brokerage Corp. from June 1987 until November 19, 1993, and Vice
President of Bayswater Realty & Capital Corp. from September 1979 until April
15, 1993. Mr. Saldarelli has served as a Director of the Company since October
14, 1998.
ROBERT J. MITCHELL has been Senior Vice President-Finance of ACF
Industries, Inc. since March 1995 and was Treasurer of ACF from December 1984 to
March 1995. Mr. Mitchell has also served as President and Treasurer of ACF
Holdings since August 1993 and as Vice President, Liaison Officer of Icahn &
Co., Inc. since November 1984. Mr. Mitchell has been a director of Cadus
Pharmaceutical Corporation since May 1996 and National Energy Group, Inc., a
public company involved in the exploration of oil and gas reserves, since August
1996. Mr. Mitchell was a director of both Marvel and Toy Biz from June 1997 to
April 1998. From 1987 to January 1993, Mr. Mitchell served as Treasurer of Trans
World Airlines, Inc. and was its Treasurer when it filed for reorganization
under Chapter 11 of the United States Bankruptcy Code, as amended, in January
1992. Mr. Mitchell received his BS Degree in Business Administration from St.
Francis College. Mr. Mitchell has served as a Director of the Company since
October 14, 1998.
MARTIN HIRSCH has served as a Vice President of American Property
Investors, Inc. since March 18, 1991, where he is involved in investing,
managing and disposing of real estate properties and securities. From January
1986 to January 1991 he was at Integrated Resources, Inc. as a Vice President
where he was involved in the acquisition of commercial real estate properties
and asset management. From 1985-1986 he was a Vice President of Hall Financial
Group where he acquired and financed commercial and residential properties. Mr.
Hirsch received his MBA from The Emory University Graduate School of Business.
Mr. Hirsch has served as a Director of the Company since October 14, 1998.
DANIEL A. CASSELLA has been Chief Executive Officer of the Company since
August 1998 and has been a Director of the Company since March of 1998. Mr.
Cassella also served as President and Chief Executive Officer of Resorts
International in Atlantic City, New Jersey, during 1997. From 1993 to 1997, Mr.
Cassella worked as an Independent Gaming Consultant and Certified Public
Accountant. From September 1992 until
III-1
<PAGE> 48
November 1993, he served as President and Chief Operating Officer of The Star's
Desert Inn in Las Vegas, Nevada. Mr. Cassella also served as Executive Vice
President of The Mirage Hotel and Casino, in Las Vegas, Nevada, from January
1989 to September 1992. Mr. Cassella was employed with Caesars Palace in Las
Vegas, Nevada, in January 1980 as Treasurer/Controller until January 1989 when
he was promoted to Chief Financial Officer and eventually served as Executive
Vice President.
THOMAS A. LETTERO has been Sr. Vice President Administration and Chief
Financial Officer of the Company since December 1994. From March 1994 until
December 1994, Mr. Lettero was the Vice President and Chief Financial Officer at
Palace Casinos, Inc. ("Palace") in Las Vegas, Nevada. Palace filed for Chapter
11 Bankruptcy in December 1994. From February 1993 until March 1994, Mr. Lettero
served as Vice President of Casino Marketing Administration of MGM Grand Hotel
Casino in Las Vegas, Nevada. From March 1992 until February 1993, Mr. Lettero
served as Executive Vice President and Chief Financial Officer of HP Casino
Management L.P. ("HP") in Golden, Colorado, the owner and operator of three
Bullwacker casinos in Central City and Blackhawk, Colorado. At HP, as a licensed
operator, Mr. Lettero was responsible for opening the properties, all marketing
efforts and daily operations. From September 1990 until March 1992, Mr. Lettero
served as Chief Financial Officer of Main Street Station in Las Vegas, Nevada.
Main Street Station filed for Chapter 11 Bankruptcy in December 1991, which was
converted into a Chapter 7 liquidation in September 1992. From May 1989 until
September 1990, Mr. Lettero served as Director of Operational Accounting of
Mirage Hotel and Casino in Las Vegas, Nevada. Stratosphere Corporation and its
wholly-owned subsidiary, Stratosphere Gaming Corp., filed for reorganization
under Chapter 11 of the Bankruptcy Code on January 27, 1997, and the effective
date for its Restated Second Amended Plan of Reorganization was October 14,
1998.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for services rendered by the Chief Executive Officer of the Company
and for each executive officer of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#)
--------------------------- ---- ------ ----- -----------
<S> <C> <C> <C> <C>
Daniel A. Cassella(a)............................. 1998 158,582 -- --
Chief Executive Officer 1997 -- -- --
1996 -- -- --
Andrew S. Blumen(b)............................... 1998 265,769 225,000(c) --
General Counsel 1997 225,000 --
1996 225,000 55,000 --
Thomas A. Lettero................................. 1998 307,334 200,000(c) --
Chief Financial Officer, 1997 200,000 --
Treasurer and Secretary 1996 188,462 55,000 --
Thomas Willer..................................... 1998 180,000 83,125(c) --
Vice President Marketing 1997 178,961 26,250 --
1996 175,000 25,000 --
</TABLE>
- ---------------
(a) Mr. Cassella became Chief Executive Officer on August 2, 1998, and has been
a director of the Company since March 10, 1998.
(b) Effective October 14, 1998, Mr. Blumen resigned as an officer of the
Company. Mr. Blumen has continued to serve as legal counsel to the Company.
(c) Represents amounts paid pursuant to Senior Executive Retention Agreements.
III-2
<PAGE> 49
OPTION GRANTS IN LAST FISCAL YEAR
Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, all equity interests in the Company were canceled including all stock
options and warrants. The Company has not implemented a stock option plan as of
March 1, 1999.
EMPLOYMENT AGREEMENTS, SEPARATION AGREEMENT AND SEVERANCE AGREEMENTS
The Company and Mr. Lettero entered into a two-year employment agreement
effective as of May 1, 1998 (the "Lettero Agreement"). The Lettero Agreement
provides that Mr. Lettero will serve as Chief Financial Officer for the Company
and be paid base annual compensation of $300,000. The Lettero Agreement further
provides that if Mr. Lettero is terminated without "Cause" (as defined in the
Lettero Agreement) or there is a "Change of Control" (as defined in the Lettero
Agreement), then Mr. Lettero will receive an immediate severance payment of
$200,000. The Lettero Agreement is terminable by Mr. Lettero at any time by
providing the Company 90 days prior written notice.
DIRECTOR COMPENSATION
Each current director of the Company who is not an employee of the Company
or any of their affiliates receives $1,000 for any board meeting or committee
meeting attended. Employees of the Company or any of their affiliates will
receive no additional compensation for service as a director or committee
member. All directors will be reimbursed for expenses incurred in attending
board or committee meetings.
The Company paid former directors, Mr. Bell and Mr. Maheu, $39,777 each for
services provided through October 14, 1998, at which time the Board was
reconstituted upon the Restated Second Amended Plan becoming effective.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of former directors, Mr. Bell and Mr.
Maheu, until October 14, 1998. Since the effective date, the Compensation
Committee has consisted of Mr. Icahn and Mr. Cassella.
Mr. Icahn (including certain related entities) is actively involved in the
gaming industry and currently owns 89.6% of the Company's new Common Stock.
Casinos owned or managed by Mr. Icahn may directly or indirectly compete with
the Company. In addition, the potential for conflicts of interest exists among
the Company and Mr. Icahn for future business opportunities. Mr. Icahn may
intend to pursue other business opportunities and there is no agreement
requiring that such additional business opportunities be presented to the
Company.
III-3
<PAGE> 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 13, 1998, certain information
regarding the beneficial ownership of shares of new Common Stock by each
director of the Company, each of the executive officers listed in the Summary
Compensation Table, each person known to the Company to be the beneficial owner
of more than 5% of the outstanding shares and all directors and executive
officers as a group. Except as otherwise indicated, each stockholder has sole
voting and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENT
- ---- --------- -------
<S> <C> <C>
Carl C. Icahn............................................... 1,818,600(a) 89.6
John P. Saldarelli.......................................... -- --
Robert J. Mitchell.......................................... -- --
Martin Hirsch............................................... -- --
Daniel A. Cassella.......................................... -- --
Thomas A. Lettero........................................... -- --
All directors and executive officers (as a group four
persons).................................................. 1,818,600 89.6
</TABLE>
- ---------------
(a) Includes 833,320 shares owned by Nybor LLP, an entity controlled by Mr.
Icahn and 985,280 shares held by Nevar LLC, which also is an entity
controlled by Mr. Icahn. Nevar LLC acquired its shares from American Real
Estate Partners, L.P. (an entity controlled by Mr. Icahn) via a transfer
agreement in which Nevar LLC would be obligated to sell the shares back to
American Real Estate Partners, L.P. at its cost plus interest at a
reasonable rate upon the transaction meeting the licensing requirements of
regulatory authorities.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the Nasdaq National Market System. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
review of the copies of such forms furnished by the Company, or written
representations that no Forms 5 were required, the Company believes that during
the fiscal year ended December 27, 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were satisfied.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Icahn (including certain related entities) is actively involved in the
gaming industry and currently owns 89.6% of the Company's new Common Stock.
Casinos owned or managed by Mr. Icahn may directly or indirectly compete with
the Company. In addition, the potential for conflicts of interest exists among
the Company and Mr. Icahn for future business opportunities. Mr. Icahn may
intend to pursue other business opportunities and there is no agreement
requiring that such additional business opportunities be presented to the
Company.
Since January 1999, Mr. Cassella and Mr. Lettero provided "over sight"
management services to Arizona Charlie's, an entity owned and controlled by Carl
C. Icahn. The Company will be reimbursed for the cost of all such services
provided.
III-4
<PAGE> 51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements:
Included in Part II:
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets at December 27, 1998 (Successor
Company), September 27, 1998 (Successor Company) and
December 28, 1997 (Predecessor Company)..................... F-3
Consolidated Statements of Operations for the period
September 28, 1998 through December 27, 1998 (Successor
Company), December 29, 1997 through September 27, 1998
(Predecessor Company) and Fiscal Years Ended December 29,
1997 and December 29, 1996 (Predecessor Company)............ F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the period from January 1, 1996 through September 27,
1998 (Predecessor Company) and September 28, 1998 through
December 27, 1998 (Successor Company)....................... F-5
Consolidated Statements of Cash Flows for the period
September 28, 1998 through December 27, 1998 (Successor
Company), December 29, 1997 through September 27, 1998
(Predecessor Company) and fiscal years ended December 28,
1997 and December 29, 1996 (Predecessor Company)............ F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
(a)(2) Supplemental Financial Statement Schedules
All financial statement schedules have been omitted because either they are not
required or the information required to be set forth therein is included in the
Consolidated Financial Statements or in the Notes thereto.
(a)(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2(1) The Company's First Amended Plan of Reorganization.(e)
2(2) Disclosure Statement to accompany the Company's Second
Amended Plan of Reorganization.(f)
2(3) The Company's Restated Second Amended Plan of
Reorganization, dated February 26, 1998.(h)
3(1) Certificate of Incorporation of the Company, as amended.
3(2) Bylaws of the Company, as amended and restated.
3(3) Articles of Incorporation of the Operating Subsidiary.
3(4) Bylaws of the Operating Subsidiary.
10(1) Owner Participation Agreement between the City of Las Vegas
Downtown Redevelopment Agency and the Company.(c)
10(2) Employment Agreement by and between the Company and Andrew
S. Blumen.(a)
10(3) Development and Lease Agreement, dated March 11, 1996 by and
between Strato-Retail, LLC and the Company.(b)
10(4) Participation Agreement, dated as of April 29, 1996 by and
among Stratosphere Gaming Corp., First Security Trust
Company of Nevada, The Persons Listed on Schedule II, Bank
of Scotland, First Interstate Bank of Nevada, Societe
Generale, Credit Lyonnais, Los Angeles Branch, BA Leasing &
Capital Corporation and the Company.(c)
10(5) Lease Agreement, dated as of April 29, 1996 by and between
First Security Trust Company of Nevada and Stratosphere
Gaming Corp.(c)
</TABLE>
IV-1
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10(6) Loan Agreement, dated as of April 29, 1996 by and among
First Security Trust Company of Nevada, BA Leasing & Capital
Corporation, Bank of Scotland, First Interstate Bank of
Nevada, Societe Generale, Credit Lyonnais, Los Angeles
Branch, and the Persons Listed on Schedule I.(c)
10(7) Promissory Notes from the Borrower to the Various
Lenders.(c)
10(8) Trust Agreement, dated as of April 29, 1996 between
Stratosphere Gaming Corp., as Grantor, and First Security
Trust Company of Nevada, as Trustee.(c)
10(9) Security Agreement and Assignment of Lease, dated as of
April 29, 1996 between First Security Trust Company of
Nevada and BA Leasing & Capital Corporation.(c)
10(10) Guaranty, dated as of April 29, 1996 by the Company in favor
of the Beneficiaries named therein.(c)
10(11) Subordination Agreement, entered into as of April 29, 1996
by and among Stratosphere Gaming Corp., the Company, Grand
Casinos, Inc., First Security Trust Company of Nevada, and
BA Leasing & Capital Corporation.(c)
10(12) Standstill and Amendment Agreement, dated as of October 30,
1996 by and among Stratosphere Gaming Corp., First Security
Trust Company of Nevada, Bank of Scotland, Wells Fargo Bank,
National Association, Societe Generale, Credit Lyonnais, Los
Angeles Branch, BA Leasing & Capital Corporation and the
Company.(d)
10(13) Senior Executive Retention Agreement, dated as of January
23, 1998 by and between Thomas Lettero and the Company.(h)
10(14) Senior Executive Retention Agreement, dated as of January
23, 1998 by and between Andrew S. Blumen and the Company.(h)
10(15) Executive Employment Agreement dated effective as of May 15,
1998 by and between Thomas A. Lettero and Stratosphere
Corporation and Stratosphere Gaming Corporation
10(16) Settlement Agreement and Release between Stratosphere
Corporation, Stratosphere Gaming Corp., Grand Casinos, Inc.,
Grand Casinos Resorts Inc., Las Vegas Vacation Club, Inc.,
Bob Stupak Enterprises, Inc., Bob Stupak, Richard Duncan,
The Settlement Class, Shirinian & Roitman and Rusing & Lope
P.L.L.C. effective April 1, 1998. (g)
10(17) Certificate of Formation of Stratosphere Litigation, L.L.C.
10(18) Members Agreement between Stratosphere Corporation and
Stratosphere Litigation, L.L.C. dated October 14, 1998.
10(19) Assignment of Claims between IBJ Whitehall and Stratosphere
Litigation, L.L.C. dated January 20, 1999.
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
- ---------------
(a) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, as amended, (No. 33-81286).
(b) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996.
(c) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996.
(d) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 29, 1996.
(e) Incorporated herein by reference to the Company's Current Report on Form 8-K
dated June 26, 1997.
(f) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997.
IV-2
<PAGE> 53
(g) Incorporated herein by reference to the Company's current report on Form 8-K
dated April 1, 1998.
(h) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 27, 1997.
+ Relates to Executive Compensation.
(b) Reports on Form 8-K.
The Company filed the following Report on Form 8-K during the fiscal
quarter ended December 28, 1997.
<TABLE>
<S> <C>
Date Filed Items Listed
---------------- ------------
October 19, 1998 3,7
</TABLE>
IV-3
<PAGE> 54
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STRATOSPHERE CORPORATION
Registrant
Date: March 16, 1999 By: /s/ THOMAS A. LETTERO
------------------------------------
Name: /s/ Thomas A. Lettero
Title: Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on March 16, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ CARL C. ICAHN Chairman of the Board
- ---------------------------------------------
Carl C. Icahn
/s/ JOHN P. SALDARELLI Director
- ---------------------------------------------
John P. Saldarelli
/s/ ROBERT J. MITCHELL Director
- ---------------------------------------------
Robert J. Mitchell
/s/ MARTIN HIRSCH Director
- ---------------------------------------------
Martin Hirsch
/s/ DANIEL A. CASSELLA Chief Executive Officer
- ---------------------------------------------
Daniel A. Cassella
/s/ THOMAS A. LETTERO Chief Financial Officer, Treasurer and
- --------------------------------------------- Secretary
Thomas A. Lettero
</TABLE>
IV-4
<PAGE> 55
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STRATOSPHERE CORPORATION
Registrant
Date: March 16, 1999 By:
------------------------------------
Name: Thomas A. Lettero
Title: Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on March 16, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
Chairman of the Board
- ---------------------------------------------
Carl C. Icahn
Director
- ---------------------------------------------
John P. Saldarelli
Director
- ---------------------------------------------
Robert J. Mitchell
Director
- ---------------------------------------------
Martin Hirsch
Chief Executive Officer
- ---------------------------------------------
Daniel A. Cassella
Chief Financial Officer, Treasurer and
- --------------------------------------------- Secretary
Thomas A. Lettero
</TABLE>
IV-5
<PAGE> 1
Exhibit 3(1)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STRATOSPHERE CORPORATION
Pursuant to the provisions of Section 303 of the General Corporation
Law of the State of Delaware (the "DGCL"), Stratosphere Corporation, a Delaware
corporation (the "Corporation"), does hereby certify as follows:
1. The name of the corporation is Stratosphere Corporation.
2. The original certificate of incorporation of the Corporation was filed
in the office of the Secretary of State of the State of Delaware (the
"Secretary") on January 14, 1993, under the name Stratosphere Tower & Casino
Corporation. An amendment changing the Corporation's name to Stratosphere
Corporation was filed on February 12, 1993 in the office of the Secretary.
3. The Corporation filed for bankruptcy protection on January 27, 1997. By
order docketed on June 9, 1998, the United States Bankruptcy Court for the
District of Nevada in Case Nos. 97-20554-GWZ and 97-20555-GWZ confirmed a plan
of reorganization of the Corporation and a subsidiary thereof (the "Plan"),
pursuant to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code").
4. Section 303 of the DGCL provides that, among other things, any
corporation incorporated under the DGCL may, pursuant to a plan of
reorganization which has been confirmed by a court of competent jurisdiction,
alter or amend its bylaws, reconstitute its board of directors, appoint
directors and officers and amend its certificate of incorporation without any
further action by its directors or stockholders.
5. The Plan provides for the amendment and restatement of the
Corporation's certificate of incorporation as set forth below.
6. The Plan provides for the adoption of the Amended and Restated Bylaws
of the Corporation.
7. The Plan provides for the designation of the initial directors of the
Corporation who shall be:
Carl C. Icahn
John P. Saldarelli
Daniel Cassella
Robert J. Mitchell
Martin Hirsch
1
<PAGE> 2
8. The Plan provides for the designation of the initial officers of the
Corporation who shall be:
Chairman of the Board: Carl C. Icahn
Chief Executive Officer: Daniel Cassella
President/Chief Operating Officer: Daniel Cassella
Secretary: Thomas A. Lettero
Chief Financial Officer/Treasurer: Thomas A. Lettero
9. Pursuant to the Plan, the text of the Corporation's certificate of
incorporation is hereby amended and restated to read as follows:
ARTICLE I
The name of the corporation is Stratosphere Corporation (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware, County of New Castle is 1209 Orange Street, Wilmington, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
Section 1. Authorized Capital Stock. The total number of shares of all
classes of stock which the Corporation shall have authority to issue is thirteen
million (13,000,000) shares, consisting of ten million (10,000,000) shares of
Common Stock, par value one cent ($.01) per share (the "Common Stock"), and
three million (3,000,000) shares of Preferred Stock, par value one cent ($.01)
per share (the "Preferred Stock"). The Board of Directors of the Corporation
(the "Board") is authorized, subject to any limitations prescribed by law, to
provide for the issuance of shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware (such
certificate being hereinafter referred to as a "Preferred Stock Designation"),
to establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions thereof.
The number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a
2
<PAGE> 3
vote of the holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
Section 2. Voting. Each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held of record by such holder. Each holder
of Preferred Stock shall be entitled to vote such Preferred Stock in the manner
provided for in the Preferred Stock Designation relating thereto. Elections of
directors need not be by written ballot unless the Bylaws of the Corporation
(the "Bylaws") so provide.
Section 3. Nonvoting Equity Securities. The Corporation will not issue
nonvoting equity securities to the extent that such issuance is prohibited by
Section 1123 of the Bankruptcy Code as in effect on the effective date of the
Plan; provided, however, that this Section 3 of Article IV (a) shall have no
further force and effect beyond that required under Section 1123 of the
Bankruptcy Code, (b) will have such force and effect, if any, only for so long
as such Section is in effect and applicable to the Corporation, and (c) in all
events may be amended or eliminated in accordance with applicable law as from
time to time in effect.
ARTICLE V
The number of directors of the Corporation shall be fixed by the
Bylaws.
ARTICLE VI
Section 1. Transactions with Interested Stockholders. If at any time
there exists an Interested Stockholder (as defined herein), the Corporation
shall not engage in any Restricted Transaction (as defined herein) with such
Interested Stockholder unless, at or prior to the consummation thereof, the
Corporation shall have obtained a written opinion from a nationally recognized
investment banking firm to the effect that such Restricted Transaction is fair
to the stockholders of the Corporation, such opinion to be in a form customarily
delivered by investment banking firms in transactions of a similar nature.
Section 2. Certain Definitions. As used in this Article VI:
a) "Affiliate" means a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is
under common control with another Person.
b) "Associate," when used to indicate a relationship with any Person,
means: (i) any corporation, partnership, unincorporated
association or other entity of which such Person is a director,
officer or partner or is directly or indirectly the Owner of
fifteen percent (15%) or more of any class of Voting Stock; (ii)
any trust or other estate in which such Person has at least a
fifteen percent (15%) beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity; and
(iii) any relative or spouse of such Person, or any relative of
such spouse, who has the same residence as such Person.
3
<PAGE> 4
c) "Control," including the terms "controlling," "controlled by" and
"under common control with," means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
Voting Stock, by contract or otherwise. A Person who is the Owner of
fifteen percent (15%) or more of the outstanding Voting Stock of any
corporation, partnership, unincorporated association or other entity
shall be presumed for purposes of this Article VI to have control of
such entity.
d) "Interested Stockholder" means (i) any Person (other than the
Corporation and any direct or indirect majority-owned subsidiary of the
Corporation) that is the Owner of fifteen percent (15%) or more of the
outstanding Common Stock and (ii) the Affiliates and Associates of any
Person determined to be an Interested Stockholder under clause (i) of
this paragraph.
e) "Owner," including the terms "Own" and "Owned," when used with respect
to any Stock, means a Person that individually or with or through any
of its Affiliates or Associates: (i) beneficially owns such Stock,
directly or indirectly; (ii) has (A) the right to acquire beneficial
ownership of such Stock (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise; provided,
however, that a Person shall not be deemed the Owner of Stock tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered Stock is
accepted for purchase or exchange or (B) the right to vote such Stock
pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Owner of any Stock
because of such Person's right to vote such Stock if the agreement,
arrangement or understanding to vote such Stock arises solely from a
revocable proxy or consent given in response to a proxy or consent
solicitation made to all holders of a class or series of such Stock; or
(iii) has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except voting pursuant to a revocable
proxy or consent as described in item (B) of subparagraph (ii) of this
paragraph) or disposing of such Stock with any other Person that
beneficially owns, or whose Affiliates or Associates beneficially own,
directly or indirectly, such Stock.
f) "Person" means any individual, corporation, partnership, trust, estate,
unincorporated association or other entity.
g) "Restricted Transaction" means:
i) any merger or consolidation of the Corporation or any direct
or indirect majority-owned subsidiary of the Corporation with
an Interested Stockholder;
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ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions),
except proportionately as a stockholder of the Corporation, to
or with an Interested Stockholder, whether as part of a
dissolution or otherwise, of assets (of any nature whatsoever)
of the Corporation or of any direct or indirect majority-owned
subsidiary of the Corporation which assets have an aggregate
market value of more than $10,000;
iii) any purchase, lease, exchange, transfer or other acquisition
(in one transaction or in a series of transactions) from or
with an Interested Stockholder of assets (of any nature
whatsoever) of the Interested Stockholder which assets have an
aggregate market value of more than $10,000;
iv) any transaction which results in the issuance or transfer by
the Corporation or by any direct or indirect majority-owned
subsidiary of the Corporation to an Interested Stockholder of
any Stock of the Corporation or of such subsidiary or any
security convertible into or exchangeable for any Stock of the
Corporation or of such subsidiary, except (A) pursuant to (x)
a dividend or distribution declared by a majority of the Board
and paid or made pro rata to all holders of Common Stock, (y)
an exchange offer by the Corporation to purchase Common Stock
made on the same terms to all holders of Common Stock or (z)
the exercise, exchange or conversion of securities exercisable
for, exchangeable for or convertible into, Common Stock which
securities are distributed pro rata to all holders of Common
Stock;
v) any other transaction involving the Corporation or any direct
or indirect majority-owned subsidiary of the Corporation which
has the effect, directly or indirectly, of increasing the
proportionate ownership of an Interested Stockholder of any
class or series of Stock of the Corporation or any direct or
indirect majority-owned subsidiary of the Corporation;
vi) any purchase or other acquisition by the Corporation or any
direct or indirect majority-owned subsidiary of the
Corporation of any goods or services from an Interested
Stockholder, except for purchases or acquisitions (A) made in
the ordinary course of business of the Corporation or such
subsidiary on terms and conditions that are no less favorable
to the Corporation or such subsidiary than the Corporation or
such subsidiary would be able to obtain in an arm's length
transaction with an unrelated third party and (B) involving
less than $10,000;
vii) any sale or other transfer or provision by the Corporation or
any direct or indirect majority-owned subsidiary of the
Corporation of any goods or services to an Interested
Stockholder, except for sales, transfers and
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provisions (A) made in the ordinary course of business of the
Corporation or such subsidiary on terms and conditions that are
no less favorable to the Corporation or such subsidiary than the
Corporation or such subsidiary would be able to obtain in an
arms' length transaction with an unrelated third party and (B)
involving less than $10,000; or
viii) any receipt by an Interested Stockholder, directly or indirectly,
except proportionately as a stockholder of the Corporation, of
the benefit of any loans, advances, guarantees, pledges, tax
benefits or other financial benefits provided by or through the
Corporation or any direct or indirect majority-owned subsidiary
of the Corporation or any other transaction by an Interested
Stockholder with the Corporation or any direct or indirect
majority-owned subsidiary of the Corporation (other than those
expressly permitted in the foregoing provisions of this Section
2(g) of Article VI).
h) "Stock" means, with respect to any corporation, capital stock, and with
respect to any other entity, any equity interest.
i) "Voting Stock" means, with respect to any corporation, Stock of any
class or series entitled to vote generally in the election of
directors, and with respect to any entity that is not a corporation,
any equity interest entitled to vote generally in the election of the
governing body of such entity.
Section 3. Not Exclusive. The restrictions set forth in this Article VI
shall be in addition to, and shall not in any manner affect, any other
restrictions imposed by the DGCL or other applicable law.
Section 4. Amendment of this Article VI. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least eighty percent (80%) of the shares of Common
Stock then entitled to vote at an election of directors of the Corporation is
required to amend, repeal, or to adopt any provisions inconsistent with this
Article VI.
ARTICLE VII
The Board may make, amend and repeal the Bylaws. Any Bylaw made by the
Board under the powers conferred hereby may be amended or repealed by the Board
(except as specified in any such Bylaws so made or amended) or by the
stockholders in the manner provided in the Bylaws. The Corporation may in its
Bylaws confer powers upon the Board in addition to the foregoing and in addition
to the powers and authorities expressly conferred upon the Board by applicable
law.
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ARTICLE VIII
LIABILITY/INDEMNIFICATION
Section 1. Limitation of Personal Liability. To the full extent
permitted by the DGCL or any other applicable law currently or hereafter in
effect, no director of the Corporation will be personally liable to the
Corporation or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Corporation. Any
repeal or modification of this Section 1 of Article VIII will not adversely
affect any right or protection of a director of the Corporation existing prior
to such repeal or modification.
Section 2. Indemnification. Each person who is or was or had agreed to
become a director or officer of the Corporation, and to each such person who is
or was serving or who had agreed to serve at the request of the Board or an
officer of the Corporation as an employee or agent of the Corporation or as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other entity, whether for profit or not for profit (including
the heirs, executors, administrators, or estate of such person), will be
indemnified by the Corporation to the full extent permitted by the DGCL as
currently or hereafter in effect. Expenses (including attorneys' fees) incurred
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding will be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding to the full
extent permitted by the DGCL as currently or hereinafter in effect. The right of
indemnification and advancement of expenses provided in this Section 2 of
Article VIII will not be exclusive of any other rights to which any person
seeking indemnification or advancement of expenses may otherwise be entitled,
including without limitation, pursuant to any contract approved by the Board.
Without limiting the generality or effect of the foregoing, the Corporation may
adopt Bylaws, or enter into one or more agreements with any person, which
provide for indemnification greater or different than that provided in this
Article VIII or the DGCL. Any amendment or repeal of, or adoption of any
provision inconsistent with, this Section 2 of Article VIII will not adversely
affect any right or protection existing hereunder, or arising out of facts
occurring prior to such amendment, repeal or adoption, and no such amendment,
repeal or adoption will affect the legality, validity or enforceability of any
contract entered into or right granted prior to the effective date of such
amendment, repeal or adoption.
This Amended and Restated Certificate of Incorporation will be
effective on the date of its filing with the Secretary of State of the State of
Delaware.
Executed this ___ day of October, 1998.
---------------------------------
Thomas A. Lettero, Secretary
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STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
This instrument was acknowledged before me on October , 1998, by Thomas
A. Lettero as Secretary of Stratosphere Corporation.
---------------------------------
Notary Public
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Exhibit 3(2)
AMENDED AND RESTATED
BYLAWS
OF
STRATOSPHERE CORPORATION,
A DELAWARE CORPORATION
INTRODUCTION
The United States Bankruptcy Court for the District of Nevada (the
"Bankruptcy Court") in Case Nos. 97-20554-GWZ and 97-20555-GWZ has confirmed a
plan of reorganization (the "Plan") for Stratosphere Corporation (the
"Corporation") pursuant to Chapter 11 of Title 11 of the United States Code.
Pursuant to the Plan and Section 303 of the Delaware General Corporation Law,
the Bylaws are being amended and restated as set forth herein. Capitalized terms
not otherwise defined herein shall have the same meanings as set forth in the
Plan.
ARTICLE I
OFFICES AND BOOKS
Section 1.1 Offices. The registered office shall be in the City of
Wilmington, County of Newcastle, State of Delaware. The Corporation may have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 1.2 Books and Records. The books and records of the Corporation may
be kept within or without the State of Delaware as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
Section 2.1 Annual Meetings. An annual meeting of the shareholders of the
Corporation shall be held on the second Thursday of June or such other time and
place as shall be designated by the Board of Directors and stated in the notice
of the meeting as set forth in Section 2.4 hereto for the purpose of electing
directors of the Corporation to serve during the ensuing year and for the
transaction of such other business as may properly come before the meeting. If
the election of the directors is not held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the President
or the Chief Executive Officer shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as is convenient.
Section 2.2 Special Meetings.
a) Special meetings of the shareholders may be called by the Board of
Directors, the Chairman of the Board, President or Chief Executive Officer and
shall be called by the Board
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of Directors, the Chairman of the Board, President, Chief Executive Officer or
the Secretary at the written request of any two directors of the Corporation or
the holders of not less than fifteen percent (15%) of the voting power of any
class of the Corporation's stock entitled to vote for the election of directors
or for the matters relating to the purposes for which such meeting is being
called. Such request shall state the purpose or purposes of the proposed
meeting.
b) No business shall be acted upon at a special meeting except as set
forth in the notice calling the meeting, unless one of the conditions for the
holding of a meeting without notice set forth in Section 2.5 shall be satisfied,
in which case any business may be transacted and the meeting shall be valid for
all purposes.
Section 2.3 Place of Meetings. Any meeting of the shareholders of the
Corporation may be held at its registered office in the State of Delaware or at
such other place in or out of the United States as the Board of Directors may
designate or, in the case of a meeting requested by the Corporation's
shareholders in accordance with Section 2.2 hereof, as may be designated by an
instrument in writing signed by the holders of not less than fifteen percent
(15%) of the Corporation's outstanding stock entitled to vote for the election
of directors or for the matters relating to the purposes for which such meeting
is called.
Section 2.4 Notice of Meetings.
a) The Chairman of the Board, President, Chief Executive Officer, the
Secretary, an Assistant Secretary or any other individual designated by the
Board of Directors shall deliver written notice of any meeting at least ten (10)
days, but not more than sixty (60) days, before the date of such meeting, except
as otherwise provided herein or by law. The notice shall state the place, date
and time of the meeting and the purpose or purposes for which the meeting is
called.
b) In the case of an annual meeting, any proper business may be
presented for action, except that action on any of the following items shall be
taken only if the general nature of the proposal is stated in the notice:
i) Action with respect to any contract or transaction between
the Corporation and one or more of its directors or officers or between
the Corporation and any corporation, firm or association in which one
or more of the Corporation's directors or officers is a director or
officer or is financially interested (including any Restricted
Transaction (as such term is defined in the Certificate of
Incorporation (as defined below));
ii) Adoption of amendments to the Amended and Restated
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"); or
iii) Action with respect to a merger, share exchange,
reorganization, consolidation, partial or complete liquidation or
dissolution of the Corporation.
c) A copy of the notice shall be personally delivered or mailed postage
prepaid to each shareholder of record entitled to vote at the meeting at the
address appearing on the records
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of the Corporation, and the notice shall be deemed delivered the date the same
is deposited in the United States mail for transmission to such shareholder. If
the address of any shareholder does not appear upon the records of the
Corporation, it will be sufficient to address any notice to such shareholder at
the registered office of the Corporation.
d) An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation setting forth the substance of the notice or
having a copy thereof attached, the date the notice was mailed or personally
delivered to the shareholder and the addresses to which the notice was mailed,
shall be prima facie evidence of the manner and fact of giving such notice.
e) Any shareholder may waive notice of any meeting by a signed writing,
either before or after the meeting.
Section 2.5 Meetings Without Notice.
a) Whenever all persons entitled to vote at any meeting consent, either
by:
i) A writing on the records of the meeting or filed with the
secretary;
ii) Presence at such meeting and oral consent entered on the
minutes; or
iii) Taking part in the deliberations at such meeting without
objection;
all actions taken at such meeting shall be as valid as if they had been taken at
a meeting duly called, noticed and held.
b) At such meeting any business may be transacted which is not excepted
from the written consent or to the consideration of which no objection for want
of notice is made at the time.
c) If any meeting be irregular for want of notice or of such consent,
provided a quorum was present at such meeting, the proceedings of the meeting
may be ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meeting.
d) Such consent or approval may be by proxy or attorney, but all such
proxies and powers of attorney must be in writing.
Section 2.6 Determination of Shareholders of Record.
a) For the purpose of determining the shareholders entitled to notice
of and to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting or entitled to
receive payment of any distribution or the allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the directors may fix, in
advance, a record date which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action.
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b) If no record date is fixed, the record date for determining
shareholders: (i) entitled to notice of and to vote at a meeting of shareholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; (ii) entitled to express
consent to corporate action in writing without a meeting shall be the day on
which the first written consent is expressed; and (iii) for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of shareholders of
record entitled to notice of or to vote at any meeting of shareholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 2.7 Quorum; Adjourned Meeting.
a) Unless the Certificate of Incorporation or these Bylaws provide for
a different proportion, shareholders holding at least a majority of the voting
power of the Corporation's stock, represented in person or by proxy, are
necessary to constitute a quorum for the transaction of business at any meeting.
If, on any issue, voting by classes is required by the laws of the State of
Delaware, the Certificate of Incorporation or these Bylaws, at least a majority
of the voting power within each such class is necessary to constitute a quorum
of each such class, unless the Certificate of Incorporation provides for a
different proportion.
b) If a quorum is not represented, a majority of the voting power so
represented may adjourn the meeting from time to time until holders of the
voting power required to constitute a quorum shall be represented. At any such
adjourned meeting at which a quorum shall be represented, any business may be
transacted which might have been transacted as originally called. When a
shareholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The shareholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum of the voting power.
Section 2.8 Voting.
a) Unless otherwise provided in the Certificate of Incorporation, or in
the resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Certificate of Incorporation, each shareholder of record, or such shareholder's
duly authorized proxy or attorney-in-fact, shall be entitled to one (1) vote for
each share of stock entitled to vote on such matter standing registered in such
shareholder's name on the record date.
b) Except as otherwise provided herein, all votes with respect to
shares standing in the name of an individual on the record date (including
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased shareholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such
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shares even though the shares do not stand in the name of the receiver;
provided, however, that the order of the court of competent jurisdiction which
appoints the receiver contains the authority to cast votes carried by such
shares. If shares stand in the name of a minor, votes may be cast only by the
duly appointed guardian of the estate of such minor if such guardian has
provided the Corporation with written proof of such appointment.
c) With respect to shares standing in the name of another corporation,
partnership, limited liability company or other legal entity on the record date,
votes may be cast: (i) in the case of a corporation, by such individual as the
bylaws of such other corporation prescribe, by such individual as may be
appointed by resolution of the board of directors of such other corporation or
by such individual (including the officer making the authorization) authorized
in writing to do so by the chairman of the board of directors, president or any
vice-president of such corporation and (ii) in the case of a partnership,
limited liability company or other legal entity, by an individual representing
such shareholder upon presentation to the Corporation of satisfactory evidence
of his authority to do so.
d) Notwithstanding anything to the contrary herein contained, no votes
may be cast for shares owned by this Corporation or its subsidiaries, if any. If
shares are held by this Corporation or its subsidiaries, if any, in a fiduciary
capacity, no votes shall be cast with respect thereto on any matter except to
the extent that the beneficial owner thereof possesses and exercises either a
right to vote or to give the Corporation holding the same binding instructions
on how to vote.
e) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
f) With respect to shares standing in the name of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a shareholder voting agreement or
otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
i) If only one person casts votes, the vote of such person
binds all.
ii) If more than one person casts votes, the act of the
majority so voting binds all.
iii) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed cast
proportionately, as split; provided, however, that fractional shares
resulting from a split vote shall not be considered as part of the
vote.
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g) If a quorum is present, unless the Certificate of Incorporation or
these Bylaws provide for a different proportion, the affirmative vote of holders
of at least a majority of the voting power represented at the meeting and
entitled to vote on any matter shall be the act of the shareholders, unless
voting by classes is required for any action of the shareholders by the laws of
the State of Delaware, the Certificate of Incorporation or these Bylaws, in
which case the affirmative vote of holders of a least a majority of the voting
power of each such class shall be required.
Section 2.9 Proxies. At any meeting of shareholders, any holder of shares
entitled to vote may designate, in a manner permitted by the laws of the State
of Delaware, another person or persons to act as a proxy or proxies. No proxy is
valid after the expiration of six (6) months from the date of its creation,
unless it is coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed three (3) years from the
date of its creation. Every proxy shall continue in full force and effect until
its expiration or revocation in a manner permitted by the laws of the State of
Delaware.
Section 2.10 Order of Business. At the annual shareholders' meeting, the
regular order of business shall be as follows:
a) Determination of shareholders present and existence of a quorum, in
person or by proxy;
b) Reading and approval of the minutes of the previous meeting or
meetings;
c) Reports of the Board of Directors, and, if any, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Financial Officer
and the Secretary of the Corporation;
d) Reports of committees;
e) Election of directors;
f) Unfinished business;
g) New business;
h) Adjournment.
Section 2.11 Absentees' Consent to Meeting. Transactions of any meeting of
the shareholders are as valid as though had at a meeting duly held after regular
call and notice if a quorum is represented, either in person or by proxy, and
if, either before or after the meeting, each of the persons entitled to vote,
not represented in person or by proxy (and those who, although present, either
object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
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corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not properly included in the notice if such objection
is expressly made at the time any such matters are presented at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
special meeting of shareholders need be specified in any written waiver of
notice or consent, except as otherwise provided in Sections 2.2(a) and 2.4(b) of
these Bylaws.
Section 2.12 Telephonic Meeting. Shareholders may participate in a meeting
of the shareholders by means of a telephone conference or similar method of
communication by which all individuals participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 2.12 constitutes
presence in person at the meeting.
Section 2.13 Action Without Meeting. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting if a
written consent thereto is signed by the holders of the greater of (i) eighty
percent (80%) of the voting power of the shares of stock of the Corporation that
are entitled to vote on the matter at issue or (ii) the voting power of the
shares of stock of the Corporation that would be required at a meeting to
constitute the act of the shareholders with respect to the matter at issue.
Whenever action is taken by written consent, a meeting of shareholders need not
be called or notice given. The written consent may be signed in counterparts and
must be filed with the minutes of the proceedings of the shareholders. Such
action shall be deemed effective on the date when the signatures of holders of
the requisite number of shares approving the matter have been obtained.
Section 2.14 Shareholder Proposals. At the annual meeting of shareholders
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before such annual meeting (i) by, or at the
direction of, the Board of Directors or (ii) by any shareholder of the
Corporation who complies with the notice procedures set forth in this Section
2.14 of these Bylaws. For a proposal to be properly brought before an annual
meeting of shareholders by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to, or mailed and received at, the
registered office of the Corporation not less than sixty (60) days nor more than
ninety (90) days prior to the scheduled annual meeting, without regard to any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the shareholder to be timely must be so delivered or mailed and received, as
specified above, not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the names
and addresses, as they appear on the Corporation's books, of the shareholder(s)
proposing such business and any other shareholders known by such shareholder to
be supporting such proposal, (iii) the class and number of shares of the
Corporation's stock which are
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beneficially owned by the shareholder on the date of such shareholder notice and
by any other shareholder known by such shareholder to be supporting such
proposal on the date of such shareholder notice, and (iv) any financial interest
of the shareholder in such proposal.
If the presiding officer of the annual meeting determines that a
shareholder proposal was not made in accordance with terms of this Section, he
or she shall so declare at the annual meeting and any such proposal shall not be
acted upon at the annual meeting.
This Section shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
ARTICLE III
DIRECTORS
Section 3.1 Number, Tenure and Qualifications. The authorized number of
directors of the Corporation shall be the number fixed in accordance with
Section 3.2 hereof. Except as provided in the Certificate of Incorporation, all
directors shall hold office until the first annual meeting of shareholders (or
the first special meeting of shareholders at which the entire Board of Directors
is to be elected) following his or her election or appointment to the Board of
Directors and until his or her successor or successors are elected and qualify,
subject to approval of the "Gaming Authorities."
Section 3.2 Change In Number. Subject to any limitations in the laws of the
State of Delaware, the Plan, the Certificate of Incorporation or these Bylaws,
the authorized number of directors of the Corporation may be fixed from time to
time by resolution of the Board of Directors, without the need to amend these
Bylaws or the Certificate of Incorporation.
Section 3.3 Reduction In Number. No reduction of the number of directors
shall have the effect of removing any director prior to the expiration of his or
her term of office.
Section 3.4 Resignation. Any director may resign effective upon giving
written notice to the Chairman of the Board, the Chief Executive Officer, the
President, the Secretary, or in the absence of all of them, any other officer,
unless the notice specifies a later time for effectiveness of such resignation.
Except as provided in the Certificate of Incorporation, a majority of the
remaining directors, though less than a quorum, may appoint a successor to take
office when the resignation becomes effective, each director so appointed to
hold office during the remainder of the term of office of the resigning
director.
Section 3.5 Removal. Except as provided in the Certificate of
Incorporation, any director may be removed from office, with or without cause,
by the vote or written consent of shareholders representing not less than a
majority of the voting power of the issued and outstanding stock entitled to
vote for the election of directors.
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Section 3.6 Vacancies.
a) Except as provided in the Certificate of Incorporation, all
vacancies, including those caused by an increase in the number of directors, may
be filled by a majority of the remaining directors, though less than a quorum,
or by shareholders having a majority of the voting power entitled to vote for
election of directors.
b) Subject to the provisions of Subsection (c) below, (i) in the case
of the replacement of a director, the appointed director shall hold office
during the remainder of the term of office of the replaced director, and (ii) in
the case of an increase in the number of directors, the appointed or elected
director shall hold office until the next meeting of shareholders at which
directors are elected.
c) If, after the filling of any vacancy by the directors, the directors
then in office who have been elected by the shareholders shall constitute less
than a majority of the directors then in office, any holder or holders of an
aggregate of fifteen percent (15%) or more of the total voting power entitled to
vote for the election of directors may call a special meeting of the
shareholders to elect the entire Board of Directors.
Section 3.7 Annual and Regular Meetings. Immediately following the
adjournment of, and at the same place as the annual or any special meeting of
the shareholders at which directors are elected other than pursuant to Section
3.6, the Board of Directors, including directors newly elected, shall hold its
annual meeting without notice, other than this provision, to elect officers and
to transact such further business as may be necessary or appropriate. The Board
of Directors may provide by resolution the place, date and hour for holding
regular meetings between annual meetings.
Section 3.8 Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or Chief Executive Officer and shall
be called by the Chairman of the Board, Chief Executive Officer or Secretary
upon the request of any two (2) directors. If the Chairman of the Board, Chief
Executive Officer and Secretary refuse or neglect to call such special meeting,
a special meeting may be called by notice signed by any two (2) directors.
Section 3.9 Place of Meetings. Any regular or special meeting of the
directors of the Corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by the directors may designate
any place for the holding of such meeting.
Section 3.10 Notice of Meetings. Except as otherwise provided in Section
3.7, there shall be delivered to all directors, at least forty-eight (48) hours
before the time of such meeting, a copy of a written notice of any meeting by
delivery of such notice personally, by mailing such notice postage prepaid or by
telegram or facsimile. Such notice shall be addressed in the manner provided for
notice to shareholders in Section 2.4(c). If mailed, the notice shall be deemed
delivered four (4) business days following the date the same is deposited in the
United States mail, postage prepaid. Any director may waive notice of any
meeting, and the attendance of a director
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at a meeting and oral consent entered on the minutes of the meeting or taking
part in deliberations of the meeting without objection shall constitute a waiver
of notice of such meeting. Attendance for the express purpose of objecting to
the transaction of business thereat because the meeting is not properly called
or convened shall not constitute presence nor a waiver of notice for purposes
hereof.
Section 3.11 Quorum; Adjourned Meetings.
a) A majority of the total number of directors, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
Section 3.12 Board of Directors' Decisions. Subject to the Certificate of
Incorporation, the affirmative vote of a majority of the directors present at a
meeting at which a quorum is present is the act of the Board of Directors.
Section 3.13 Telephonic Meetings. Members of the Board of Directors or of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or committee by means of a telephone conference or
similar method of communication by which all persons participating in such
meeting can hear each other. Participation in a meeting pursuant to this Section
3.13 constitutes presence in person at the meeting.
Section 3.14 Action Without Meeting. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a committee thereof may be
taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
Section 3.15 Powers and Duties.
a) Except as otherwise restricted in the laws of the State of Delaware,
the Certificate of Incorporation or these Bylaws, the Board of Directors has
full control over the affairs of the Corporation. Except as otherwise restricted
in the laws of the State of Delaware, the Board of Directors may delegate any of
its authority to manage, control or conduct the business of the Corporation to
any standing or special committee or to any officer or agent and to appoint any
persons to be agents of the Corporation with such powers, including the power to
subdelegate and upon such terms as may be deemed fit.
b) The Board of Directors may present to the shareholders at annual
meetings of the shareholders, and when called for by a majority vote of the
shareholders at an annual meeting or a special meeting of the shareholders shall
so present, a full and clear report of the condition of the Corporation.
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c) The Board of Directors, in its discretion, may submit any contract
or act for approval or ratification at any annual meeting of the shareholders or
any special meeting properly called for the purpose of considering any such
contract or act, provided a quorum is present.
Section 3.16 Committees of Directors.
a) The Board of Directors may, by resolution passed by a majority of
the Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
b) In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
c) Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
Section 3.17 Compensation. The directors and members of committees shall be
allowed and paid all necessary expenses incurred in attending any meetings of
the Board of Directors or committees. Directors shall also receive reasonable
compensation for their services as directors, in such amounts and at such times
as may be determined by the Board of Directors from time to time.
Section 3.18 Order of Business. The order of business at any meeting of the
Board of Directors shall be as follows:
a) Determination of members present and existence of quorum;
b) Reading and approval of the minutes of any previous meeting or
meetings;
c) Reports of officers and committee members;
d) Election of officers (annual meeting);
e) Unfinished business;
f) New business;
g) Adjournment.
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ARTICLE IV
OFFICERS
Section 4.1 Election. The Board of Directors, at its annual meeting, shall
elect the officers of the Corporation, which shall include a Chairman of the
Board, Chief Executive Officer, President/Chief Operating Officer, Vice
President, Secretary and Chief Financial Officer/Treasurer to hold office for a
term of one (1) year or until their successors are chosen and qualify. The Board
of Directors may, from time to time, by resolution, elect one or more additional
Vice Presidents, Assistant Secretaries and Assistant Treasurers and appoint
agents of the Corporation, prescribe their duties and fix their compensation.
Any number of offices may be held by the same person unless the laws of the
State of Delaware, the Certificate of Incorporation or these Bylaws otherwise
provide.
Section 4.2 Removal; Resignation. Any officer or agent elected or appointed
by the Board of Directors may be removed by it with or without cause. Any
officer may resign at any time upon written notice to the Corporation. Any such
removal or resignation shall be subject to the rights, if any, of the respective
parties under any contract between the Corporation and such officer or agent.
Section 4.3 Vacancies. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 4.4 Chairman of the Board. A Chairman of the Board of Directors
shall be elected by the Board of Directors. He or she shall preside at all
meetings of the shareholders and of the Board of Directors. The Chairman of the
Board shall keep in close touch with the administration of the affairs of the
Corporation and supervise its general policies. The Chairman of the Board shall
also exercise and perform such other powers and duties as may be from time to
time assigned to him or her by the Board of Directors or prescribed by these
Bylaws.
Section 4.5 Chief Executive Officer. The Chief Executive Officer shall be
in general charge of the business affairs of the Corporation and, subject to the
control of the Board of Directors, shall have general and active management of
the business of the Corporation. He or she shall be authorized, with the
Secretary, or such other officer as he or she may designate, or with no other
officer or officers, to negotiate, execute and deliver such agreements or other
documents or instruments as he or she may deem necessary or appropriate for the
business of the Corporation. He or she shall execute certificates for shares of
the Corporation, deeds, bonds, mortgages and other contracts requiring a seal or
executed under the seal of the Corporation, or which the Board of Directors has
authorized to be executed by the Chief Executive Officer pursuant to these
Bylaws or by a resolution, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation; and, in general, shall perform all duties incident to
the office of Chief Executive Officer and such other duties as may be prescribed
by the Board of Directors from time to time.
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Section 4.6 President and Chief Operating Officer. The President and Chief
Operating Officer shall assist the Chief Executive Officer in the performance of
his or her duties in the day-to-day operations and management of the business
affairs of the Corporation and shall perform such other duties as from time to
time may be assigned to him or her by the Chief Executive Officer or by the
Board of Directors and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 4.7 Vice President. In the absence of the President or in the event
of his or her inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice President shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 4.8 Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the shareholders and record all the proceedings
of the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He or she shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer, under whose supervision he or she shall be. He
or she shall have custody of the corporate seal of the Corporation and he or
she, or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his or her signature.
Section 4.9 Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 4.10 Chief Financial Officer/Treasurer. The Chief Financial
Officer/Treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He or she shall disburse the funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chief Executive Officer
and the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his or her transactions as Treasurer
and of the financial condition of the Corporation.
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If required by the Board of Directors, the Chief Financial
Officer/Treasurer shall give the Corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
Section 4.11 Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election) shall, in the absence of the Chief Financial Officer/Treasurer
or in the event of his or her inability or refusal to act, perform the duties
and exercise the powers of the Chief Financial Officer/Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
If required by the Board of Directors, the Assistant Treasurer shall give
the Corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his or her office and for the
restoration to the Corporation, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
Section 4.12 Compensation. The compensation of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.1 Issuance. Shares of the Corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Delaware,
the Certificate of Incorporation or any contracts or agreements to which the
Corporation may be a party, be issued in such manner, at such times, upon such
conditions and for such consideration as shall be prescribed by the Board of
Directors.
Section 5.2 Certificates. Ownership in the Corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the Corporation and shall be
manually signed by the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and also by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer; provided, however, whenever any
certificate is countersigned or otherwise authenticated by a transfer agent or
transfer clerk, and by a registrar, then a facsimile of the signatures of said
officers of the Corporation may be printed or lithographed upon the certificate
in lieu of the actual signatures. If the Corporation uses facsimile signatures
of its officers on its stock certificates, it shall not act as registrar of its
own stock, but its transfer agent and registrar may be identical if the
institution acting in those dual capacities
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countersigns any stock certificates in both capacities. Each certificate shall
contain the name of the record holder, the number, designation, if any, class or
series of shares represented, a statement or summary of any applicable rights,
preferences, privileges or restrictions thereon, and a statement, if applicable,
that the shares are assessable. All certificates shall be consecutively
numbered. The name, address and federal tax identification number of the
shareholder (if provided by the shareholder), the number of shares and the date
of issue shall be entered in the stock transfer records of the Corporation.
Section 5.3 Surrendered, Lost or Destroyed Certificates. All certificates
surrendered to the Corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any shareholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the Corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in an amount not less than twice the current market value of the
stock, and upon such terms as the Treasurer or the Board of Directors shall
require which shall indemnify the Corporation against any loss, damage, cost or
inconvenience arising as a consequence of the issuance of a replacement
certificate.
Section 5.4 Replacement Certificate. When the Certificate of Incorporation
is amended in any way affecting the statements contained in the certificates for
outstanding shares of capital stock of the Corporation or it becomes desirable
for any reason, in the discretion of the Board of Directors, including, without
limitation, following the merger of the Corporation with another corporation or
the reorganization of the Corporation, to cancel any outstanding certificate for
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding certificates
for shares to surrender and exchange the same for new certificates within a
reasonable time to be fixed by the Board of Directors. The order may provide
that a holder of any certificate(s) ordered to be surrendered shall not be
entitled to vote, receive distributions or exercise any other rights of
shareholders of record until the holder has complied with the order, but the
order operates to suspend such rights only after notice and until compliance.
Section 5.5 Transfer of Shares. No transfer of stock shall be valid as
against the Corporation except on surrender and cancellation of the certificates
therefor accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer in the records of the
Corporation.
Section 5.6 Transfer Agent; Registrars. The Board of Directors may appoint
one or more transfer agents, transfer clerks and registrars of transfer and may
require all certificates for shares of stock to bear the signatures of such
transfer agent, transfer clerk and/or registrar of transfer.
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Section 5.7 Stock Transfer Records. The stock transfer records shall be
closed for a period of at least ten (10) days prior to all meetings of the
shareholders and shall be closed for the payment of distributions as provided in
Article VI hereof and during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock shall be transferable
for purposes of Article VI and no voting rights shall be deemed transferred
during such periods. Subject to the foregoing limitations, nothing contained
herein shall cause transfers during such periods to be void or voidable.
Section 5.8 Miscellaneous. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer, and registration of certificates
for shares of the Corporation's stock.
ARTICLE VI
DISTRIBUTIONS
Distributions may be declared, subject to the provisions of the laws of the
State of Delaware and the Certificate of Incorporation, by the Board of
Directors at any regular or special meeting and may be paid in cash, property or
shares of corporate stock or any other medium. The Board of Directors may fix in
advance a record date, as provided in Section 2.6, prior to the distribution for
the purpose of determining shareholders entitled to receive any distribution.
The Board of Directors may close the stock transfer books for such purpose for a
period of not more than ten (10) days prior to the date of such distribution.
ARTICLE VII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
Section 7.1 Records. All original records of the Corporation shall be kept
by or under the direction of the Secretary or at such places as may be
prescribed by the Board of Directors.
Section 7.2 Directors' and Officers' Right of Inspection. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the Corporation's books, records and documents of every kind and to
inspect the physical properties of the Corporation and/or its subsidiary
corporations. Such inspection may be made in person or by agent or attorney.
Section 7.3 Corporate Seal. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the Corporation shall have the
authority to affix the seal to any document requiring it.
Section 7.4 Fiscal Year End. The fiscal year end of the Corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
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Section 7.5 Reserves. The Board of Directors may create, by resolution,
such reserves in accordance with generally accepted accounting principles,
consistently applied, as the directors may, from time to time, in their
discretion, think proper to provide for contingencies, or to repair or maintain
any property of the Corporation, or for such other purpose as the Board of
Directors may deem beneficial to the Corporation, and the directors may modify
or abolish any such reserves in the manner in which they were created.
ARTICLE VIII
INDEMNIFICATION OF CORPORATE AGENTS;
PURCHASE OF LIABILITY INSURANCE
Section 8.1 Indemnification of Agents of the Corporation; Purchase of
Liability Insurance.
a) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the Corporation, by reason of the fact
that he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, limited liability company, trust or other enterprise, against expenses,
including attorneys' fees and costs, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him or her in connection with
the action, suit or proceeding, if he or she acted in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent does
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and that, with respect to any criminal
action or proceeding, he or she had reasonable cause to believe that his or her
conduct was unlawful.
b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, limited liability company, trust or other enterprise, against
expenses, including amounts paid in settlement and attorneys' fees and costs,
actually and reasonably incurred by him or her in connection with the defense or
settlement of the action or suit, if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation. However, indemnification shall not be made for any
claim, issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the Corporation or for amounts paid in settlement to the Corporation, unless
and only to the extent that the court in which the action or suit was brought or
other court of
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competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
c) To the extent that a present or former director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or (b), or in defense
of any claim, issue or matter therein, he or she shall be indemnified by the
Corporation against expenses, including attorneys' fees and costs, actually and
reasonably incurred by him or her in connection with the defense.
d) Any indemnification under subsection (a) or (b), unless ordered by a
court or advanced pursuant to subsection (e), shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the present of former director, officer, employee or agent is
proper in the circumstances. The determination shall be made, with respect to a
person who is a director or officer at the time of such determination: (i) by
the shareholders; (ii) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to an action, suit or proceeding,
even though less than a quorum; or (iii) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion.
e) The expenses (including attorneys' fees) of officers and directors
incurred in defending a civil, criminal, administrative or investigative action,
suit or proceeding shall be paid by the Corporation as they are incurred and in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he or
she is not entitled to be indemnified by the Corporation. The provisions of this
subsection (e) do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under any
contract or otherwise by law.
f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this Article VIII (i) do not exclude any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under the Certificate of Incorporation, the Bylaws, or any
agreement, vote of shareholders or disinterested directors or otherwise, for
either an action in his or her official capacity or an action in another
capacity while holding his or her office, and (ii) continue for a person who has
ceased to be a director, officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such person.
g) The Corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, limited liability company, trust or
other enterprise, for any liability asserted against him or her and expenses
incurred by him or her in his or her capacity as a director, officer, employee
or agent, or arising out of his or her status as such, whether or not the
Corporation has the authority to indemnify him or her against such liability and
expenses. The other financial arrangements made by the Corporation may include
any now or hereafter permitted by applicable law.
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h) In the event that the laws of the State of Delaware shall hereafter
permit or authorize indemnification by the Corporation of the directors,
officers, employees or agents of the Corporation for any reason or purpose or in
any manner not otherwise provided for in this Article VIII, then such directors,
officers, employees and agents shall be entitled to such indemnification by
making written demand therefor upon the Corporation, it being the intention of
this Article VIII at all times to provide the most comprehensive indemnification
coverage to the Corporation's directors, officers, employees and agents as may
now or hereafter be permitted by the laws of the State of Delaware.
i) The foregoing indemnification provisions shall inure to the benefit
of all present and future directors, officers, employees and agents of the
Corporation and all persons now or hereafter serving at the request of the
Corporation as directors, officers, employees or agents of another corporation,
partnership, joint venture, limited liability company, trust or other enterprise
and their heirs, executors and administrators, and shall be applicable to all
acts or omissions to act of any such persons, whether such acts or omissions to
act are alleged to have or actually occurred prior to or subsequent to the
adoption of this Article VIII.
j) Any insurance or other financial arrangement made on behalf of a
person pursuant to this Section may be provided by the Corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the Corporation. In the absence
of fraud:
i) the decision of the Board of Directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement
made pursuant to this Section and the choice of the person to provide
the insurance or other financial arrangement is conclusive; and
ii) the insurance or other financial arrangement:
(1) is not void or voidable; and
(2) does not subject any director approving it to personal
liability for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
Section 8.2 Vested Rights. Neither the amendment nor repeal of this Article
VIII, nor the adoption of any provision of the Certificate of Incorporation or
the Bylaws or of any statute inconsistent with this Article VIII, shall
adversely affect any right or protection of a director, officer, employee or
agent of the Corporation existing at the time of such amendment, repeal or
adoption of such inconsistent provision.
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<PAGE> 20
ARTICLE IX
AMENDMENT OR REPEAL
Except as otherwise restricted in the Certificate of Incorporation, the
Plan or these Bylaws:
a) Any provision of these Bylaws may be altered, amended or repealed at
the annual or any regular meeting of the Board of Directors without prior
notice, or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting.
b) These Bylaws may also be altered, amended or repealed at a duly
convened meeting of the shareholders by the affirmative vote of the holders of a
majority of the voting power of the issued and outstanding stock of the
Corporation entitled to vote. The shareholders may provide by resolution that
any Bylaw provision repealed, amended, adopted or altered by them may not be
repealed, amended, adopted or altered by the Board of Directors.
CERTIFICATION
The undersigned duly elected Secretary of the Corporation does hereby
certify the foregoing Bylaws were adopted and are effective as of October 14,
1998 pursuant to the Plan of Reorganization for the Corporation, as confirmed by
the United States Bankruptcy Court for the District of Nevada in Case Nos.
97-20554-GWZ and 97-20555-GWZ, pursuant to Chapter 11 of Title 11 of the United
States Code, which Plan provides for the adoption of these Bylaws.
_____________________________________
Thomas A. Lettero, Secretary
20
<PAGE> 1
Exhibit 3(3)
CERTIFICATE OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
STRATOSPHERE GAMING CORP.
Pursuant to the provisions of Nevada Revised Statutes ("N.R.S.") ss.
78.622, Stratosphere Gaming Corp., a Nevada corporation (the "Corporation"),
does hereby certify as follows:
1. The name of the corporation is Stratosphere Gaming Corp.
2. The original Articles of Incorporation of the Corporation were filed in
the office of the Secretary of the State of Nevada (the "Secretary") on June 24,
1994.
3. The United States Bankruptcy Court for the District of Nevada (the
"Bankruptcy Court") in Case Nos. 97-20554-GWZ and 97-20555-GWZ, has confirmed
that certain Debtors' Restated Second Amended Plan of Reorganization dated
February 26, 1998 (the "Plan") for the Corporation pursuant to Chapter 11 of
Title 11 of the United States Code. Capitalized terms not otherwise defined
herein shall have the same meaning as set forth in the Plan.
4. The Corporation desires to amend and restate its Articles of
Incorporation pursuant to the Plan and in accordance with N.R.S. ss. 78.622,
which provides, among other things, that any corporation incorporated pursuant
to Chapter 78 of the N.R.S. may, pursuant to a plan of reorganization which has
been confirmed by a court of competent jurisdiction, alter or amend its bylaws,
reconstitute its board of directors, appoint directors or officers or amend its
articles of incorporation without any further action by its directors or
shareholders.
5. Certified copies of the Plan and the Order Confirming Debtors' Restated
Second Amended Plan of Reorganization Dated February 26, 1998 (the "Confirmation
Order") are being filed as Exhibits A and B, respectively, with the Secretary
together with this Certificate.
6. The Plan and Confirmation Order provide for the adoption of the Amended
and Restated Bylaws of the Corporation.
7. The Plan and Confirmation Order provide for the designation of the
initial Directors of the Corporation, which such Directors are named and
designated in Article V of the Corporation's Amended and Restated Articles of
Incorporation.
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<PAGE> 2
8. The Plan and Confirmation Order provide for the designation of the
following initial officers of the Corporation:
<TABLE>
<S> <C>
President: Daniel Cassella
Secretary/Treasurer: Thomas A. Lettero
</TABLE>
9. Pursuant to the Plan and this filing of a certified copy of the Plan and
Confirmation Order with the Secretary, the Corporation's Articles of
Incorporation are amended and restated to read as follows:
ARTICLE I: NAME
The name of the Corporation is Stratosphere Gaming Corp.
ARTICLE II: REGISTERED OFFICE
The name of the resident agent and the street address of the
registered office in the State of Nevada where process may be served upon
the Corporation is Schreck Morris, 300 S. Fourth Street, #1200, Las Vegas,
Nevada 89101. The Corporation may, from time to time, in the manner
provided by law, change the resident agent and the registered office within
the State of Nevada. The Corporation may also maintain an office or offices
for the conduct of its business, either within or without the State of
Nevada. Corporate business of every kind and nature may be conducted, and
meetings of Directors and shareholders held, outside the State of Nevada,
the same as in the State of Nevada.
ARTICLE III: CORPORATE PURPOSES
The nature of the business and objects and purposes proposed to be
transacted, promoted or carried on by the Corporation are: (a) to conduct
gaming in the State of Nevada in accordance with the laws of the State of
Nevada and of the United States of America and (b) to engage in any lawful
activity.
ARTICLE IV: CAPITAL STOCK
Section 1. Authorized Shares. The Corporation is authorized to issue
one class of shares which shall be designated "Common Stock," with no par
value. The total number of shares of Common Stock which the Corporation is
authorized to issue is two thousand five hundred (2,500). Common Stock may
be issued by the Corporation from time to time by resolution of the Board
of Directors, except as otherwise provided
2
<PAGE> 3
in this Section. The holders of Common Stock shall be entitled to one
(1) vote for each share held by them.
The Corporation shall not issue nonequity voting securities.
The Corporation shall not issue any stock or other securities except
in accordance with the provisions of the Nevada Gaming Control Act and the
regulations thereunder. The issuance of any stock or other securities in
violation thereof shall be void unless the Corporation is no longer subject
to the jurisdiction of the Nevada State Gaming Control Board and Nevada
Gaming Commission (the "Commission").
No stock or other securities issued by the Corporation and no
interest, claim or charge therein or thereto shall be transferred in any
manner whatsoever except in accordance with the provisions of the Nevada
Gaming Control Act and the regulations thereunder. Any transfer in
violation thereof shall be void unless the Corporation is no longer subject
to the jurisdiction of the Nevada State Gaming Control Board and the
Commission.
If the Commission at any time determines that a holder of stock or
other securities of this Corporation is unsuitable to hold such securities,
then until such securities are owned by persons found by the Commission to
be suitable to own them or are purchased by the Corporation, (a) the
Corporation shall not be required or permitted to pay any dividend or
interest with regard to the securities, (b) the holder of such securities
shall not be entitled to vote on any matter as the holder of the securities
and such securities shall not for any purposes be included in the
securities of the Corporation entitled to vote, and (c) the Corporation
shall not pay any remuneration in any form to the holder of the securities.
Section 2. Consideration for Shares. The capital stock authorized by
Section 1 of this Article shall be issued for such consideration as shall
be fixed, from time to time, by the Board of Directors.
Section 3. Assessment of Stock. The capital stock of the Corporation,
after the amount of the subscription price has been fully paid in, shall
not be assessable for any purpose, and no stock issued as fully paid shall
ever be assessable or assessed. No shareholder of the Corporation is
individually liable for the debts or liabilities of the Corporation.
3
<PAGE> 4
Section 4. Preemptive Rights. No shareholder of the Corporation shall
have any preemptive rights.
ARTICLE V: DIRECTORS AND OFFICERS
Section 1. Number of Directors. The members of the governing board of
the Corporation are styled as Directors. The number of Directors may be
changed from time to time in such manner as shall be provided in the Bylaws
of the Corporation and without need to amend this Article.
Section 2. Current Directors. The names and post office addresses of
the two (2) persons constituting the Corporation's current Board of
Directors are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Carl C. Icahn c/o Icahn Associates Group
767 Fifth Avenue
New York, NY 10153
Martin Hirsch c/o Icahn Associates Group
767 Fifth Avenue
New York, NY 10153
</TABLE>
The current Directors shall serve until their successors are elected
at a properly noticed and constituted shareholders' meeting. Vacancies on
the Board of Directors shall be filled, and elections of Directors shall be
held, in accordance with the Bylaws.
Section 3. Limitation of Personal Liability. No Director or officer of
the Corporation shall be liable to the Corporation or its shareholders for
damages for breach of fiduciary duty as a Director or officer; provided,
however, that the foregoing provision shall not eliminate or limit the
liability of a Director or officer for: (a) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (b) the
payment of distributions in violation of N.R.S. ss. 78.300. If the N.R.S.
are hereafter amended or interpreted to eliminate or limit further the
personal liability of Directors or officers, then the liability of all
Directors and officers shall be eliminated or limited to the full extent
then so permitted.
Section 4. Payment of Expenses. All expenses incurred by officers or
Directors in defending a civil or criminal action, suit or
4
<PAGE> 5
proceeding must be paid by the Corporation as they are incurred in
advance of a final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of a Director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that (i) he or she did not act in good faith, and in the
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation or (ii) with respect to any criminal action or
proceedings, he or she had reasonable cause to believe his or her conduct
was unlawful.
Section 5. Repeal and Conflicts. Any repeal or amendments of Section 3
or 4 of this Article or the adoption of any provision to these Amended and
Restated Articles of Incorporation inconsistent with Section 3 or 4 of this
Article shall be prospective only and shall not eliminate or reduce the
effect of Sections 3 or 4 of this Article in respect of any act or omission
that occurred prior to such repeal, amendment or adoption of an
inconsistent provision. In the event of any conflict between Sections 3 or
4 of this Article and any other Article of the Corporation's Amended and
Restated Articles of Incorporation, the terms and provisions of Section 3
or 4 of this Article, as the case may be, shall control.
Section 6. Compliance with Gaming Control Act. All of the Directors of
the Corporation shall be subject to, and the composition of the Board of
Directors shall be in compliance with, the requirements and qualifications
imposed by the Nevada Gaming Control Act (N.R.S. ss. 463.010 et seq., as
amended from time to time), or any successor provision of Nevada law, and
the regulations promulgated thereunder, and the rules and regulations of
any governmental agency responsible for the licensing and regulation of
gaming operations, including without limitation, the Nevada State Gaming
Control Board, the Commission and the Clark County Liquor & Gaming
Licensing Board.
ARTICLE VI: PERPETUAL EXISTENCE
The Corporation shall have perpetual existence.
ARTICLE VII: AMENDMENT
These Amended and Restated Articles of Incorporation may be amended,
modified, altered or repealed only with the affirmative vote of the holders
of a majority of the voting power of all the shares of capital stock of the
Corporation entitled to vote generally in the election of Directors, voting
together as a single class.
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<PAGE> 6
10. The undersigned has been authorized by the Bankruptcy Court to file
this Certificate with the Secretary of State in accordance with the Confirmation
Order.
Executed under penalty of perjury this _____ day of October, 1998.
____________________________________ __________________________________
Daniel Cassella, President Thomas A. Lettero, Secretary
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
This instrument was acknowledged before me on October_____ , 1998 by Thomas
A. Lettero as Secretary of Stratosphere Gaming Corp.
__________________________________
Notary Public
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
This instrument was acknowledged before me on October , 1998 by Daniel
Cassella as President of Stratosphere Gaming Corp.
__________________________________
Notary Public
6
<PAGE> 7
EXHIBIT A
Debtors' Restated Second Amended Plan of Reorganization
<PAGE> 8
EXHIBIT B
Order Confirming Debtors' Restated Second Amended Plan of Reorganization
<PAGE> 1
Exhibit 3(4)
AMENDED AND RESTATED
BYLAWS
OF
STRATOSPHERE GAMING CORP.,
A NEVADA CORPORATION
INTRODUCTION
The United States Bankruptcy Court for the District of Nevada (the
"Bankruptcy Court") in Case Nos. 97-20554-GWZ and 97-20555-GWZ has confirmed a
plan of reorganization (the "Plan") for Stratosphere Gaming Corp. (the
"Corporation") pursuant to Chapter 11 of Title 11 of the United States Code.
Pursuant to the Plan and Section 78.622 of the Nevada Revised Statutes, the
Bylaws are being amended and restated as set forth herein. Capitalized terms not
otherwise defined herein shall have the same meanings as set forth in the Plan.
ARTICLE I
OFFICES AND BOOKS
Section 1.1 Offices. The registered office shall be at Schreck Morris, 300
S. Fourth Street, #1200, Las Vegas, Nevada 89101. The Corporation may have
offices at such other places both within and without the State of Nevada as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 1.2 Books and Records. The books and records of the Corporation may
be kept within or without the State of Nevada as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
Section 2.1 Annual Meetings. An annual meeting of the shareholders of the
Corporation shall be held on the third Tuesday of June of each year or at such
other time and at such place as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting as set forth in
Section 2.4 hereto, for the purpose of electing directors of the Corporation to
serve during the ensuing year and for the transaction of such other business as
may properly come before the meeting. If the election of the directors is not
held on the day designated herein for any annual meeting of the shareholders, or
at any adjournment thereof, the President shall cause the election to be held at
a special meeting of the shareholders as soon thereafter as is convenient.
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<PAGE> 2
Section 2.2 Special Meetings.
a) Special meetings of the shareholders may be called by the President
and shall be called by the President or the Board of Directors at the written
request of the holders of not less than fifteen percent (15%) of the voting
power of any class of the Corporation's stock entitled to vote for the election
of directors or for the matters relating to the purposes for which such meeting
is being called.
b) No business shall be acted upon at a special meeting except as set
forth in the notice calling the meeting, unless one of the conditions for the
holding of a meeting without notice set forth in Section 2.5 shall be satisfied,
in which case any business may be transacted and the meeting shall be valid for
all purposes.
Section 2.3 Place of Meetings. Any meeting of the shareholders of the
Corporation may be held at its registered office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate or as may be designated by an instrument in writing signed by the
holders of not less than a majority of the Corporation's outstanding stock
entitled to vote for the election of directors or for the matters relating to
the purposes for which such meeting is called.
Section 2.4 Notice of Meetings.
a) The President, the Secretary, an Assistant Secretary or any other
individual designated by the Board of Directors shall sign and deliver written
notice of any meeting at least ten (10) days, but not more than sixty (60) days,
before the date of such meeting. The notice shall state the place, date and time
of the meeting and the purpose or purposes for which the meeting is called.
b) In the case of an annual meeting, any proper business may be
presented for action, except that action on any of the following items shall be
taken only if the general nature of the proposal is stated in the notice:
i) Action with respect to any contract or transaction between the
Corporation and one or more of its directors or officers or between
the Corporation and any corporation, firm or association in which one
or more of the Corporation's directors or officers is a director or
officer or is financially interested;
ii) Adoption of amendments to the Articles of Incorporation; or
iii) Action with respect to a merger, share exchange,
reorganization, consolidation, partial or complete liquidation or
dissolution of the Corporation.
c) A copy of the notice shall be personally delivered or mailed postage
prepaid to each shareholder of record entitled to vote at the meeting at the
address appearing on the records of the Corporation, and the notice shall be
deemed delivered the date the same is deposited in the United States mail for
transmission to such shareholder. If the address of any shareholder does not
2
<PAGE> 3
appear upon the records of the Corporation, it will be sufficient to address any
notice to such shareholder at the registered office of the Corporation.
d) The written certificate of the individual signing a notice of
meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
shareholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
e) Any shareholder may waive notice of any meeting by a signed writing,
either before or after the meeting.
Section 2.5 Meetings Without Notice.
a) Whenever all persons entitled to vote at any meeting consent, either
by:
i) A writing on the records of the meeting or filed with the
secretary;
ii) Presence at such meeting and oral consent entered on the
minutes; or
iii) Taking part in the deliberations at such meeting without
objection;
the doings of such meeting shall be as valid as if had at a meeting regularly
called and noticed.
b) At such meeting any business may be transacted which is not excepted
from the written consent or to the consideration of which no objection for want
of notice is made at the time.
c) If any meeting be irregular for want of notice or of such consent,
provided a quorum was present at such meeting, the proceedings of the meeting
may be ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meeting.
d) Such consent or approval may be by proxy or attorney, but all such
proxies and powers of attorney must be in writing.
Section 2.6 Determination of Shareholders of Record.
a) For the purpose of determining the shareholders entitled to notice
of and to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting or entitled to
receive payment of any distribution or the allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the directors may fix, in
advance, a record date which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action.
b) If no record date is fixed, the record date for determining
shareholders: (i) entitled to notice of and to vote at a meeting of shareholders
shall be at the close of business on
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<PAGE> 4
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held; (ii) entitled to express consent to corporate action in writing
without a meeting shall be the day on which the first written consent is
expressed; and (iii) for any other purpose shall be at the close of business on
the day on which the Board of Directors adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice of or to vote an
any meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 2.7 Quorum; Adjourned Meeting.
a) Unless the Articles of Incorporation or these Bylaws provide for a
different proportion, shareholders holding at least a majority of the voting
power of the Corporation's stock, represented in person or by proxy, are
necessary to constitute a quorum for the transaction of business at any meeting.
If, on any issue, voting by classes is required by the laws of the State of
Nevada, the Articles of Incorporation or these Bylaws, at least a majority of
the voting power within each such class is necessary to constitute a quorum of
each such class, unless the Articles of Incorporation provides for a different
proportion.
b) If a quorum is not represented, a majority of the voting power so
represented may adjourn the meeting from time to time until holders of the
voting power required to constitute a quorum shall be represented. At any such
adjourned meeting at which a quorum shall be represented, any business may be
transacted which might have been transacted as originally called. When a
shareholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The shareholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum of the voting power.
Section 2.8 Voting.
a) Unless otherwise provided in the Articles of Incorporation, or in
the resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Articles of Incorporation, each shareholder of record, or such shareholder's
duly authorized proxy or attorney-in-fact, shall be entitled to one (1) vote for
each share of stock entitled to vote on such matter standing registered in such
shareholder's name on the record date.
b) Except as otherwise provided herein, all votes with respect to
shares standing in the name of an individual on the record date (including
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased shareholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, however, that the
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<PAGE> 5
order of the court of competent jurisdiction which appoints the receiver
contains the authority to cast votes carried by such shares. If shares stand in
the name of a minor, votes may be cast only by the duly appointed guardian of
the estate of such minor if such guardian has provided the Corporation with
written proof of such appointment.
c) With respect to shares standing in the name of another corporation,
partnership, limited liability company or other legal entity on the record date,
votes may be cast: (i) in the case of a corporation, by such individual as the
bylaws of such other corporation prescribe, by such individual as may be
appointed by resolution of the board of directors of such other corporation or
by such individual (including the officer making the authorization) authorized
in writing to do so by the chairman of the board of directors, president or any
vice-president of such corporation and (ii) in the case of a partnership,
limited liability company or other legal entity, by an individual representing
such shareholder upon presentation to the Corporation of satisfactory evidence
of his authority to do so.
d) Notwithstanding anything to the contrary herein contained, no votes
may be cast for shares owned by this Corporation or its subsidiaries, if any. If
shares are held by this Corporation or its subsidiaries, if any, in a fiduciary
capacity, no votes shall be cast with respect thereto on any matter except to
the extent that the beneficial owner thereof possesses and exercises either a
right to vote or to give the Corporation holding the same binding instructions
on how to vote.
e) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
f) With respect to shares standing in the name of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a shareholder voting agreement or
otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
i) If only one person casts votes, the vote of such person binds
all.
ii) If more than one person casts votes, the act of the majority
so voting binds all.
iii) If more than one person casts votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast
proportionately, as split.
g) If a quorum is present, unless the Articles of Incorporation or
these Bylaws provide for a different proportion, the affirmative vote of holders
of at least a majority of the voting power represented at the meeting and
entitled to vote on any matter shall be the act of the
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<PAGE> 6
shareholders, unless voting by classes is required for any action of the
shareholders by the laws of the State of Nevada, the Articles of Incorporation
or these Bylaws, in which case the affirmative vote of holders of at least a
majority of the voting power of each such class shall be required.
Section 2.9 Proxies. At any meeting of shareholders, any holder of
shares entitled to vote may designate, in a manner permitted by the laws of the
State of Nevada, another person or persons to act as a proxy or proxies. No
proxy is valid after the expiration of six (6) months from the date of its
creation, unless it is coupled with an interest or unless otherwise specified in
the proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its creation. Every proxy shall continue in full force and effect until
its expiration or revocation in a manner permitted by the laws of the State of
Nevada.
Section 2.10 Order of Business. At the annual shareholders' meeting,
the regular order of business shall be as follows:
a) Determination of shareholders present and existence of a quorum, in
person or by proxy;
b) Reading and approval of the minutes of the previous meeting or
meetings;
c) Reports of the Board of Directors, and, if any, the President and
the Secretary of the Corporation;
d) Reports of committees;
e) Election of directors;
f) Unfinished business;
g) New business;
h) Adjournment.
Section 2.11 Absentees' Consent to Meeting. Transactions of any meeting
of the shareholders are as valid as though had at a meeting duly held after
regular call and notice if a quorum is represented, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not represented in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to
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<PAGE> 7
the consideration of matters not properly included in the notice if such
objection is expressly made at the time any such matters are presented at the
meeting. Neither the business to be transacted at nor the purpose of any regular
or special meeting of shareholders need be specified in any written waiver of
notice or consent, except as otherwise provided in Sections 2.2(a) and 2.4(b) of
these Bylaws.
Section 2.12 Telephonic Meeting. Shareholders may participate in a
meeting of the shareholders by means of a telephone conference or similar method
of communication by which all individuals participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 2.12 constitutes
presence in person at the meeting.
Section 2.13 Action Without Meeting. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if a
written consent thereto is signed by the holders of the greater of (i) sixty
percent (60%) of the voting power of the shares of stock of the Corporation that
are entitled to vote on the matter at issue or (ii) the voting power of the
shares of stock of the Corporation that would be required at a meeting to
constitute the act of the shareholders with respect to the matter at issue.
Whenever action is taken by written consent, a meeting of shareholders need not
be called or notice given. The written consent may be signed in counterparts and
must be filed with the minutes of the proceedings of the shareholders. Such
action shall be deemed effective on the date when the signatures of holders of
the requisite number of shares approving the matter have been obtained.
Section 2.14 Shareholder Proposals. At the annual meeting of
shareholders only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been brought before such annual meeting (i)
by, or at the direction of, the Board of Directors or (ii) by any shareholder of
the Corporation who complies with the notice procedures set forth in this
Section of these Bylaws. For a proposal to be properly brought before an annual
meeting of shareholders by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to, or mailed and received at, the
registered office of the Corporation not less than sixty (60) days nor more than
ninety (90) days prior to the scheduled annual meeting, without regard to any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the shareholder to be timely must be so delivered or mailed and received, as
specified above, not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the names
and addresses, as they appear on the Corporation's books, of the shareholder(s)
proposing such business and any other shareholders known by such shareholder to
be supporting such proposal, (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the shareholder on the date
of such shareholder notice and by any other shareholder known by such
shareholder to be supporting such proposal on the date of such shareholder
notice, and (iv) any financial interest of the shareholder in such proposal.
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If the presiding officer of the annual meeting determines that a
shareholder proposal was not made in accordance with terms of this Section, he
or she shall so declare at the annual meeting and any such proposal shall not be
acted upon at the annual meeting.
This Section shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
ARTICLE III
DIRECTORS
Section 3.1 Number, Tenure and Qualifications. The authorized number of
directors of the Corporation shall be the number fixed in accordance with
Section 3.2 hereof. All directors shall hold office until the first annual
meeting of shareholders (or the first special meeting of shareholders at which
the entire Board of Directors is to be elected) following his or her election or
appointment to the Board of Directors and until his or her successor or
successors are elected and qualify, except as otherwise provided in the Plan,
subject to approval of the "Gaming Authorities" (as defined in the Plan).
Section 3.2 Change In Number. Subject to any limitations in the laws of the
State of Nevada, the Plan, the Articles of Incorporation or these Bylaws, the
authorized number of directors may be fixed from time to time by resolution of
the Board of Directors, without the need to amend these Bylaws or the Articles
of Incorporation.
Section 3.3 Reduction In Number. No reduction of the number of directors
shall have the effect of removing any director prior to the expiration of his or
her term of office.
Section 3.4 Resignation. Any director may resign effective upon giving
written notice to the President, the Secretary or any other officer, unless the
notice specifies a later time for effectiveness of such resignation. Unless
otherwise specified in the Articles of Incorporation, a majority of the
remaining directors, though less than a quorum, may appoint a successor to take
office when the resignation becomes effective, each director so appointed to
hold office during the remainder of the term of office of the resigning
director.
Section 3.5 Removal.
a) The Board of Directors of the Corporation, by majority vote, may
declare vacant the office of a director who has been declared incompetent by an
order of a court of competent jurisdiction or convicted of a felony.
b) Any director may be removed from office by the vote or written
consent of shareholders representing not less than two-thirds of the voting
power of the issued and outstanding stock entitled to vote for the election of
directors, except as otherwise provided in the Plan.
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Section 3.6 Vacancies.
a) Unless it is otherwise provided in the Articles of Incorporation,
all vacancies, including those caused by an increase in the number of directors,
may be filled by a majority of the remaining directors, though less than a
quorum unless, in the case of removal of one or more directors, the shareholders
by a majority of voting power entitled to vote for election of directors shall
have appointed a successor to the removed director. Subject to the provisions of
Subsection (b) below, (i) in the case of the replacement of a director, the
appointed director shall hold office during the remainder of the term of office
of the replaced director, and (ii) in the case of an increase in the number of
directors, the appointed director shall hold office until the next meeting of
shareholders at which directors are elected.
b) If, after the filling of any vacancy by the directors, the directors
then in office who have been elected by the shareholders shall constitute less
than a majority of the directors then in office, any holder or holders of an
aggregate of five percent (5%) or more of the total voting power entitled to
vote for the election of directors may call a special meeting of the
shareholders to elect the entire Board of Directors.
Section 3.7 Annual and Regular Meetings. Immediately following the
adjournment of, and at the same place as the annual or any special meeting of
the shareholders at which directors are elected other than pursuant to Section
3.6, the Board of Directors, including directors newly elected, shall hold its
annual meeting without notice, other than this provision, to elect officers and
to transact such further business as may be necessary or appropriate. The Board
of Directors may provide by resolution the place, date and hour for holding
regular meetings between annual meetings.
Section 3.8 Special Meetings. Special meetings of the Board of
Directors may be called by the President and shall be called by the President or
the Secretary upon the request of any two (2) directors. If both the President
and Secretary refuse or neglect to call such special meeting, a special meeting
may be called by notice signed by any two (2) directors.
Section 3.9 Place of Meetings. Any regular or special meeting of the
directors of the Corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by the directors may designate
any place for the holding of such meeting.
Section 3.10 Notice of Meetings. Except as otherwise provided in
Section 3.7, there shall be delivered to all directors, at least forty-eight
(48) hours before the time of such meeting, a copy of a written notice of any
meeting by delivery of such notice personally, by mailing such notice postage
prepaid or by telegram or facsimile. Such notice shall be addressed in the
manner provided for notice to shareholders in Section 2.4(c). If mailed, the
notice shall be deemed delivered four (4) business days following the date the
same is deposited in the United States mail, postage prepaid. Any director may
waive notice of any meeting, and the attendance of a director at a meeting and
oral consent entered on the minutes of the meeting or taking part in
deliberations of the meeting without objection shall constitute a waiver of
notice of such meeting. Attendance for the express purpose of objecting to the
transaction of business thereat because the meeting is
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not properly called or convened shall not constitute presence nor a waiver of
notice for purposes hereof.
Section 3.11 Quorum: Adjourned Meetings.
a) A majority of the directors in office, at a meeting duly assembled,
is necessary to constitute a quorum for the transaction of business.
b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
Section 3.12 Board of Directors' Decisions. Subject to the Articles of
Incorporation, the affirmative vote of a majority of the directors present at a
meeting at which a quorum is present is the act of the Board of Directors.
Section 3.13 Telephonic Meetings. Members of the Board of Directors or
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or committee by means of a telephone
conference or similar method of communication by which all persons participating
in such meeting can hear each other. Participation in a meeting pursuant to this
Section 3.13 constitutes presence in person at the meeting.
Section 3.14 Action Without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors or of a committee thereof may
be taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
Section 3.15 Powers and Duties.
a) Except as otherwise restricted in the laws of the State of Nevada,
the Articles of Incorporation or these Bylaws, the Board of Directors has full
control over the affairs of the Corporation. Except as otherwise restricted in
the laws of the State of Nevada, the Board of Directors may delegate any of its
authority to manage, control or conduct the business of the Corporation to any
standing or special committee or to any officer or agent and to appoint any
persons to be agents of the Corporation with such powers, including the power to
subdelegate and upon such terms as may be deemed fit.
b) The Board of Directors may present to the shareholders at annual
meetings of the shareholders, and when called for by a majority vote of the
shareholders at an annual meeting or a special meeting of the shareholders shall
so present, a full and clear report of the condition of the Corporation.
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c) The Board of Directors, in its discretion, may submit any contract
or act for approval or ratification at any annual meeting of the shareholders or
any special meeting properly called for the purpose of considering any such
contract or act, provided a quorum is present.
Section 3.16 Committees of Directors.
a) The Board of Directors may, by resolution passed by a majority of
the Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
b) In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
c) Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
Section 3.17 Compensation. The directors and members of committees
shall be allowed and paid all necessary expenses incurred in attending any
meetings of the Board of Directors or committees. Directors shall also receive
reasonable compensation for their services as directors, in such amounts and at
such times as may be determined by the Board of Directors from time to time.
Section 3.18 Order of Business. The order of business at any meeting of
the Board of Directors shall be as follows:
a) Determination of members present and existence of quorum;
b) Reading and approval of the minutes of any previous meeting or
meetings;
c) Reports of officers and committee members;
d) Election of officers (annual meeting);
e) Unfinished business;
f) New business;
g) Adjournment.
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ARTICLE IV
OFFICERS
Section 4.1 Election. The Board of Directors, at its annual meeting, shall
elect the officers of the Corporation, which shall include a President,
Secretary and Treasurer to hold office for a term of one (1) year or until their
successors are chosen and qualify. Any individual may hold two or more offices.
The Board of Directors may, from time to time, by resolution, elect one or more
vice-presidents, assistant secretaries and assistant treasurers and appoint
agents of the Corporation, prescribe their duties and fix their compensation.
Any number of offices may be held by the same person unless the laws of the
State of Nevada, the Articles of Incorporation or these Bylaws otherwise
provide.
Section 4.2 Removal; Resignation. Any officer or agent elected or appointed
by the Board of Directors may be removed by it with or without cause. Any
officer may resign at any time upon written notice to the Corporation. Any such
removal or resignation shall be subject to the rights, if any, of the respective
parties under any contract between the Corporation and such officer or agent.
Section 4.3 Vacancies. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 4.4 President. The President shall be the chief executive or
operating officer in general charge of the business affairs of the Corporation
and, subject to the control of the Board of Directors, shall have general and
active management of the business of the Corporation. He or she shall be
authorized, with the Secretary, or such other officer as he or she may
designate, or with no other officer or officers, to negotiate, execute and
deliver such agreements or other documents or instruments as he may deem
necessary or appropriate for the business of the Corporation. He or she shall
execute certificates for shares of the Corporation, deeds, bonds, mortgages and
other contracts requiring a seal or executed under the seal of the Corporation,
or which the Board of Directors has authorized to be executed by the President
pursuant to these Bylaws or by a resolution, except where required or permitted
by law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation; and, in general, shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 4.5 Vice Presidents. In the absence of the President or in the
event of his or her inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice President shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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Section 4.6 Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the shareholders and record all the proceedings
of the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He or she shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors,
under whose supervision he or she shall be. He or she shall have custody of the
corporate seal of the Corporation and he or she, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
Section 4.7 Assistant Secretary. The Assistant Secretary, or if there be
more than one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 4.8 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his or her office and for the
restoration to the Corporation, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
Section 4.9 Assistant Treasurer. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Treasurer or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
If required by the Board of Directors, the Assistant Treasurer shall give
the Corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his or
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her office and for the restoration to the Corporation, in case of his or her
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his or her possession or
under his or her control belonging to the Corporation.
Section 4.10 Compensation. The compensation of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.1 Issuance. Shares of the Corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Nevada, the
Articles of Incorporation or any contracts or agreements to which the
Corporation may be a party, be issued in such manner, at such times, upon such
conditions and for such consideration as shall be prescribed by the Board of
Directors.
Section 5.2 Certificates. Ownership in the Corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the Corporation and shall be
manually signed by the President or a Vice-President and also by the Secretary,
an Assistant Secretary, the Treasurer or an Assistant Treasurer; provided,
however, whenever any certificate is countersigned or otherwise authenticated by
a transfer agent or transfer clerk, and by a registrar, then a facsimile of the
signatures of said officers of the Corporation may be printed or lithographed
upon the certificate in lieu of the actual signatures. If the Corporation uses
facsimile signatures of its officers on its stock certificates, it shall not act
as registrar of its own stock, but its transfer agent and registrar may be
identical if the institution acting in those dual capacities countersigns any
stock certificates in both capacities. Each certificate shall contain the name
of the record holder, the number, designation, if any, class or series of shares
represented, a statement or summary of any applicable rights, preferences,
privileges or restrictions thereon, and a statement, if applicable, that the
shares are assessable. All certificates shall be consecutively numbered. The
name, address and federal tax identification number of the shareholder (if
provided by the shareholder), the number of shares, and the date of issue shall
be entered in the stock transfer records of the Corporation.
Section 5.3 Surrendered, Lost or Destroyed Certificates. All certificates
surrendered to the Corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any shareholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the Corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in an amount not less than twice the current market value of the
stock, and upon such terms as the Treasurer or the Board of Directors shall
require which shall indemnify the Corporation against any loss, damage, cost or
inconvenience arising as a consequence of the issuance of a replacement
certificate.
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Section 5.4 Replacement Certificate. When the Articles of Incorporation are
amended in any way affecting the statements contained in the certificates for
outstanding shares of capital stock of the Corporation or it becomes desirable
for any reason, in the discretion of the Board of Directors, including, without
limitation, following the merger of the Corporation with another corporation or
the reorganization of the Corporation, to cancel any outstanding certificate for
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding certificates
for shares to surrender and exchange the same for new certificates within a
reasonable time to be fixed by the Board of Directors. The order may provide
that a holder of any certificate(s) ordered to be surrendered shall not be
entitled to vote, receive distributions or exercise any other rights of
shareholders of record until the holder has complied with the order, but the
order operates to suspend such rights only after notice and until compliance.
Section 5.5 Transfer of Shares. No transfer of stock shall be valid as
against the Corporation except on surrender and cancellation of the certificates
therefor accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer in the records of the
Corporation.
Section 5.6 Transfer Agent; Registrars. The Board of Directors may appoint
one or more transfer agents, transfer clerks and registrars of transfer and may
require all certificates for shares of stock to bear the signatures of such
transfer agent, transfer clerk and/or registrar of transfer.
Section 5.7 Stock Transfer Records. The stock transfer records shall be
closed for a period of at least ten (10) days prior to all meetings of the
shareholders and shall be closed for the payment of distributions as provided in
Article VI hereof and during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock shall be transferable
for purposes of Article VI and no voting rights shall be deemed transferred
during such periods. Subject to the forgoing limitations, nothing contained
herein shall cause transfers during such periods to be void or voidable.
Section 5.8 Miscellaneous. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of the Corporation's stock.
ARTICLE VI
DISTRIBUTIONS
Distributions may be declared, subject to the provisions of the laws of the
State of Nevada and the Articles of Incorporation, by the Board of Directors at
any regular or special meeting and may be paid in cash, property, shares of
corporate stock or any other medium. The Board of Directors may fix in advance a
record date, as provided in Section 2.6, prior to the distribution for the
purpose of determining shareholders entitled to receive any distribution. The
Board of
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Directors may close the stock transfer books for such purpose for a period of
not more than ten (10) days prior to the date of such distribution.
ARTICLE VII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
Section 7.1 Records. All original records of the Corporation shall be kept
by or under the direction of the Secretary or at such places as may be
prescribed by the Board of Directors.
Section 7.2 Directors' and Officers' Right of Inspection. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the Corporation's books, records and documents of every kind and to
inspect the physical properties of the Corporation and/or its subsidiary
corporations. Such inspection may be made in person or by agent or attorney.
Section 7.3 Corporate Seal. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the Corporation shall have the
authority to affix the seal to any document requiring it.
Section 7.4 Fiscal Year End. The fiscal year end of the Corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
Section 7.5 Reserves. The Board of Directors may create, by resolution,
such reserves in accordance with generally accepted accounting principles,
consistently applied, as the directors may, from time to time, in their
discretion, think proper to provide for contingencies, or to repair or maintain
any property of the Corporation, or for such other purpose as the Board of
Directors may deem beneficial to the Corporation, and the directors may modify
or abolish any such reserves in the manner in which they were created.
ARTICLE VIII
INDEMNIFICATION OF CORPORATE AGENTS;
PURCHASE OF LIABILITY INSURANCE
Section 8.1 Indemnification of Agents of the Corporation; Purchase of
Liability Insurance.
a) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the Corporation, by reason of the fact
that he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, limited liability company, trust or other enterprise, against expenses,
including attorneys' fees and costs, judgments, fines and amounts paid
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in settlement, actually and reasonably incurred by him or her in connection with
the action, suit or proceeding, if he or she acted in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent does
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and that, with respect to any criminal
action or proceeding, he or she had reasonable cause to believe that his or her
conduct was unlawful.
b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, limited liability company, trust or other enterprise, against
expenses, including amounts paid in settlement and attorneys' fees and costs,
actually and reasonably incurred by him or her in connection with the defense or
settlement of the action or suit, if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation. However, indemnification shall not be made for any
claim, issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the Corporation or for amounts paid in settlement to the Corporation, unless
and only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or (b), or in defense
of any claim, issue or matter therein, he or she shall be indemnified by the
Corporation against expenses, including attorneys' fees and costs, actually and
reasonably incurred by him or her in connection with the defense.
d) Any indemnification under subsection (a) or (b), unless ordered by a
court or advanced pursuant to subsection (e), shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination shall be made: (i) by the shareholders; (ii) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding; or (iii) if a majority
vote of a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
e) The expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding shall be paid by the Corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent
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jurisdiction that he or she is not entitled to be indemnified by the
Corporation. The provisions of this subsection (e) do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this Article VIII (i) does not exclude any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under the Articles of Incorporation, the Bylaws, or any agreement,
vote of shareholders or disinterested directors or otherwise, for either an
action in his or her official capacity or an action in another capacity while
holding his or her office, except that indemnification, unless ordered by a
court pursuant to subsection (b) or for the advancement of expenses made
pursuant to subsection (e), shall not be made to or on behalf of any director or
officer if a final adjudication establishes that his or her acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law and
were material to the cause of action and (ii) continues for a person who has
ceased to be a director, officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a person.
g) The Corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, limited liability company, trust or
other enterprise, for any liability asserted against him or her and liability
and expenses incurred by him or her in his or her capacity as a director,
officer, employee or agent, or arising out of his or her status as such, whether
or not the Corporation has the authority to indemnify him or her against such
liability and expenses. The other financial arrangements made by the Corporation
may include any now or hereafter permitted by applicable law.
h) In the event that the laws of the State of Nevada shall hereafter
permit or authorize indemnification by the Corporation of the directors,
officers, employees or agents of the Corporation for any reason or purpose or in
any manner not otherwise provided for in this Article VIII, then such directors,
officers, employees and agents shall be entitled to such indemnification by
making written demand therefor upon the Corporation, it being the intention of
this Article VIII at all times to provide the most comprehensive indemnification
coverage to the Corporation's directors, officers, employees and agents as may
now or hereafter be permitted by the laws of the State of Nevada.
i) The foregoing indemnification provisions shall inure to the benefit
of all present and future directors, officers, employees and agents of the
Corporation and all persons now or hereafter serving at the request of the
Corporation as directors, officers, employees or agents of another corporation,
partnership, joint venture, limited liability company, trust or other enterprise
and their heirs, executors and administrators, and shall be applicable to all
acts or omissions to act of any such persons, whether such acts or omissions to
act are alleged to have or actually occurred prior to or subsequent to the
adoption of this Article VIII.
j) Any insurance or other financial arrangement made on behalf of a
person pursuant to this Section may be provided by the Corporation or any other
person approved by the
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Board of Directors, even if all or part of the other person's stock or other
securities is owned by the Corporation. In the absence of fraud:
i) the decision of the Board of Directors as to the propriety of
the terms and conditions of any insurance or other financial
arrangement made pursuant to this Section and the choice of the person
to provide the insurance or other financial arrangement is conclusive;
and
ii) the insurance or other financial arrangement:
(1) is not void or voidable; and
(2) does not subject any director approving it to personal
liability for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
Section 8.2 Vested Rights. Neither the amendment nor repeal of this Article
VIII, nor the adoption of any provision of the Articles of Incorporation or the
Bylaws or of any statute inconsistent with this Article VIII, shall adversely
affect any right or protection of a director, officer, employee or agent of the
Corporation existing at the time of such amendment, repeal or adoption of such
inconsistent provision.
ARTICLE IX
AMENDMENT OR REPEAL
Except as otherwise restricted in the Articles of Incorporation, the Plan
or these Bylaws:
a) Any provision of these Bylaws may be altered, amended or repealed at
the annual or any regular meeting of the Board of Directors without prior
notice, or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting.
b) These Bylaws may also be altered, amended or repealed at a duly
convened meeting of the shareholders by the affirmative vote of the holders of a
majority of the voting power of the issued and outstanding stock of the
Corporation entitled to vote. The shareholders may provide by resolution that
any Bylaw provision repealed, amended, adopted or altered by the them may not be
repealed, amended, adopted or altered by the Board of Directors.
CERTIFICATION
The undersigned duly elected Secretary of the Corporation does hereby
certify the foregoing Bylaws were adopted by the filing with the Nevada
Secretary of State on October 14, 1998, pursuant to Nevada Revised Statute
Section 78.622, a certified copy of the Plan of Reorganization for the
Corporation, as confirmed by the United States Bankruptcy Court for the
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<PAGE> 20
District of Nevada in Case Nos. 97-20554-GWZ and 97-20555-GWZ, pursuant to
Chapter 11 of Title 11 of the United States Code, which Plan provides for the
adoption of these Bylaws.
_____________________________________________
Thomas A. Lettero, Secretary
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<PAGE> 1
Exhibit 10(15)
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into this day of _________, 1998, by and between Stratosphere Corporation, a
Delaware corporation (the "Corporation"), Stratosphere Gaming Corp., a Nevada
corporation ("Gaming Corp." and together with the Corporation, the "Debtors" and
after the effective date of any plan of reorganization, the "Reorganized
Debtors") and Thomas A. Lettero (the "Executive").
PRELIMINARY STATEMENTS
A. The Corporation is the owner of that certain hotel and casino known as
the Stratosphere Hotel & Casino located in Las Vegas, Nevada (the "Hotel").
Gaming Corp. is a wholly-owned subsidiary of the Corporation and operates the
Hotel.
B. On January 27, 1997, the Corporation and Gaming Corp. each filed their
Voluntary Petitions for bankruptcy protection under Title 11, Chapter 11 of the
United States Code in the United States District Court for the District of
Nevada (the "Bankruptcy Court") and are seeking confirmation of a plan of
reorganization.
C. The Debtors (and on behalf of Reorganized Debtors after the effective
date (the "Effective Date") of a plan of reorganization) desire to secure the
benefits of the Executive's background, knowledge, experience, ability,
expertise and industry to promote and maintain the Debtors' and Reorganized
Debtors' stability, growth, viability and profitability.
D. The Debtors desire to engage the services of the Executive who is
desirous of being employed by the Debtors and Reorganized Debtors under the
terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, together with other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment of the Executive. On the date on which a written order
confirming a plan of reorganization is entered by the Bankruptcy Court (the
"Confirmation Date"), the Debtors shall employ the Executive and the Executive
shall accept such employment and agrees to perform the duties and
responsibilities set forth herein upon the terms and conditions set forth
herein.
2. Term. The term of the Executive's employment pursuant to this Agreement
(the "Term") shall commence on the Confirmation Date and shall continue for
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<PAGE> 2
a period of twenty-four (24) months thereafter, unless sooner terminated in
accordance with this Agreement.
3. Duties and Responsibilities. On the Confirmation Date, the Executive
shall continue as Chief Financial Officer of the Debtors and on the Effective
Date the Executive shall be named Chief Financial Officer of the Reorganized
Debtors. The Executive shall perform the duties customarily performed by a Chief
Financial Officer for the Debtors and thereafter the Reorganized Debtors.
Additionally, if elected, the Executive shall serve on the boards of directors
of the Debtors and thereafter the Reorganized Debtors. During the Term, the
Executive shall report directly to the boards of directors of the Debtors or the
Reorganized Debtors, as the case may be, and shall have the responsibilities as
may be specified from time to time by the boards of directors. During the Term
and except for any vacation periods, the Executive shall devote substantially
all of his business time and attention to the business of the Debtors and
thereafter the Reorganized Debtors and shall not engage in any other business
activities or pursuits which would preclude the Executive from performing his
duties under this Agreement except as may be approved by the boards of directors
of the Debtors and thereafter the Reorganized Debtors; provided, however, the
Executive shall not be precluded from involvement in charitable or civic
activities or his personal financial investments provided the same do not
interfere with his time or attention to the business of the Debtors and
thereafter the Reorganized Debtors. The Executive shall perform all such duties
to the best of his ability and in a diligent manner.
4. Compensation.
a) Salary. The Executive shall receive an annual salary of Three Hundred
Thousand Dollars ($300,000) ("Salary") for performing his duties as Chief
Financial Officer, which Salary shall be payable in at least monthly
installments, less all applicable federal, state and local taxes, social
security and any other government mandated deductions. The Executive shall not
receive any additional compensation for serving on the boards of directors of
either the Debtors or the Reorganized Debtors.
b) Stock Option Plans. If, during the Term, the Reorganized Debtors
establish and institute an executive bonus plan, stock option plan or any
similar such plan, the Executive shall be entitled to participate in any such
plan to the extent such plans are established by the Reorganized Debtors and to
the extent the Reorganized Debtors provide such plans for all senior executives
of the Reorganized Debtors.
c) Health Benefits. The Executive shall continue to receive healthcare
benefits (including dental and vision) for the Executive and his family in
accordance with the Debtor's pre-January 27, 1997 policies and practices. In the
event of a termination of the Executive's employment with the Debtors or
Reorganized Debtors without cause, such existing healthcare benefits will be
extended for the Executive until the earlier of (i) the qualification and
eligibility of the Executive for healthcare plan benefits under another group
health plan; or (ii) ninety (90) days.
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<PAGE> 3
d) Business Expenses. Upon presentation of an itemized account and written
proof of such expenses, the Debtors and the Reorganized Debtors shall reimburse
the Executive for all reasonable business expenses incurred by him in connection
with the performance of his duties under this Agreement.
e) Vacation. The Executive shall be entitled to vacation and holiday pay
that the Debtors and thereafter the Reorganized Debtors provide to all senior
executives; provided, however, that in no event shall the vacation time afforded
to the Executive under such policy be less than three (3) weeks per annum.
5. Termination.
a) During the Term, the Executive may be terminated by the Debtors and
thereafter the Reorganized Debtors at any time; provided, however, in the event
the Executive is terminated without "Cause" (as defined herein) or there is a
"Change of Control" (as defined herein), then the Executive shall receive an
immediate severance payment of $200,000.
b) In the event the Executive remains in the employment of the Debtors and
the Reorganized Debtors for the entire Term and is not retained as Chief
Financial Officer after the Term and the Debtors and thereafter the Reorganized
Debtors do not provide ninety (90) days prior written notice of their intent not
to retain the Executive, then the Executive shall receive immediate termination
compensation of Seventy-Five Thousand Dollars ($75,000).
c) The Executive may, at the Executive's sole option and right, terminate
this Agreement at any time by providing ninety (90) days' prior written notice,
and the Debtors and the Reorganized Debtors shall be under no obligation to the
Executive except to pay him compensation for such services as may have been
performed up to the effective date of such termination.
For the purposes of this Agreement, termination for "cause" shall mean: (i)
the commission of fraud, embezzlement or theft against the Debtors and the
Reorganized Debtors; or (ii) a conviction of or guilty plea to a felony; or
(iii) excessive tardiness or absenteeism on the part of the Executive..
For the purposes of this Agreement, the term "Change of Control" shall mean
that High River Limited Partnership, a Delaware limited partnership, American
Real Estate Partnership, L.P., a Delaware limited partnership and Sky High, LLC
and/or their affiliates no longer collectively own or control directly or
indirectly, fifty percent (50%) of the First Mortgage Notes Due 2003 prior to
the Effective Date or fifty percent (50%) of the voting stock of Stratosphere
after the Effective Date. The term "affiliate" as used in this Agreement shall
have the same meanings as set forth in Section 12b-2 of the Securities Exchange
Act of 1934, as amended.
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<PAGE> 4
6. Confidential Information. During the term of this Agreement and
thereafter, the Executive shall hold in a fiduciary capacity for the benefit of
the Debtors and the Reorganized Debtors all secret or confidential information,
knowledge or data relating to the Debtors and the Reorganized Debtors or their
affiliates, and their respective businesses, which shall not be public
knowledge. Notwithstanding the foregoing, the parties hereto acknowledge that
after the termination of his employment with the Debtors and/or the Reorganized
Debtors, the Executive may seek employment in the gaming industry and may be
employed by companies engaging in gaming both within and without the City of Las
Vegas, State of Nevada and the provisions of this paragraph are not intended to
restrict or impair the Executive in utilizing his skills and expertise in any
future employment.
7. Governing Law. This Agreement shall be construed and governed by the
laws of the State of Nevada, and any action between the parties shall be
maintained only within the applicable state or federal court located in Clark
County, Nevada.
8. Assignability; Binding Effect. This Agreement is personal to each of the
parties hereto, and neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent of the other
party. This Agreement shall be binding upon, and inure to the benefit of, the
parties and their respective heirs, executors, legal representatives, successors
and assigns.
9. Enforceability. If any of the provisions contained in this Agreement,
for any reason and to any extent, are construed to be invalid or unenforceable,
the remainder of this Agreement, and the application of the remaining covenants
to other persons or circumstances, shall not be affected thereby, but rather
shall be enforced to the greatest extent permitted by law.
10. Entire Agreement; Amendment. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended, waived, changed, modified or discharged
except by an instrument in writing executed by or on behalf to the party or
parties against whom any amendment, waiver, change, modification or discharge is
sought to be enforced.
11. Notices. Notices to or for the respective parties shall be given in
writing and delivered in person or mailed by certified or registered mail,
addressed to the respective party at the address as set out below, or at such
other address as either party may elect to provide in advance in writing, to the
other party:
The Executive: Thomas A. Lettero
_____________________________
_____________________________
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<PAGE> 5
The Corporation: Stratosphere Corporation
2000 S. Las Vegas Blvd.
Las Vegas, Nevada 89101
Attn: Andrew S. Blumen
with a copy to: Gordon & Silver, Ltd.
3800 Howard Hughes Parkway
14th Floor
Las Vegas, Nevada 89109
Attn: Gerald M. Gordon, Esq.
12. Cumulative Effect; No Waiver. The several rights and remedies provided
for in this Agreement shall be construed as being cumulative, and no one of them
shall be deemed to be exclusive of the others or of any right or remedy allowed
by law. No waiver by the Corporation or the Executive of any failure by the
Executive or the Corporation, respectively, to keep or perform any provision of
this Agreement shall be deemed to be a waiver of any proceeding or succeeding
breach of the same or other provision.
Intending to be legally bound, the parties hereto have executed this
Agreement as of the date above first written.
EXECUTIVE: DEBTORS:
Stratosphere Corporation, a Delaware
_______________________________________ corporation
Thomas A. Lettero
By:__________________________________
Andrew S. Blumen, President
Stratosphere Gaming Corp.,
a Nevada corporation
By:__________________________________
Andrew S. Blumen, President
5
<PAGE> 1
Exhibit 10(17)
CERTIFICATE OF FORMATION
OF
STRATOSPHERE LITIGATION, L.L.C.
The undersigned, an authorized natural person, for the purpose of forming a
limited liability company under the provisions and subject to the requirements
of the State of Delaware (particularly Chapter 18, Title 6 of the Delaware Code
and the acts amendatory thereof and supplemental thereto, and known, identified,
and referred to as the "Delaware Limited Liability Company Act"), hereby
certifies that:
FIRST: The name of the limited liability company (hereinafter called the
"limited liability company") is Stratosphere Litigation, L.L.C.
SECOND: The address of the registered office and the name and the address
of the registered agent for service of process of the limited liability company
required to be maintained by Section 18-104 of the Delaware Limited Liability
Company Act are The Corporation Trust Company, 1209 Orange Street, Wilmington,
County of Newcastle, Delaware 19801.
Executed on October , 1998.
____________________________________
Thomas A. Lettero, Authorized Person
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
This instrument was acknowledged before me on October , 1998 by Thomas A.
Lettero on behalf of Stratosphere Litigation, L.L.C.
____________________________________
Notary Public
<PAGE> 1
Exhibit 10(18)
--------------------------------------------------------------------------
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MEMBERS' AGREEMENT
OF
STRATOSPHERE LITIGATION, L.L.C.
A LIMITED LIABILITY COMPANY
As of October 14, 1998
--------------------------------------------------------------------------
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<PAGE> 2
TABLE OF CONTENTS
Page
FORMATION OF THE COMPANY.......................................................1
1.1 Name and Formation...................................................1
1.2 Membership Units.....................................................2
1.3 Offices..............................................................4
1.4 Term of the Company..................................................4
1.5 Purposes.............................................................4
CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS........................................4
1.6 Initial Capital Contributions........................................4
1.7 Admission of Additional Members......................................5
1.8 Additional Capital Contributions.....................................5
1.9 No Withdrawal........................................................5
1.10 Capital Accounts, Allocations and Related Matters....................5
1.10.1 Capital Accounts..............................................5
1.10.2 Allocations of Book Income and Loss...........................5
1.10.3 Advances from Members.........................................5
1.10.4 No Interest...................................................6
1.11 Partnership Classification for Tax Purposes..........................6
MANAGEMENT AND OPERATIONS......................................................6
1.12 Management of Company................................................6
1.13 Specific Authority and Responsibilities of the Board of Managers.....7
1.13.1 Prosecution of Claims.........................................7
1.13.2 Retention of Attorneys, Accountants and Other Professionals...7
1.14 Composition of Board of Managers.....................................7
1.15 Additional Powers of the Board of Managers...........................9
1.16 Funding of Company; Operating Accounts...............................9
1.16.1 Operating Account.............................................9
1.16.2 Investment of Company Funds...................................9
1.17 Limitations on Power and Authority of the Board of Managers.........10
1.18 Reports to Members..................................................10
1.19 Appointment of Administrator; Compensation..........................10
1.20 Resignation or Removal of the Administrator.........................10
1.20.1 Resignation..................................................10
1.20.2 Removal......................................................11
1.20.3 Appointment of Successor Administrator.......................11
1.20.4 Effect of Resignation or Removal.............................11
1.21 Indemnity...........................................................11
1.21.1 Indemnity of Managers and Members............................11
1.21.2 Future Laws..................................................12
1.21.3 Insurance....................................................12
1.22 Additional Indemnity Matters........................................12
1.22.1 Waiver of Indemnity Rights...................................12
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1.22.2 Certain Related Rights ....................................... 12
1.23 Actions of Members .................................................. 12
1.24 Company Liabilities ................................................. 12
1.25 Power of Attorney ................................................... 13
1.26 Other Activities of the Member of the Board of Managers ............. 13
1.27 Debtor-Owned Litigation Claims....................................... 13
DISTRIBUTIONS ............................................................... 14
1.28 Distribution of Proceeds; Effect of Final Class A Distribution ...... 14
1.29 Applications of Proceeds ............................................ 14
TRANSFER OF MEMBERSHIP UNITS ................................................ 15
1.30 Restrictions on Transfer by General Members ......................... 15
1.31 Unrestricted Transfers .............................................. 15
1.32 Restrictions on Transfers by Stratosphere ........................... 16
1.33 After-Acquired Membership Units ..................................... 16
1.34 Specific Performance ................................................ 16
1.35 Records of the Company; Void Transfers .............................. 16
1.36 Withdrawal .......................................................... 16
DISSOLUTION AND LIQUIDATION ................................................. 16
1.37 Dissolution ......................................................... 16
1.38 Certificate of Cancellation ......................................... 17
1.39 Procedures .......................................................... 17
1.39.1 Liquidation of Assets ....................................... 17
1.39.2 Authority of Liquidating Agent .............................. 17
1.39.3 Distribution of Assets ...................................... 17
1.39.4 No Recourse to Assets of Members ............................ 17
1.40 Termination of this Agreement ....................................... 17
FISCAL AND ADMINISTRATIVE MATTERS ........................................... 18
1.41 Fiscal Year ......................................................... 18
1.42 Deposits ............................................................ 18
1.43 Checks, Drafts, Etc ................................................. 18
1.44 Books and Records ................................................... 18
1.44.1 Right of Inspection .......................................... 18
1.44.2 Financial Records ............................................ 18
1.45 Administrative Matters .............................................. 18
1.45.1 Tax Matters Partner ......................................... 18
1.45.2 Cooperation ................................................. 19
1.45.3 Filings ..................................................... 19
1.45.4 Authorization ............................................... 19
1.45.5 Reporting to Members ........................................ 19
1.46 Compliance with Securities Laws ..................................... 19
MISCELLANEOUS ............................................................... 19
1.47 Notices ............................................................. 19
1.48 Extension Not a Waiver .............................................. 20
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1.49 Entire Agreement; Amendments; No Third Party Beneficiaries .......... 20
1.50 Governing Law ....................................................... 21
1.51 Venue ............................................................... 21
1.52 Headings ............................................................ 21
1.53 Severability ........................................................ 21
1.54 Certain Defined Terms ............................................... 21
1.55 Successors .......................................................... 23
1.56 No Suits by Members ................................................. 23
1.57 Involvement of the Company in Certain Proceedings ................... 23
1.58 Waiver of Partition and Certain Other Rights ........................ 24
1.59 Member Meetings; Member Approvals ................................... 24
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<PAGE> 5
MEMBERS' AGREEMENT
This MEMBERS' AGREEMENT (this "Agreement") is made and entered into as of
October 14, 1998 (the "Effective Date") by and among Stratosphere Corporation, a
Delaware corporation ("Stratosphere"), and those persons who are from time to
time named as additional members (the "General Members") on the books and
records of Stratosphere Litigation, L.L.C., a Delaware limited liability company
(the "Company").
RECITALS
A. Stratosphere has caused the Company to be formed in connection with the
reorganization of Stratosphere and Stratosphere Gaming Corp., a Nevada
corporation ("Gaming Corp." and, together with Stratosphere, the "Debtors"),
pursuant to a Second Amended Plan of Reorganization (as the same may be amended
from time to time, the "Plan") filed in the United States Bankruptcy Court for
the District of Nevada (the "Bankruptcy Court") in Case Nos. 97-20554-GWZ and
97-20555-GWZ. Capitalized terms used but not defined herein have the respective
meanings ascribed to such terms in the Plan.
B. The Plan provides for, among other things, (i) the contribution,
transfer, and assignment by the Debtors to the Company of their claims and
causes of action against Grand relating to the Standby Equity Commitment (the
"Debtor-Contributed Litigation Claims"), together with $100 in cash, in exchange
for the issuance to Stratosphere of all of the Class B Membership Units (as
defined below) and all of the Class C Membership Units (as defined below), (ii)
the contribution, transfer and assignment by holders of Allowed Secured Claims
under the Original First Mortgage Notes ("Class 6 Holders") of (a) their
respective Original First Mortgage Notes and (b) all claims and causes of action
they have relating to the Original First Mortgage Notes (including without
limitation the Standby Equity Commitment) (the "Noteholder Litigation Claims"
and, together with the Debtor-Contributed Litigation Claims, the "Company-Owned
Litigation Claims"), (iii) the satisfaction and discharge of the Allowed Secured
Claims under the Original First Mortgage Notes in exchange for the issuance by
Stratosphere to Class 6 Holders of shares of Common Stock of Stratosphere and
the distribution by Stratosphere to Class 6 Holders of the Class A Membership
Units (as defined below), and (iv) the appointment of the Company as Debtors"
agent and representative to prosecute, settle, liquidate and/or abandon all
Litigation Claims other than the Debtor-Contributed Litigation Claims (the
"Debtor-Owned Litigation Claims") on behalf of the Debtors.
NOW, THEREFORE, Stratosphere, as the sole initial Member (as defined
below), and each of the General Members (upon becoming such) agree as follows:
I. FORMATION OF THE COMPANY
1.1 Name and Formation. The name of the Company is Stratosphere
Litigation, L.L.C. The Company is a limited liability company organized under
the Delaware Limited Liability Company Act (Delaware Code Annotated, Title 6,
SubSections 18-101 through 18-1109) (the "Delaware Act"). The Company is a
separate legal entity. The Company and all ownership
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<PAGE> 6
interests in the Company will be governed by this Agreement and, except as
modified by this Agreement, by the Delaware Act.
1.2. Membership Units. (a) The owners of the Company will be known as
"Members." The ownership interest of a Member will be designated as a
"Membership Unit." The Company will have the following classes of Membership
Units: (i) one "Class B Membership Unit," which will be held by Stratosphere
during the Company's existence, (ii) 2,030,000 "Class C Membership Units," which
will be held by Stratosphere pending the surrender thereof by Stratosphere for
cancellation from time to time in exchange for an equivalent number of Class A
Membership Units to be distributed by Stratosphere pursuant to the Plan, and
(iii) up to 2,030,000 "Class A Membership Units," which will be distributed by
Stratosphere pursuant to the Plan to Class 6 Holders. Membership Units will be
issued only as specifically provided for in this Agreement and there shall be
outstanding a total of 2,030,001 Membership Units (one of which will be the
Class B Unit). Membership Units will constitute personal property, and no Member
will have a claim to or interest in specific property of the Company. Each of
the Class A Membership Units, the Class B Membership Unit, and the Class C
Membership Units will have the relative preferences, rights, limitations or
restrictions as set forth in this Agreement.
(b) The Class B Membership Unit and each Class C Membership
Unit will be represented solely by an entry in the books for registration and
transfer of Membership Units provided for in Section 1.2(d). Each Class A
Membership Unit will be evidenced by, and subject to the terms of, a Membership
Unit certificate (a "Membership Certificate") in substantially the form of
Exhibit A, with such changes, marks of identification or designation, and such
legends, summaries, or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto.
(c) The Membership Certificates will be executed on behalf of
the Company by the manual or facsimile signature of the Administrator (as
defined below).
(d) The Administrator will keep or cause to be kept, at the
principal office of the Company or its agent designated for such purpose, books
for registration and transfer of the Membership Certificates issued hereunder.
Such books will show, in addition to the Class B Membership Unit and the Class C
Membership Units held by Stratosphere, the names and addresses of the
respective holders of the Membership Certificates, the number of Class A
Membership Units evidenced by each of the Membership Certificates, and the date
of each of the Membership Certificates. The Company and its agent will be
entitled to treat the registered holder of any Membership Certificate as the
sole owner of the Class A Membership Units represented by such Membership
Certificate for all purposes and will not be bound to recognize any equitable
or other claim or interest in such Class A Membership Units on the part of any
other Person (as defined below). The Board of Managers (as defined below) will
be entitled to establish such record dates as it deems appropriate from time to
time for purposes of determining the Members entitled to receive distributions
or notices or to exercise voting rights and for such other purposes as the
Board of Managers deems expedient.
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(e) In connection with each distribution of Class A Membership Units
required to be made pursuant to the Plan, Stratosphere will instruct the Company
or its agent designated for such purpose that Stratosphere desires to surrender
for cancellation a specified number of Class C Membership Units in exchange for
the issuance and delivery to Stratosphere of a like number of Class A Membership
Units, to be evidenced by Membership Certificates in such denominations and
registered in the names of such Class 6 Holders (or the designees thereof) as
may be specified in such instruction, to be distributed by Stratosphere pursuant
to the Plan. All Class A Membership Units transferred by Stratosphere to Class 6
Holders on any date after the Effective Date shall be deemed for purposes of
this Agreement to have been issued in exchange for Class C Membership Units and
distributed at the end of the last day of the fiscal quarter next preceding the
fiscal quarter during which such issuance and distribution occurs or, if there
is no such preceding fiscal quarter, the Effective Date. All General Members
agree to file all federal, state, and local tax returns in a manner that is
consistent with the preceding sentence.
(f) Subject to the provisions of Article V in respect of Transfers
(as defined below), any Membership Certificate may be transferred, split up,
combined, or exchanged for another Membership Certificate or Membership
Certificates. Any Member desiring to transfer, split up, combine, or exchange
any such Membership Certificate will make such request in writing delivered to
the Administrator, and will surrender the Membership Certificate or Membership
Certificates to be transferred, split up, combined, or exchanged, with a form of
assignment duly executed by such Member, at the principal office of the Company
or its agent designated for such purpose. Thereupon or as promptly as
practicable thereafter, the Company or its agent will prepare, execute, and
deliver the Membership Certificate or Membership Certificates, as the case may
be, as so requested. Neither the Company nor its agent will be required to issue
or deliver any Membership Certificates in connection with any transfer, split
up, combination, or exchange of Membership Certificates unless and until the
Member requesting the issuance or delivery thereof has paid to the Administrator
the amount of any tax or governmental charge that may be payable in connection
with such transfer, split up, combination, or exchange or has established to the
satisfaction of the Administrator that any tax or governmental charge has been
paid.
(g) Upon receipt by the Company of evidence reasonably satisfactory
to the Administrator of the loss, theft, destruction, or mutilation of a
Membership Certificate, and, in case of loss, theft, or destruction, of
indemnity or security reasonably satisfactory to the Administrator, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender to the Company and cancellation of the Membership Certificate if
mutilated, the Administrator will prepare, execute, and deliver a new Membership
Certificate of like tenor to the Member in lieu of the Membership Certificate so
lost, stolen, destroyed, or mutilated.
(h) All Membership Certificates surrendered for the purpose of
transfer, split-up, combination, or exchange will be delivered to the Company or
its agent designated for such purpose for cancellation and will be canceled by
the Company or such agent, and no Membership Certificates will be issued in lieu
thereof except as expressly provided in this Agreement.
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<PAGE> 8
1.3. Offices. The initial registered agent of the Company is The
Corporation Trust Company, and the address of the initial registered office of
the Company is 1209 Orange Street, Wilmington, Delaware 19801. The principal
office of the Company will be maintained at the principal office of the
Administrator, or such other location as may be designated by the Board of
Managers.
1.4 Term of the Company. The Company's existence will commence on the
date hereof (the "Commencement Date") and will continue until the fifth
anniversary of the Effective Date, unless sooner terminated in accordance with
Article VI; provided, however, that in the event that the liquidation and
distribution of all Company Assets (as defined below) in accordance with this
Agreement shall not have then been completed, the existence of the Company may
be extended by the Board of Managers, with the approval of the Bankruptcy Court
for good cause shown, for one or more successive periods of two years each. In
no event will the Company's existence continue after the liquidation and
distribution of all Company Assets in accordance with this Agreement shall have
been completed.
1.5. Purposes. The Company is organized for the exclusive purposes of (a)
prosecuting, settling, liquidating, and/or abandoning (i) the Company-Owned
Litigation Claims and (ii) on behalf of the Debtors, the Debtor-Owned Litigation
Claims, (b)(i) receiving and administering the Company Assets and (ii) on behalf
of the Debtors, administering the Debtor-Owned Litigation Claims, all recoveries
thereon and all direct or indirect proceeds of the foregoing (including without
limitation the interest or other earnings thereon), and (c)(i) distributing the
Company Assets to the Members in accordance with this Agreement and (ii) making
payments to the Debtors pursuant to Section 3.16(b). The Company has no
objective to engage in or continue the conduct of a trade or business. Except as
otherwise provided in the Delaware Act or by other applicable law, the Company
will have the power to do all things necessary or convenient to effect any or
all of its purposes.
II. CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS
2.1. Initial Capital Contributions. As of the Commencement Date,
Stratosphere will make an initial contribution to the capital of the Company in
the amount of One Hundred Dollars ($100). On the Effective Date, the Debtors
will contribute, transfer, and assign to the Company, in accordance with the
Plan, all of their respective rights, title, and interest in and to the
Debtor-Contributed Litigation Claims. Such contributions, transfers, and
assignments shall be treated as contributions by Stratosphere to the capital of
the Company. In addition, the Plan provides that, as a condition to the
distribution of any property under the Plan to any Class 6 Holder, such Class 6
Holder must contribute, transfer and assign to the Company, in accordance with
the Plan, all Original First Mortgage Notes held by such Class 6 Holder and such
Class 6 Holder's Noteholder Litigation Claims. In consideration for the initial
contribution of One Hundred Dollars ($100) by Stratosphere and the
contributions, transfers and assignments of the Debtor-Contributed Litigation
Claims to be made by the Debtors pursuant to the Plan, one Class B Membership
Unit and 2,030,000 Class C Membership Units will be issued to Stratosphere on
the Commencement Date. As partial consideration for the contribution by the
Class 6 Holders of their Original First
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Mortgage Notes and the Noteholder Litigation Claims, the Class 6 Holders shall
be entitled to receive the distributions described in Section 4.1.
2.2. Admission of Additional Members. From and after the Effective Date,
Class A Membership Units will be issued and delivered to Stratosphere for
distribution to Class 6 Holders in accordance with Section 1.2(e). Upon such
issuance and delivery, the Persons in whose name such Class A Membership Units
are registered will be admitted to the Company as General Members. Similarly,
each Person to whom record ownership of a Class A Membership Unit is
subsequently transferred in accordance with Section 5.2 will be admitted to the
Company as a General Member upon the registration of such transfer.
2.3. Additional Capital Contributions. Except as provided for in Section
2.1, no Member will have any obligation to, nor will any Member be entitled to,
make any additional contributions to the capital of the Company.
2.4. No Withdrawal. No Member will be entitled to withdraw any portion of
its contribution or Capital Account (as defined in Appendix A), or to receive
any distribution from the Company, except as otherwise provided in this
Agreement.
2.5. Capital Accounts, Allocations and Related Matters.
2.5.1 Capital Accounts. A Capital Account will be maintained for
each Member in the manner set forth in Article II of Appendix A, which is
attached hereto and is a part of this Agreement.
2.5.2 Allocations of Book Income and Loss. Except to the extent
modified by the provisions of Article III of Appendix A, the Company's Book (as
defined in Appendix A) income and Book loss for any fiscal year will be
allocated as follows:
(a) Book loss funded by and any cancellation of indebtedness
income arising from forgiveness of a Member advance will be allocated to the
Member that made the advance.
(b) Book income will be allocated first to repayments of Member
advances and then to each holder of a Class A Membership Unit based on its
Class A Sharing Percentage (as defined below).
(c) Book income and book loss will not include any amount received
or expended by the Company with respect to a Debtor-Owned Litigation Claim.
2.5.3 Advances from Members. (a) At the request of the Board of
Managers, Stratosphere will, from time to time, advance to the Company up to
Five Million Dollars ($5,000,000) in the aggregate for payment of the
Company-Owned Litigation Administrative Expenses (as defined below) as and when
incurred. All amounts advanced under this Section 2.5.3(a) shall be evidenced
by a promissory note in favor of Stratosphere and shall bear interest at a rate
of ten percent (10%) per annum.
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(b) Advances by Members to the Company, including any advance
pursuant to Section 2.5.3(a) hereof, will not be deemed a capital contribution
to, or be reflected on the balance of, any Capital Account. The amount of any
such advance will be a debt due from the Company to such Member and, except as
otherwise expressly provided in this Agreement or as agreed between such Member
and the Board of Managers at the time such funds are advanced, will be repaid as
soon as practicable to such Member.
2.5.4 No Interest. No interest will be paid by the Company on (a) any
capital contribution, (b) the balance of any Capital Account, or (c) unless
otherwise agreed to by the Board of Managers, any advance to the Company from
any Member (other than an advance pursuant to Section 2.5.3(a)).
2.6 Partnership Classification for Tax Purposes. Each Member recognizes and
intends that for federal income tax purposes the Company will be classified as a
partnership, and the Members will not make any election or take any action that
would cause the relationship of the Members under this Agreement to be excluded
from the application of all or any part of Subchapter K of Chapter 1 of Subtitle
A of the Code (as defined in Appendix A) or from any successor provisions to
Subchapter K under the Code or from any similar provisions of applicable state
laws.
III. MANAGEMENT AND OPERATIONS
3.1 Management of Company. (a) The Company Assets will be administered, and
the business and affairs of the Company will be managed, by the Board of
Managers. The Board of Managers will make continuing efforts to carry out the
purposes of the Company set forth in Section 1.5 in an expeditious but orderly
manner intended reasonably to maximize the value of any distributions to the
Members entitled thereto and any recoveries in respect of the Debtor-Owned
Litigation Claims.
(b) No member of the Board of Managers will be liable or
accountable, in damages or otherwise, to the Company or to any Member for
anything he or she may do or refrain from doing, except in the case of his or
her willful breach of a material provision of this Agreement or gross negligence
in connection with the performance of his or her duties hereunder.
(c) A member of the Board of Managers may rely on, and will be
fully protected personally in acting upon, any resolution, statement,
certificate, instrument, opinion, report, notice, request, consent, order, or
other instrument or document that he or she has no reason to believe to be other
than genuine and to have been signed or presented other than by the proper party
or parties or, in the case of facsimile transmissions, to have been sent other
than by the proper party or parties, in each case without obligation to satisfy
himself or herself that the same was given in good faith and without
responsibility for errors in delivery, transmission, or receipt. In the absence
of his or her gross negligence or willful breach of this Agreement, a member of
the Board of Managers may rely on the truth of statements and the correctness
of the facts and opinions expressed therein and will be fully protected
personally in acting thereon. A member of the Board of Managers may consult
with legal counsel and will be fully protected in
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respect of any action taken or suffered by him or her in accordance with the
written opinion of legal counsel.
3.2 Specific Authority and Responsibilities of the Board of Managers.
3.2.1 Prosecution of Claims. (a) The Board of Managers is empowered to
prosecute all Company-Owned Litigation Claims, and, on behalf of the Debtors,
Debtor-Owned Litigation Claims, and to take all actions and execute all
instruments and documents in connection therewith.
(b) Subject to the retained jurisdiction of the Bankruptcy Court
as provided for in the Plan, the Board of Managers is empowered to settle,
liquidate, or abandon any Company-Owned Litigation Claim, or, on behalf of the
Debtors, Debtor-Owned Litigation Claim, based upon the assessment of the Board
of Managers, with the advice of counsel and consultants retained by the Board of
Managers, of (i) the likelihood that the Company or the Debtors, as the case may
be, would prevail on the merits, (ii) the possible recovery on such Company-
Owned Litigation Claim, or such Debtor-Owned Litigation Claim, (iii) the
estimated cost (and attendant delay) or prosecuting such Company-Owned
Litigation Claim, or such Debtor-Owned Litigation Claim, to judgment, (iv) the
offer of settlement or liquidation, (v) the resources of the Company that are
available for prosecuting such Company-Owned Litigation Claim, and the resources
that Stratosphere is willing to make available for prosecuting such Debtor-Owned
Litigation Claim, and (vi) and other matters that the Board of Managers deems to
be relevant to such assessment.
3.2.2 Retention of Attorneys, Accountants and Other Professionals.
(a) The Board of Managers may retain such independent experts and advisors
(including, but not limited to, law firms, tax advisors, consultants, or other
professionals) as the Board of Managers may select to aid in the performance of
its duties and responsibilities hereunder and to perform such other functions as
may be appropriate in furtherance of the intent and purpose of this Agreement.
(b) The Board of Managers may commit the Company to provide such
professional persons or entities reasonable compensation and reimbursement from
the Company Assets for services rendered and expenses incurred. The Board of
Managers will make all reasonable and customary arrangements for payment or
reimbursement of such compensation and expenses and will cause the same to be
paid from the Operating Account (as defined below) as Company-Owned Litigation
Administrative Expenses (as defined below).
3.3. Composition of Board of Managers. (a) The Board of Managers of the
Company ("Board of Managers") will consist of three individuals. The initial
members of the Board of Managers will be three persons specified in the
Confirmation Order as having been designated as such jointly by Nybor Limited
Partnership and Nevar LLC (collectively, the "Majority Noteholder"), each of
whom will hold office for an indefinite term commencing on the Effective Date.
In the event of any vacancy created by the death or resignation of a member, the
Majority Noteholder shall designate a successor to fill such vacancy; provided,
however, that if the Majority Noteholder then owns less than twenty percent
(20%) of the outstanding Class A Membership Units, the remaining members of the
Board of Managers shall designate such
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successor to fill such vacancy. Notwithstanding the foregoing provisions of this
Section 3.3(a), any resigning member of the Board of Managers (or any member
removed pursuant to Section 3.3(b) below) shall continue to serve as a member
after his resignation (or removal, as the case may be) until a successor member
has been duly appointed and qualified.
(b) The holders of eighty percent (80%) of the outstanding Class A
Membership Units (such holders, the "Required Majority") may at any time, with
or without cause and in their sole discretion, vote to remove one or more
members of the Board of Managers. In the event that fewer than all three of the
members of the Board of Managers are removed pursuant to this Section 3.3(b),
any resulting vacancy or vacancies, as the case may be, shall be filled by the
remaining member(s) of the Board of Managers. In the event that all three of the
members of the Board of Managers are removed pursuant to this Section 3.3(b), a
new Board of Managers shall be appointed by vote of the Required Majority;
provided, however, that such removed members will continue to serve as members
after their removal until the new Board of Managers has been duly appointed and
qualified.
(c) Notwithstanding anything to the contrary in this Agreement, at any
time from and after the occurrence of a Final Class A Distribution (as defined
below), the holder of the Class B Membership Unit may (i) with or without cause
and in its sole discretion, remove one or more members of the Board of Managers
and (ii) fill any and all vacancies on the Board of Managers, whether resulting
from such removal or otherwise.
(d) All Board of Managers' approvals, concurrences, disapprovals, votes,
determinations, and other actions will be authorized by a majority of the
members of the Board of Managers at a meeting, duly called in accordance with
Section 3.3(e), at which a majority of the members are present personally or
participate by telephone. The Administrator will keep or cause to be kept
minutes of all such meetings and will cause such minutes to be placed in the
books and records of the Company as contemplated by Section 7.4. The members of
the Board of Managers will serve without compensation. The Company will
reimburse each member of the Board of Managers for his or her reasonable
out-of-pocket expenses incurred in connection with the proceedings of the Board
of Managers.
(e) Meetings of the Board of Managers may be called by the Administrator
or any member of the Board of Managers whenever necessary to consider matters of
the nature covered by Sections 3.1, 3.2, 3.8, or 3.9 and at such other times as
the Administrator or of any such member in his or her sole discretion
determines. Notice of each meeting will be given by the Administrator or member
of the Board of Managers calling such meeting by telephone, facsimile
transmission, or hand delivery to each member of the Board of Managers at least
seventy-two (72) hours prior to the time at which the meeting is to be held.
Such notice will be deemed waived by participation in a meeting.
(f) Notwithstanding anything to the contrary in this Agreement, no member
of the Board of Managers will have any liability to the Company, the
Administrator, or any Member based upon or relating to any act or failure to act
by such member of the Board of Managers as a whole.
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3.4 Additional Powers of the Board of Managers. (a) Except as otherwise
provided in this Agreement, the Plan, or the Confirmation Order, and subject to
the retained jurisdiction of the Bankruptcy Court as provided for in the Plan,
the Board of Managers may control and exercise authority over the Company
Assets, over the acquisition, management, and disposition thereof, and over the
management and conduct of the Company to the extent necessary to enable the
Board of Managers to fulfill the intent and purposes of this Agreement. No
person dealing with the Company will be obligated to inquire into the authority
of the Board of Managers in connection with the acquisition, management, or
disposition of the Company Assets.
(b) In connection with the administration of the Company Assets and
the management of the Company's business and affairs, the Board of Managers,
except as otherwise expressly limited in this Agreement, the Plan, or the
Confirmation Order, will have, in addition to any powers conferred upon the
Board of Managers by any other provision of this Agreement, the power to take
any and all actions as, in the Board of Managers' discretion, are necessary or
advisable to effectuate the purposes of the Company, including without
limitation the power and authority (i) to distribute the Company Assets to
Members in accordance with the terms of this Agreement, (ii) to sell, convey,
transfer, assign, liquidate, or abandon the Company Assets (including without
limitation the Company-Owned Litigation Claims), or any part thereof or any
interest therein, upon such terms and for such consideration as the Board of
Managers, in its sole discretion, may deem desirable, (iii) to endorse the
payment of notes or other obligations of any Person or to make contracts with
respect thereto, (iv) to borrow such sums of money, at any time and from time to
time, for such periods of time, upon such terms and conditions, from such
Persons, for such purposes as may be deemed advisable, and (v) to appoint,
engage, supervise, and compensate such officers, employees, and agents of the
Company and such other Persons, as may be deemed necessary or desirable. The
Board of Managers will not at any time, on behalf of the Company or the Members,
enter into or engage in any trade or business, and no part of the Company Assets
will be used or disposed of by the Board of Managers in futherance of any such
trade or business.
(c) All decisions and actions taken by the Board of Managers under
the authority of Sections 3.1, 3.2 or this Section 3.4 will be binding upon all
of the Members and the Company.
3.5 Funding of Company; Operating Accounts.
3.5.1 Operating Account. The Company will maintain in the
Operating Account all funds received (including loan proceeds received pursuant
to Sections 2.5.3(a) and 3.4(b)(iv)) and recoveries in respect of the
Company-Owned Litigation Claims, subject to expenditures in accordance with
Sections 3.2.2 and 3.8(b) and distributions made in accordance with Article IV.
3.5.2 Investment of Company Funds. All funds received by the
Company may be temporarily invested by the Board of Managers in United States
treasury bills and notes with maturities of twelve (12) months or less,
institutional money market funds, and demand or time deposits and certificates
of deposit with commercial banks organized under the laws of the
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United States, or any State thereof, having primary capital of not less than
Five Hundred Million Dollars ($500,000,000).
3.6. Limitations on Power and Authority of the Board of Managers. Without
the consent of all of the Members, the Board of Managers will not have the
authority to do any of the following:
(a) Take any action in contravention of this Agreement;
(b) Take any action which would make it impossible to carry on
the activities of the Company; or
(c) Possess property of the Company or assign the Company's
rights in specific property for other than Company purposes.
3.7. Reports to Members. The Board of Managers will cause the Company to
furnish to the Members, promptly after the filing thereof with the Securities
and Exchange Commission (the "SEC"), each Annual Report on Form 10-K filed by
the Company with the SEC (or, if the Company is not required to file an Annual
Report on Form 10-K in respect of a particular fiscal year, to furnish to the
Members, within a comparable time frame following the end of such fiscal year,
an annual report containing a description of the Company's activities during
such fiscal year and the status and results of the Board of Managers' efforts to
achieve the purposes set forth in Section 1.5, together with such audited
financial statements or other audited financial information as the Board of
Managers deems to be appropriate in respect of such fiscal year).
3.8. Appointment of Administrator: Compensation. (a) The Company will
have an administrator, who will initially be a person to be appointed by the
Board of Managers on the Effective Date (together with any successor
Administrator appointed pursuant to Section 3.9, the "Administrator"). In
addition to the duties of the Administrator specified elsewhere herein, the
Board of Managers may delegate to the Administrator such of its rights and
powers to manage and control the business and affairs of the Company as the
Board of Managers deems appropriate.
(b) The Administrator will receive such compensation for
services to the Company as determined by the Board of Managers. In addition,
the Company will reimburse the Administrator for the reasonable expenses
incurred by him in connection with the performance of his or her duties
hereunder.
3.9. Resignation or Removal of the Administrator.
3.9.1 Resignation. The Administrator may resign as administrator by
executing an instrument in writing and delivering it to the Board of Managers;
provided, however, that the Administrator will continue to serve as
Administrator after his or her resignation until the time when appointment of a
successor Administrator becomes effective in accordance with Section 3.9.3.
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3.9.2 Removal. The Board of Managers may at any time remove the
Administrator, with or without cause, in its sole discretion; provided, however,
that the Administrator will continue to serve as Administrator after his or her
removal until the time when appointment of a successor Administrator will become
effective in accordance with Section 3.9.3.
3.9.3 Appointment of Successor Administrator. In the event of the death,
resignation, incompetency, or removal of the Administrator, the Board of
Managers will have the right to appoint a successor Administrator. Such
appointment will specify the date on which such appointment will be effective.
Every successor Administrator appointed hereunder will execute, acknowledge, and
deliver to the departing Administrator an instrument accepting such appointment,
and thereupon such successor Administrator, without any further act, deed, or
conveyance, will become vested with all the rights, powers, and duties of the
departing Administrator hereunder.
3.9.4 Effect of Resignation or Removal. The death, resignation,
incompetency, or removal of the Administrator will not operate to revoke any
existing agency created under the terms of this Agreement or invalidate any
action theretofore taken by such Administrator. In the event of the resignation
or removal of the Administrator, such Administrator will promptly (a) execute
and deliver such documents, instruments, and other writings as may be reasonably
requested by the successor Administrator to effect the termination of such
Administrator's capacity under this Agreement, (b) deliver to the successor
Administrator all documents, instruments, records, and other writings related to
the Company as may be in the possession of such Administrator (provided that
such Administrator may retain one copy of such documents for archival purposes),
and (c) otherwise assist and cooperate in effecting the assumption of its
obligations and functions by such successor Administrator.
3.10. Indemnity.
3.10.1 Indemnity of Managers and Members. To the fullest extent permitted
by the Delaware Act, the Company, to the extent of its assets legally available
for that purpose, will indemnify and hold harmless the members of the Board of
Managers, the Administrator, the Tax Matters Partner (as defined below), and any
partner, shareholder, director, officer, agent, affiliate, and professional or
other advisor of any of them (collectively, the "Indemnified Persons") from and
against any and all loss, cost, damage, expense (including without limitation
fees and expenses of attorneys and other advisors and any court costs incurred
by any Indemnified Person), or liability by reason of anything any Indemnified
Person does or refrains from doing for, or in connection with the business or
affairs of, the Company, except to the extent that it is finally judicially
determined by a court of competent jurisdiction that the loss, cost, damage,
expense, or liability resulted primarily from the Indemnified Person's gross
negligence or willful breach of a material provision of this Agreement which in
either event causes actual material damage to the Company. The Company may pay
in advance or reimburse reasonable expenses (including advancing reasonable
costs of defense) incurred by the Indemnified Person who is or is threatened to
be named or made a defendant or a respondent in a proceeding concerning the
business and affairs of the Company. The Company may also enter into indemnity
contracts
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with Indemnified Persons and adopt written procedures pursuant to which
arrangements are made for the advancement of expenses and the funding of
obligations and containing such other procedures regarding indemnification as
are appropriate.
3.10.2 Future Laws. To the extent future enactments or judicial decisions
permit an expansion of the rights of indemnification afforded to the Indemnified
Persons by the Company, then it is the Members' express intention and agreement
that this Section 3.10 immediately and automatically be deemed to be amended so
as to permit and authorize the indemnification of the Indemnified Persons by the
Company to the maximum extent permitted by law. The Administrator is authorized
and empowered to execute, on behalf of all Members, such amendments to this
Agreement as may be appropriate to give further effect to this Section 3.10.
3.10.3 Insurance. To the extent commercially reasonable, the Board of
Managers will cause the Company to purchase and maintain insurance, to the
extent and in such amounts as the Board of Managers deems reasonable, on behalf
of the members of the Board of Managers, the Administrator, and such other
Persons as the Board of Managers deems appropriate, against any liability that
may be asserted against or expenses that may be incurred by any such Person in
connection with the activities of the Company or such indemnitees, regardless of
whether the Company would have the power to indemnify such Persons against such
liability or expenses under the provisions of this Agreement.
3.11. Additional Indemnity Matters.
3.11.1 Waiver of Indemnity Rights. Any Indemnified Person may waive the
benefits of indemnification under Section 3.10, but only by an instrument in
writing executed by such Indemnified Person.
3.11.2 Certain Related Rights. The rights to indemnification under
Section 3.10 are not exclusive of other rights which any Indemnified Person may
otherwise have at law or in equity, including without limitation common law
rights to indemnification or contribution. Nothing in Section 3.10 or this
Section 3.11 will affect the rights or obligations of any Person (or the
limitations on those rights or obligations) under any other agreement or
instrument to which that Person is a party.
3.12 Actions of Members. Except as otherwise expressly provided for in this
Agreement, the Members may not act for or bind the Company or participate in the
general management, conduct, or control of the Company's business or affairs.
Nothing contained in this Section 3.12 will prohibit any Member or any partner,
shareholder, member, officer, director, employee, agent, or other representative
of any Member from serving as an officer or agent of the Company.
3.13 Company Liabilities. All liabilities of the Company, including without
limitation indemnity obligations under Section 3.10, will be liabilities of the
Company as an entity, and will be paid or satisfied from Company Assets. No
liability of the Company will be payable in whole or in part by any Member in
its capacity as a Member, any member of the Board of Managers in
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such capacity, or the Administrator in such capacity, or by any partner,
shareholder, director, officer, agent, affiliate, or advisor of any Member, any
member of the Board of Managers, the Administrator, or their respective
affiliates.
3.14. Power of Attorney. (a) General. Each of the Members appoints the
Administrator as its attorney-in-fact, with full power of substitution and
resubstitution, for the sole purpose of executing and delivering in such
Member's name any or all of the following:
(i) The Certificate of Formation of the Company and any amendment to the
Certificate of Formation that the Board of Managers deems appropriate as long as
such amendment would not materially adversely affect the Members' interest in
the Company;
(ii) All certificates and other instruments that may be determined by the
Board of Managers to be appropriate to effect the dissolution and termination of
the Company under Article VI; and
(iii) All reports, forms, and schedules that the Board of Managers
determines appropriate to file with any governmental body in connection with any
Company activity.
(b) Irrevocable Grant. The power of attorney granted under this Section
3.14 is coupled with an interest and is irrevocable and will survive the death,
dissolution, legal incompetency, bankruptcy, and withdrawal from the Company of
any Member or the transfer of its interest in the Company.
3.15. Other Activities of the Member of the Board of Managers. The members
of the Board of Managers will be free to own or otherwise participate directly
or indirectly in the ownership or operation of any property or any activity of
any Person, or any professional activity, whether or not the property or
activity competes with or is enhanced by any property or activity of the
Company.
3.16. Debtor-Owned Litigation Claims. (a) Pursuant to the Plan, the
Company has been appointed as the Debtors' agent and representative to
prosecute, settle, liquidate, and/or abandon the Debtor-Owned Litigation Claims
on the Debtors' behalf.
(b) Any recoveries in respect of the Debtor-Owned Litigation Claims will
be collected by the Company on behalf of the Debtors, maintained in a segregated
account, and transferred to the Debtors as promptly as practicable. The proceeds
of the Debtor-Owned Litigation Claims will not be Company Assets.
(c) All costs, expenses, and fees incurred by the Company in the
prosecution, settlement, liquidation, and/or abandonment of the Debtor-Owned
Litigation Claims on the Debtors' behalf will be the responsibility of and will
be borne by Stratosphere. In the event that any such costs, expenses, or fees
are paid by the Company on behalf of Stratosphere, Stratosphere will promptly
reimburse the Company therefor upon request by the Company. The Company is
hereby authorized to offset any amounts owed to it by Stratosphere against
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recoveries collected by the Company on behalf of the Debtors as provided in
Section 3.16(b). Any amounts expended by the Company on behalf of Stratosphere
as contemplated by this Section 3.16(c) will be treated for book and tax
purposes as if they had been expended directly by Stratosphere.
(d) Notwithstanding anything to the contrary in this Agreement, none of
the members of the Board of Managers, the Administrator, the Tax Matters
Partner, or any of their respective members, partners, shareholders, directors,
officers, employees, or affiliates will have any liability to the Debtors in
connection with the prosecution, settlement, liquidation, and/or abandonment of
the Debtor-Owned Litigation Claims hereunder in the absence of gross negligence,
bad faith, or willful misconduct on the part of such person.
(e) Stratosphere will indemnify and hold harmless the Company, the
members of the Board of Managers, the Administrator, the Tax Matters Partner,
and their respective members, partners, shareholders, directors, officers,
employees, and affiliates from and against any and all losses, costs, damages,
expenses (including without limitation fees and expenses of attorneys and other
advisors and any court costs), or liabilities of them, incurred without gross
negligence, bad faith, or willful misconduct, for anything done or omitted to be
done by them in connection with the prosecution, settlement, liquidation, and/or
abandonment of the Debtor-Owned Litigation Claims on the Debtors' behalf,
pursuant to this Agreement.
IV. DISTRIBUTIONS
4.1. Distribution of Proceeds; Effect of Final Class A Distribution.
Subject to the provisions of Section 4.2, the Board of Managers will cause the
Company to distribute, from time to time, any proceeds (the "Class A
Proceeds") from the Company-Owned Litigation Claims, together with any interest
earned thereon or other proceeds thereof (a "Class A Distribution"), promptly
following the Company's receipt thereof, to the holders of Class A Membership
Units. Subject to the provisions of Section 4.2, as promptly as practicable
following the final adjudication, settlement, or other conclusion of the
Company's prosecution of all Company-Owned Litigation Claims, the Board of
Managers will make a Class A Distribution of any remaining Class A Proceeds to
the holders of Class A Membership Units in proportion to their respective
Capital Account balances (the "Final Class A Distribution"). Upon the making
of the Final Class A Distribution, each Class A Membership Unit will be canceled
and each Membership Certificate will thereafter represent only the right to
receive such aliquot share of the Final Class A Distribution.
4.2. Applications of Proceeds. (a) Prior to making any Class A
Distribution, the Board of Managers will apply amounts otherwise available for
such Class A Distribution as follows; (i) first, to the payment of any taxes and
unpaid administrative expenses; (ii) second, to the payment of unpaid fees and
expenses incurred in employing the professional advisors to the Company and the
compensation and fees of the Administrator; (iii) third, to a reserve for the
amount of future Company-Owned Litigation Administrative Expenses, as reasonably
determined by the Board of Managers, in its sole discretion, for up to the term
of this Agreement; (iv) fourth, to the payment of accrued and unpaid interest on
outstanding advances made to the Company,
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including advances pursuant to Section 2.5.3(a); and (v) fifth, to the repayment
of the unpaid principal amount of any advances made to the Company.
(b) Without limiting the generality or effect of the foregoing, no Class A
Distribution will be made until the aggregate principal amount of all advances
made to the Company pursuant to Section 2.5.3(a), together with all accrued and
unpaid interest thereon, has been repaid in full.
V. TRANSFER OF MEMBERSHIP UNITS
5.1. Restrictions on Transfer by General Members. A General Member may not
Transfer any beneficial interest in its Membership Unit, other than in an
Unrestricted Transfer (as defined below). Any purported Transfer of Class A
Membership Units by a General Member in violation of this Agreement (an
"Unauthorized Transfer") will be null and void.
5.2. Unrestricted Transfers. (a) Any Transfer of Class A Membership Units
made in accordance with this Section 5.2 will constitute an "Unrestricted
Transfer" for purposes of this Agreement.
(b) Any General Member may, upon providing (i) such evidence to the
Company as the Administrator may reasonably require (including, if required by
the Administrator, an opinion of counsel reasonably satisfactory to the
Administrator) to the effect that such Transfer will not result in the Company
ceasing to be classified as a partnership (other than a publicly traded
partnership) for federal income tax purposes and (ii) such assurances as the
Administrator may reasonably require with respect to the reimbursement of any
expenses that may be incurred by the Company in connection with such Transfer,
Transfer all or any portion of the record or beneficial interests in the Class A
Membership Units owned by such General Member to any Person. Subject to the
foregoing and to applicable law, the following Transfers will constitute
"Unrestricted Transfers";
(i) A Transfer or series of Transfers by a General Member within
a thirty-day period which involve the Transfer of more than two percent
(2%) of the outstanding Membership Units;
(ii) A Transfer or series of related Transfers by one or more
General Members (acting together) which involves the Transfer of fifty
percent (50%) or more of the outstanding Membership Units;
(iii) Transfers of Class A Membership Units effected through a
Qualified Matching Service; or
(iv) Transfers in which the basis of the Membership Unit in the
hand of the Transferee is determined, in whole or in part, by reference to
its basis in the hands of the Transferor.
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5.3. Restrictions on Transfers by Stratosphere. Notwithstanding anything to
the contrary in this Agreement, Stratosphere will not Transfer the Class B
Membership Unit or any Class C Membership Unit to any Person except by operation
of law to a Person who shall have succeeded to Stratosphere's obligations to
distribute all previously undistributed Class C Membership Units pursuant to the
Plan without the consent of the holders of eighty percent (80%) of the outstand-
ing Class A Membership Units; provided, however, that any Transfer pursuant to
this Section 5.3 shall be null and void if it results in the Company ceasing to
be classified as a partnership (other than a publicly traded partnership) for
federal income tax purposes.
5.4. After-Acquired Membership Units. All of the provisions of this Agree-
ment will apply to and include all the Membership Units issued by the Company to
any Member or acquired by any Person on and after the date hereof. Any Person
who at any time becomes the holder of record of a Membership Unit will, upon
becoming such, be admitted to the Company as a Member and will be bound by the
provisions of this Agreement with the same force and effect as though such
Person were a signatory hereto.
5.5. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any Member Transfers, or attempts to Transfer, any
equity interest in the Company in violation of this Agreement, and that the
Company shall be entitled to specific performance in addition to recovering
attorneys' fees from the breaching party and any other remedy at law or equity.
5.6. Records of the Company; Void Transfers. The Administrator will Transfer
Membership Units on the Company's books only in accordance with the terms and
conditions of this Agreement. Any Unauthorized Transfer of Membership Units by a
Member will be null and void, and the transferee under such purported Transfer
will acquire no title or ownership thereby but will hold such Membership Units
for the benefit of the other Members.
5.7. Withdrawal. No Member may resign from the Company or effect a partial or
complete withdrawal from the Company.
VI. DISSOLUTION AND LIQUIDATION
6.1. Dissolution. The Company will be dissolved upon the occurrence of any
of the following events:
(a) When the period fixed for the existence of the Company (including
any extensions thereof effected in accordance with the terms hereof) expires;
(b) Upon the entry of a final judgment, order, or decree of a court of
competent jurisdiction adjudicating the Company to be bankrupt and the
expiration without appeal of the period, if any, allowed by applicable law in
which to appeal; or
(c) Upon the unanimous written agreement of all of the Members.
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The death, expulsion, bankruptcy, or dissolution of any Member, or the
occurrence of any other event which terminates the continued membership of a
Member will not result in the Company's dissolution unless such dissolution is
otherwise required pursuant to the provisions of this Section 6.1.
6.2. Certificate of Cancellation. In accordance with the Delaware Act, as
soon as possible following the occurrence of any of the events specified in
Section 6.1 effecting the dissolution of the Company, the Board of Managers
will cause to be executed and filed a certificate of cancellation to dissolve
the Company in such form as is prescribed by the Secretary of State of Delaware.
6.3. Procedures.
6.3.1 Liquidation of Assets. In the event of the dissolution of the
Company, the Board of Managers or the Person required by law to wind up the
Company's affairs (the Board of Managers or such other Person being referred to
herein as the "Liquidating Agent") will commence to wind up the affairs of
the Company and liquidate its assets as promptly as is consistent with
obtaining the fair value thereof. In connection with any such winding up and
liquidation, a financial statement of the Company as of the date of dissolution
will be prepared and furnished to all the Members by the Liquidating Agent. The
Members will continue to share profits and losses during the period of
liquidation in accordance with Section 2.5.2 of this Agreement.
6.3.2 Authority of Liquidating Agent. In connection with the
dissolution and winding up of the Company, the Liquidating Agent will have all
of the rights and powers with respect to the assets and liabilities of the
Company that the Board of Managers has pursuant to this Agreement or that a
manager would have pursuant to any other applicable law.
6.3.3 Distribution of Assets. Following the payment of, or provisions
for, all debts and liabilities of the Company and all expenses of liquidation,
and subject to the right of the Liquidating Agent to set up such cash reserves
as the Liquidating Agent may deem reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Company, the proceeds of the
liquidation and any other funds (or other remaining Company Assets) of the
Company will be distributed to the General Members in accordance with their
respective Capital Account balances.
6.3.4 No Recourse to Assets of Members. Each Member will look solely to
the Company Assets for all distributions with respect to such Member's Capital
Account balances, and will have no recourse therefor (upon dissolution of the
Company or otherwise) against Stratosphere or any other Member.
6.4 Termination of This Agreement. Upon the completion of the liquidation
and distribution of all Company Assets and the filing of the certificate of
cancellation as contemplated by Section 6.2, this Agreement will terminate
automatically without any further action on the part of the Members.
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<PAGE> 22
VII. FISCAL AND ADMINISTRATIVE MATTERS
7.1. Fiscal Year. The fiscal year of the Company will begin on the first
day of January and end on the last day of December of each year. Any initial
period set for accounting purposes will begin the Effective Date and end on the
last day of December of the year in which the Effective Date occurs.
7.2. Deposits. Consistent with the provisions of Section 3.5.2, all funds
of the Company will be deposited from time to time to the credit of the Company
in such banks, trust companies, or other depositories as the Administrator may
select.
7.3. Checks, Drafts, Etc. All checks, drafts, or other orders for the
payment of money, and all notes or other evidences of indebtedness issued in the
name of the Company will be signed by the Administrator, or any other Person
selected by the Board of Managers.
7.4. Books and Records. The Administrator will maintain books and records
relating to the assets and income of the Company and the payment of expenses of,
and liabilities or claims against or assumed by, the Company in such detail and
for such detail and for such period of time as may be necessary to enable it to
make full and proper accounting in respect thereof and to comply with applicable
provisions of law. Nothing in this Agreement is intended to require the
Administrator to file any accounting or seek approval of any court with respect
to the administration of the Company, or as a condition for managing any payment
or distribution out of the Company Assets. The Administrator will keep or cause
to be kept accurate and complete minutes and records of the Members and books
and records of account of the Company, which will be kept at the principal place
of business of the Company or at such other places, within or without the State
of Delaware, as the Administrator will from time to time determine.
7.4.1 Right of Inspection. Any Member of the Company will have the
right to examine, at any reasonable time or times for any purpose reasonably
related to such Person's interest as a Member, the minutes and records of the
Members and the books and records of account of the Company, and to make copies
thereof. Such inspection may be made by any agent or duly appointed attorney of
the Member making such request, as applicable. Notwithstanding the foregoing, if
the Board of Managers determines that the disclosure of certain confidential and
proprietary information of the Company to a Member would cause irreparable harm
to the Company or the Members, the Board of Managers, in the exercise of its
good faith judgment, may refuse to disclose such confidential and proprietary
information to such requesting Member.
7.4.2 Financial Records. Subject to the provisions of Appendix A, all
books and records of account of the Company will be maintained and reported
based upon generally accepted accounting principles.
7.5. Administrative Matters.
7.5.1 "Tax Matters Partner". The Board of Managers will designate one
of the Members of the Company, with the consent of such Member, to be the "Tax
Matters Partner" (as
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defined in Code Section 6231). The Tax Matters Partner is authorized and
required to represent the Company (at the Company's expense) in connection with
all examinations of the Company's affairs by tax authorities, including
administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith. The Board of Managers
will, to the extent requested by the Tax Matters Partner, cause the
Administrator to coordinate with and assist the Tax Matters Partner in the
performance of such functions.
7.5.2 Cooperation. Each Member agrees to cooperate with the Tax Matters
Partner and to do or refrain from doing any or all things reasonably requested
by the Tax Matters Partner with respect to the conduct of such proceedings and
the preparation of all returns pursuant to Section 7.5.3.
7.5.3 Filings. The Tax Matters Partner will arrange for the preparation and
timely filing of all returns required to be filed by the Company and the
distribution of Form K-1 or other similar forms to all Members.
7.5.4 Authorization. The actions of the Tax Matters Partner will be deemed
to be authorized by the unanimous consent of the Members with respect to the
matters set forth in Section 7.5.1.
7.5.5 Reporting to Members. The Tax Matters Partner will keep the other
Members informed of all material matters that may come to its attention in its
capacity as Tax Matters Partner.
7.6. Compliance with Securities Laws. The Administrator will file with the
SEC and other applicable federal and state governmental agencies such reports
and other documents, if any, and take any other actions as may be necessary to
comply with federal or state securities laws.
VIII. MISCELLANEOUS
8.1. Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be given or made by
delivery in person, by courier service, by facsimile transmission, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
8.1):
(a) if to the Board of Managers, the Administrator, or the Company,
to:
Stratosphere Litigation L.L.C.
c/o Stratosphere Corporation
2000 Las Vegas Boulevard South
Las Vegas, Nevada 89104
Attn: _________________
Telecopier No.: (702) 383-4738
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with a copy to:
Gordon & Silver Ltd.
3960 Howard Hughes
9th Floor
Las Vegas, Nevada 89109
Attn: Gerald M. Gordon
Telecopier No.: (702) 369-2666
(b) if to Stratosphere, to:
Stratosphere Corporation
2000 Las Vegas Boulevard South
Las Vegas, Nevada 89104
Attn: Thomas A. Lettero
Telecopier No.: (702) 383-4738
with a copy to:
Gordon & Silver Ltd.
3960 Howard Hughes
9th Floor
Las Vegas, Nevada 89109
Attn: Gerald M. Gordon
Telecopier No.: (702) 369-2666
(c) if to the General Members, to such Persons at their respective
addresses set forth in the register of the Company.
All such notices and communications will be deemed to have been duly given:
upon delivery, if personally delivered; one business day after being dispatched,
if dispatched by same-day or next-day courier guaranteeing timely delivery; when
receipt acknowledged, if sent by facsimile transmission; and five business days
after being deposited in the mail, if mailed. Whenever any notice is required to
be given by law or this Agreement, a waiver thereof in writing, signed by the
Person entitled to such notice, whether before or after the time of the event
for which notice is to be given, will be deemed equivalent to such notice.
8.2. Extension Not a Waiver. No delay or omission in the exercise of any
power, remedy, or right herein provided or otherwise available to any party
hereto will impair or affect the right of such party thereafter to exercise the
same. Any extension of time or other indulgence granted to any party hereunder
will not otherwise alter of affect any power, remedy, or right of any other
party hereto, or the obligations of the party to whom such extension or
indulgence is granted.
8.3. Entire Agreement; Amendments; No Third Party Beneficiaries. This
Agreement sets forth the entire agreement between the parties relating to the
subject matter hereof and all
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prior agreements relative thereto that are not contained herein or therein
are terminated. Amendments, variations, modifications, or changes herein may be
made effective and binding upon the parties hereto by, and only by, a written
agreement duly executed by each of the Members and any alleged amendment,
variation, modification, or change herein which is not so documented will not be
effective as to any party hereto. Except for the provisions of Sections 3.10 and
3.11, which provisions are intended to be for the benefit of, and enforceable
by, the Indemnified Persons, (a) this Agreement is for the sole benefit of
Stratosphere, the General Members, the members of the Board of Managers, the
Administrator, and their permitted assigns and (b) nothing herein expressed or
implied will give or be construed to give to any Person, other than
Stratosphere, the General Members, the members of the Board of Managers, the
Administrator, and such permitted assigns, any legal or equitable rights
hereunder.
8.4. Governing Law. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED UNDER,
AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES.
8.5. Venue. Except with respect to matters for which the Bankruptcy Court
will have retained jurisdiction or for which proceedings may be commenced in any
court in which a Litigation Claim or any claim or cause of action assigned and
transferred to the Company by a Class 6 Holder is pending, any action or other
legal proceeding brought under this Agreement will be subject to the
jurisdiction of the State of Delaware or the courts of the United States located
in the State of Delaware. Each of the Members consents to the jurisdiction of
Delaware for actions or legal proceedings brought by any other Member or the
Company arising out of or relating to this Agreement and waives any objection
which it may have to the laying of the venue of such suit, action or proceeding
in any of such courts.
8.6. Headings. The descriptive headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will not invalidate the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction will
not invalidate or render unenforceable any such provision in any other
jurisdiction.
8.8. Certain Defined Terms. As used in this Agreement, in addition to the
terms defined in the Plan or elsewhere herein (including Appendix A), the
following terms have the meanings specified below.
"Administrator" has the meaning assigned to it in Section 3.8(a).
"Board of Managers" has the meaning assigned to it in Section 3.3(a).
"Class A Distribution" has the meaning assigned to it in Section 4.1.
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"Class A Membership Unit" has the meaning assigned to it in Section 1.2.
"Class A Proceeds" has the meaning assigned to it in Section 4.1.
"Class A Sharing Percentage" means, for each Member, a percentage computed
by dividing (x) the number of Class A Membership Units owned of record by such
Member by (y) the number of Class A Membership Units owned of record by all
members.
"Class B Membership Unit" has the meaning assigned to it in Section 1.2.
"Class C Membership Unit" has the meaning assigned to it in Section 1.2.
"Company Assets" means (a) all Company-Owned Litigation Claims and all
recoveries thereon, (b) the Original First Mortgage Notes and all other assets
acquired by the Company pursuant to the terms of the Plan or this Agreement
(including funds, if any, contributed to the Company and the proceeds of any
loans to the Company), (c) any investments purchased with Company Assets, and
(d) proceeds of each of the foregoing (including without limitation any interest
or other earnings thereon), excluding assets distributed, expended or otherwise
disposed of by the Company.
"Company-Owned Litigation Administrative Expenses" means all costs,
expenses, and fees incurred in connection with operating the Company and the
Company Assets, including without limitation (a) the compensation of the
Administrator as specified in Section 3.8, (b) all expenses incurred in
employing accountants, experts, advisors, consultants, investigators,
appraisers, auctioneers, or other professionals to represent or assist the Board
of Managers in carrying out its duties under this Agreement, (c) all other costs
incurred in prosecuting the Company-Owned Litigation Claims and (d) all sums
payable hereunder to any Person entitled to indemnification pursuant to this
Agreement. Company-Owned Litigation Administrative Expenses will not include any
costs, expenses, or fees incurred in connection with the prosecution,
settlement, liquidation, and/or abandonment of the Debtor-Owned Litigation
Claims on behalf of the Debtors.
"Company-Owned Litigation Claims" has the meaning assigned to it in Recital
B.
"Debtor-Owned Litigation Claims" has the meaning assigned to it in Recital
B.
"Debtor-Contributed Litigation Claims" has the meaning assigned to it in
Recital B.
"Delaware Act" has the meaning assigned to it in Section 1.1.
"Final Class A Distribution" has the meaning assigned to it in Section 4.1.
"General Member" means any Member of the Company owning Class A Membership
Units.
"Indemnified Person" has the meaning assigned to it in Section 3.10.1.
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"Liquidating Agent" has the meaning assigned to it in Section 6.3.1.
"Majority Noteholder" has the meaning assigned to it in Section 3.3(a).
"Membership Certificate" has the meaning assigned to it in Section 1.2(b).
"Member" has the meaning assigned to it in Section 1.2(a).
"Membership Unit" has the meaning assigned to it in Section 1.2(a).
"Noteholder Litigation Claims" has the meaning assigned to it in Recital B.
"Operation Account" means the separate account maintained by the
Administrator for the payment of Company-Owned Litigation Administrative
Expenses and from which distributions to Members will be made in accordance with
Article IV and the Plan.
"Overall Sharing Percentage" means, for each Member, a percentage computed
by dividing (x) the number of Membership Units owned of record by such Member by
(y) the number of Membership Units owned of record by all Members.
"Person" means an individual or entity.
"Qualified Matching Service" means a matching service that satisfies the
requirements of a qualified matching services within the meaning of Treas. Reg.
Section 1.7704-1(g)(2).
"Tax Matters Partner" has the meaning assigned to it in Section 7.5.1.
"Transfer" means any sale, assignment, pledge, hypothecation, encumbrance,
disposition, transfer, gift, participation or redemption of, or any attempt to
create or grant a security interest in, a Membership Unit or portion thereof
(including any economic interest therein and any instrument or contract right
the value of which is determined in whole or in part by reference to the
Company, the Company Assets, or the distributions described in Article IV of
this Agreement) or other property or contract right or any interest therein or
portion thereof, whether voluntary or involuntary, by operation or law or
otherwise, and will include any sale or other disposition in any one transaction
or series of transactions (whether or not related) of any majority equity
interest in any legal entity that owns a Membership Unit or other property or
contractual right that would be the subject of any provision of this Agreement.
8.9. Successors. This Agreement will bind and inure to the benefit of the
parties hereto and their respective successors.
8.10. No Suits by Members. No Member will have any right by virtue of any
provision of this Agreement to institute any action or proceeding in law or in
equity against Stratosphere or any party other than the Company upon or under or
with respect to the Company Assets.
8.11. Involvement of the Company in Certain Proceedings. If any Member
becomes involved in legal proceedings unrelated to the business of the Company
in which Stratosphere or
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<PAGE> 28
the Company is called upon to provide information, the Member will indemnify and
hold harmless Stratosphere, the Company, the members of the Board of Managers,
and the Administrator against all costs and expenses, including without
limitation fees and expenses of attorneys and other advisors, incurred by
Stratosphere, the Company, the members of the Board of Managers, or the
Administrator in preparing or producing the required information or in resisting
any request for production or obtaining a protective order limiting the
availability of the information actually provided by Stratosphere, the Company,
the members of the Board of Managers, or the Administrator.
8.12. Waiver of Partition and Certain Other Rights. Each of the Members
irrevocably waives any right or power that such Member might have:
(a) To cause the Company or any of the Company Assets to be
partitioned;
(b) To cause the appointment of a receiver for all or any portion of
the Company Assets;
(c) to compel any sale of all or any portion of the Company Assets;
and
(d) To file a complaint, or to institute proceeding at law or in
equity, to cause the dissolution or liquidation of the Company.
8.13. Member Meetings; Member Approvals. (a) Meetings of the Members may be
called and held at the Company's expense for any purpose by the Board of
Managers in which event the Board of Managers will designate any place, within
or without the State of Delaware, as the place for such meeting. Written or
printed notice stating the place, day, and hour of the meeting and the purpose
or purposes for which such meeting is called, will be delivered by the Company
to each Member not less than ten (10) days nor more than fifty (50) days before
the meeting. If all of the Members meet at any time and place, either within or
without the State of Delaware, and consent to the holding of a meeting at such
time and place, such meeting shall be valid without call or notice, and at such
meeting any Company action may be taken.
(b) At each meeting of the Members, the holder of record of the
Class B Membership Unit, together with the holders of record of a majority of
the Class A Membership Units then outstanding, present in person or by proxy,
shall constitute a quorum for the transaction of Company business. In the
absence of a quorum any Member present at such meeting in person or by proxy
shall have the power to adjourn such meeting until a quorum shall be
constituted. Unless otherwise provided by law or this Agreement, the affirmative
vote of the holder of record of a majority of the Class A Membership Units then
outstanding and represented at a meeting at which a quorum is present, shall
constitute an act of the Members. At any meeting of the Members, a Member may
vote by proxy executed in writing by such Member or by his duly authorized
representative. Such proxy shall be filed with the Company before or at the time
of the meeting. No proxy shall be valid after eleven (11) months from the date
of its
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<PAGE> 29
execution, unless otherwise provided in such proxy. Members may participate in
any meeting through telephonic or similar communications equipment by means of
which all persons participating in the meeting can hear one another, and such
participation shall constitute presence in person at such meeting.
(c) Any action required to, or which may, be taken by the Members may
be taken without a meeting if a consent thereto in writing, setting forth the
action so taken, shall be signed by the holder of the Class B Membership Unit,
together, if applicable, with the holders of record of a majority of the Class A
Membership Units then outstanding. A written consent may be in one or more
instruments, each of which may be signed by one or more Members. No notice need
be given of action proposed to be taken by written action, or an approval given
by written action, unless specifically required by the Delaware Act.
STRATOSPHERE:
Stratosphere Corporation, a Delaware
corporation, member
By: _____________________________________
Daniel Cassella, President, Chief
Executive Officer and Chief Operating
Officer
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EXHIBIT
CERTIFICATE OF FORMATION
OF
STRATOSPHERE LITIGATION, L.L.C.
The undersigned, an authorized natural person, for the purpose of forming a
limited liability company under the provisions and subject to the requirements
of the State of Delaware (particularly Chapter 18, Title 6 of the Delaware Code
and the acts amendatory thereof and supplemental thereto, and known, identified,
and referred to as the "Delaware Limited Liability Company Act"), hereby
certifies that:
FIRST: The name of the limited liability company (hereinafter called the
"limited liability company") is Stratosphere Litigation, L.L.C.
SECOND: The address of the registered office and the name and the address
of the registered agent for service of process of the limited liability company
required to be maintained by Section 18-104 of the Delaware Limited Liability
Company Act are the Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801.
Executed on _____________________, 199__.
_____________________, Authorized Person.
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STRATOSPHERE LITIGATION, L.L.C.
APPENDIX A
TAX MATTERS
This Appendix is attached to and is a part of the Members Agreement
(the "Agreement") of Stratosphere Litigation, L.L.C. (the "Company"). The
parties to the Agreement intend that the Company be classified as a partnership
for federal income tax purposes pursuant to section 7701(a)(2) of the Code and
the regulations thereunder. The provisions of this Appendix are intended to
comply with the requirements of Treas. Reg. Section 1.704-1(b)(2)(iv) and
Treas. Reg. Section 1.704-2 with respect to maintenance of capital accounts and
allocations, and shall be interpreted and applied accordingly.
ARTICLE I.
DEFINITIONS
1.01 Definitions. For purposes of this Appendix, the capitalized terms
listed below shall have the meanings indicated. Capitalized terms not listed
below and not otherwise defined in this Appendix shall have the meanings
specified in the Agreement.
"Account Reduction Item" means: (i) any adjustment described in Treas. Reg.
Section 1.704-1(b)(2)(ii)(d)(4); (ii) any allocation described in Treas. Reg.
Section 1.704-1(b)(2)(ii)(d)(5), other than a Nonrecourse Deduction or a Member
Nonrecourse Deduction; or (iii) any distribution described in Treas. Reg.
Section 1.704-1(b)(2)(ii)(d)(6), other than a Nonrecourse Distribution or a
Member Nonrecourse Distribution.
"Adjusted Capital Account Balance" means, as of the end of any taxable year,
a Member's Capital Account balance as of the end of such taxable year (taking
into account all contributions made by such Member and distributions made to
such Member during such taxable year and any special allocations required by
Sections 3.02, 3.03, 30.4(a), (b), and (d), and 3.06), increased by the sum of
(i) such Member's share of Company Minimum Gain and (ii) such Member's share of
Member Nonrecourse Debt Minimum Gain, both determined after taking into account
any such special allocations.
"Adjusted Fair Market Value" of an item of Company property means the
greater of (i) the fair market value of such property or (ii) the amount of any
nonrecourse indebtedness to which such property is subject within the meaning
of section 7701(g) of the Code.
"Book" means the method of accounting prescribed for compliance with the
capital account maintenance rules set forth in Treas. Reg. Section
1.704-1(b)(2)(iv) as reflected in Articles II and III of this Appendix, as
distinguished from any accounting method which the Company may adopt for other
purposes such as financial reporting.
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"Book Value" means, with respect to any item of Company property, the book
value of such property within the meaning of Treas. Reg. Section
1.704-1(b)(2)(iv)(g)(3); provided, however, that if the Company adopts the
remedial allocation method described in Treas. Reg. Section 1.704-3(d) with
respect to any item of Company property, the Book Value of such property shall
be its book basis determined in accordance with Treas. Reg. Section
1.704-3(d)(2).
"Capital Account" means the capital account of a Member maintained in
accordance with Article II of this Appendix.
"Code" means the Internal Revenue Code of 1986, as amended. References to
specific sections of the Code shall be deemed to include references to
corresponding provisions of succeeding internal revenue law.
"Company Minimum Gain" means partnership minimum gain determined pursuant
to Treas. Reg. Section 1.704-2(d) and Section 5.02.
"Deemed Liquidation" means a liquidation of the Company that is deemed to
occur pursuant to Treas. Reg. Section 1.708-1(b)(1)(iv) in the event of a
termination of the Company pursuant to section 708(b)(1)(B) of the Code.
"Excess Deficit Balance" means the amount, if any, by which the balance in
a Member's Capital Account as of the end of the relevant taxable year is more
negative than the amount, if any, of such negative balance that such Member is
treated as obligated to restore to the Company pursuant to Treas. Reg. Section
1.704-1(b)(2)(ii)(c), Treas. Reg. Section 1.704-1(b)(2)(ii)(h). Treas. Reg.
Section 1.704-2(g)(1), or Treas. Reg. Section 1.704-2(i)(5). Solely for purposes
of computing a Member's Excess Deficit Balance, such Member's Capital Account
shall be reduced by the amount of any Account Reduction Items that are
reasonably expected as of the end of such taxable year.
"Excess Nonrecourse Liabilities" means excess nonrecourse liabilities
within the meaning of Treas. Reg. Section 1.752-3(a)(3).
"Exculpatory Liability" means a liability that is recourse to the Company
as an entity, and for which no Member or Related Person bears the economic risk
of loss under Treas. Reg. Section 1.752-2.
"Foreign Person" means a foreign person or entity within the meaning of
Section 168(h)(2)(A)(3) of the Code.
"Member Nonrecourse Debt" means any liability of the Company to the extent
that (i) the liability is nonrecourse for purposes of Treas. Reg. Section
1.1001-2 and (ii) a Member or a Related Person bears the economic risk of loss
under Treas. Reg. Section 1.752-2.
"Member Nonrecourse Debt Minimum Gain" means minimum gain attributable to
Member Nonrecourse Debt pursuant to Treas. Reg. Section 1.704-2(i)(3).
2
<PAGE> 33
"Member Nonrecourse Deduction" means any item of Book loss or deduction
that is a partner nonrecourse deduction within the meaning of Treas. Reg.
Section 1.704-2(i)(1) and (2).
"Member Nonrecourse Distribution" means a distribution to a Member that is
allocable to a net increase in such Member's share of Member Nonrecourse Debt
Minimum Gain pursuant to Treas. Reg. Section 1.704-2(i)(6).
"Nonrecourse Deduction" means, subject to Section 5.02, a nonrecourse
deduction determined pursuant to Treas. Reg. Section 1.704-2(b)(1) and Treas.
Reg. Section 1.704-2(c).
"Nonrecourse Distribution" means a distribution to a Member that is
allocable to a net increase in Company Minimum Gain pursuant to Treas. Reg.
Section 1.704-2(h)(1).
"Pass-through Entity" means an entity that is treated as a partnership for
federal income tax purposes.
"Regulatory Allocation" means: (i) any allocation made pursuant to Section
3.04(a) to the extent that such allocation is attributable to a prior
distribution that is treated as a Nonrecourse Distribution (after taking into
account Section 5.03(a)); (ii) any allocation made pursuant to Section 3.04(b)
to the extent that such allocation is attributable to a prior distribution that
is treated as a Member Nonrecourse Distribution (after taking into account
Section 5.03(b)); (iii) any reallocation made pursuant to Section 3.04(d) or
(e); or (iv) any allocation or reallocation made pursuant to Section 3.05.
"Related Person" means, with respect to a Member, a person that is related
to such Member pursuant to Treas. Reg. Section 1.752-4(b).
"Revaluation Event" means: (i) a liquidation of the Company (within the
meaning of Treas. Reg. Section 1.704-1(b)(2)(ii)(g)); or (ii) a contribution of
more than a de minimis amount of money or other property to the Company by a new
or existing Member or a distribution of more than a de minimis amount of money
or other property to a retiring or continuing Member where such contribution or
distribution alters the Overall Sharing Percentage of any Member.
"Section 705(a)(2)(B) Expenditures" means non-deductible expenditures of
the Company that are described in section 705(a)(2)(B) of the Code, and
organization and syndication expenditures and disallowed losses to the extent
that such expenditures or losses are treated as expenditures described in
section 705(a)(2)(B) of the Code pursuant to Treas. Reg. Section
1.704-1(b)(2)(iv)(i).
"Section 751 Property" means unrealized receivables and substantially
appreciated inventory items within the meaning of Treas. Reg. Section
1.751-1(a)(1).
"Tax Basis" means, with respect to any item of Company property, the
adjusted basis of such property as determined in accordance with the Code.
3
<PAGE> 34
"Tax-exempt Entity" means: (i) the United States, any state or political
subdivision thereof, any possession of the United States, or any agency or
instrumentality of any of the foregoing; or (ii) any organization (other than a
cooperative described in section 521 of the Code) that is exempt from federal
income tax.
"Treasury Regulation" or "Treas. Reg." means the temporary or final
regulation(s) promulgated pursuant to the Code by the U.S. Department of the
Treasury, as amended, and any successor regulation(s).
ARTICLE II
CAPITAL ACCOUNTS
2.01. Maintenance. (a) A single Capital Account shall be maintained for
each Member in accordance with this Article II.
(b) Each Member's Capital Account shall from time to time be increased
by:
(i) the amount of money contributed by such Member to the Company
(including the amount of any Company liabilities which the Member
assumes (within the meaning of Treas. Reg. section
1.704.1(b)(2)(iv)(c)), but excluding liabilities assumed in connection
with the distribution of Company property and excluding increases in
such Member's share of Company liabilities pursuant to section 752 of
the Code);
(ii) the fair market value of property contributed by such Member
to the Company (net of any liabilities secured by such property that the
Company is considered to assume or take subject to pursuant to section
752 of the Code);
(iii) allocations to such Member of Company Book income and gain
(or the amount of any item or items of income or gain included therein):
(iv) upon the revaluation of Company property pursuant to Section
2.02(a), the Book gain (if any) that would have been allocated to such
Member if such Company property had been sold at its Adjusted Fair
Market Value as of the date of such revaluation; and
(v) upon the distribution of Company property to a Member, if
Company property is not revalued pursuant to Section 2.02(a), the Book
gain (if any) that would have been allocated to such Member if such
Company property had been sold at its Adjusted Fair Market Value
immediately prior to the distribution.
(c) Each Member's Capital Account shall from time to time be reduced
by:
(i) the fair market value of property distributed to such Member
by the Company (net of any liabilities secured by such property that
such Member is considered to assume or take subject to pursuant to
section 752 of the Code);
4
<PAGE> 35
(ii) allocations to such Member of Company Book loss and deduction
(or items thereof);
(iii) upon the revaluation of Company property pursuant to Section
2.02(a), the Book loss (if any) that would have been allocated to such Member if
such Company property had been sold at its Adjusted Fair Market Value as of the
date of such revaluation; and
(iv) upon the distribution of Company property to a Member, if
Company property is not revalued pursuant to Section 2.02(a), the Book loss (if
any) that would have been allocated to such Member if such Company property had
been sold at its Adjusted Fair Market Value immediately prior to the
distribution.
(v) the amount of money distributed to such Member by the Company
(including the amount of such Member's individual liabilities for which the
Company becomes personally and primarily liable but excluding liabilities
assumed in connection with the contribution of property to the Company and
excluding decreases in such Member's share of Company liabilities pursuant to
section 752 of the Code);
(d) The Company shall make such other adjustments to the Capital
Accounts of the Members as are necessary to comply with the provisions of Treas.
Reg. section 1.704-1(b)(2)(iv).
2.02. Revaluation of Company Property. (a) Upon the occurrence of a
Revaluation Event, the Manager may revalue all Company property (whether
tangible or intangible) for Book purposes to reflect the Adjusted Fair Market
Value of Company property immediately prior to the Revaluation Event. In the
event that Company property is so revalued, the Capital Accounts of the Members
shall be adjusted in accordance with Treas. Reg. Section 1.704-1(b)(2)(iv)(f).
(b) Upon the distribution of Company property to a Member, if Company
property is not revalued pursuant to Section 2.02(a), the property to be
distributed shall be revalued for Book purposes to reflect the Adjusted Fair
Market Value of such property immediately prior to such distribution, and the
Capital Accounts of all Members shall be adjusted in accordance with Treas. Reg.
Section 1.704-1(b)(2)(iv)(e).
2.03. Restoration of Negative Balances. No Member with a deficit balance
in its Capital Account shall have any obligation to the Company, to any other
Member or to any third party to restore or repay said deficit balance.
2.04. Transfers of Interests. (a) Upon the transfer of a Member's entire
interest in the Company, the Capital Account of such Member shall carry over to
the transferee.
(b) Upon the transfer of a portion of a Member's interest in the
Company, the portion of such Member's Capital Account attributable to the
transferred portion shall carry over to the transferee. In the event that the
document effecting such transfer specifies the portion of such Member's Capital
Account to be transferred, such portion shall be deemed to be the portion
5
<PAGE> 36
attributable to the transferred portion of such Member's interest for purposes
of this Section 2.04(b).
ARTICLE III.
ALLOCATION OF BOOK INCOME AND LOSS
3.01. Book Income and Loss. (a) The Book income or loss of the Company
for purposes of determining allocations to the Capital Accounts of the Members
shall be determined in the same manner as the determination of the Company's
taxable income, except that: (i) items that are required by section 703(a)(1)
of the code to be separately stated shall be included; (ii) items of income
that are exempt from inclusion in gross income for federal income tax purposes
shall be treated as Book income, and related deductions that are disallowed
under section 265 of the Code shall be treated as Book deductions; (iii)
Section 705(a)(2)(B) Expenditures shall be treated as deductions; (iv) items
of gain, loss, depreciation, amortization, or depletion that would be computed
for federal income tax purposes by reference to the Tax Basis of an item of
Company property shall be determined by reference to the Book Value of such
item of property; and (v) the effects of upward and downward revaluations of
Company property pursuant to Section 2.02 shall be treated as gain or loss
respectively from the sale of such property.
(b) In the event that the Book Value of any item of Company
property differs from its Tax Basis, the amount of Book depreciation,
depletion, or amortization for a period with respect to such property shall be
computed so as to bear the same relationship to the Book Value of such property
as the depreciation, depletion, or amortization computed for tax purposes with
respect to such property for such period bears to the Tax Basis of such
property. If the Tax Basis of such property is zero, the Book depreciation,
depletion, or amortization with respect to such property shall be computed by
using a method consistent with the method that would be used for tax purposes
if the Tax Basis of such property were greater than zero.
(c) Allocations to the Capital Accounts of the Members shall be
based on the Book income or loss of the Company as determined pursuant to this
Section 3.01. Such allocations shall be made as provided in the Agreement
except to the extent modified by the provisions of this Article III.
3.02. Allocation of Nonrecourse Deductions. Notwithstanding any other
provisions of the Agreement, Nonrecourse Deductions shall be allocated among
the Members in proportion to their respective Overall Sharing Percentages.
3.03. Allocation of Member Nonrecourse Deductions. Notwithstanding any
other provisions of the Agreement, any item of Member Nonrecourse Deduction
with respect to a Member Nonrecourse Debt shall be allocated to the Member or
Members who bear the economic risk loss for such Member Nonrecourse Debt in
accordance with Treas. Reg. Section 1.704-2(i).
3.04. Chargebacks of Income and Gain. Notwithstanding any other
provisions of the Agreement:
6
<PAGE> 37
(a) Company Minimum Gain. In the event that there is a net decrease
in Company Minimum Gain for a taxable year of the Company, then before any other
allocations are made for such taxable year, each Member shall be allocated items
of Book income and gain for such year (and, if necessary, for subsequent years)
to the extent required by Treas. Reg. Section 1.704-2(f).
(b) Member Nonrecourse Debt Minimum Gain. In the event that there
is a net decrease in Member Nonrecourse Debt Minimum Gain for a taxable year of
the Company, then after taking into account allocations pursuant to paragraph
(a) immediately preceding, but before any other allocations are made for such
taxable year, each Member with a share of Member Nonrecourse Debt Minimum Gain
at the beginning of such year shall be allocated items of Book income and gain
for such year (and, if necessary, for subsequent years) to the extent required
by Treas. Reg. Section 1.704-2(i)(4).
(c) Application for Waiver. In the event that the Manager
determines, in its reasonable discretion, that the application of the provisions
of Section 3.04(a) or Section 3.04(b) would cause a distortion in the economic
arrangement among the Members, the Manager may, on behalf of the Company,
request a waiver of the application of either or both of such provisions
pursuant to Treas. Reg. Section 1.704-2(f)(4) or Treas. Reg. Section
1.704-2(i)(4).
(d) Qualified Income Offset. In the event that any Member
unexpectedly receives any Account Reduction Item that results in an Excess
Deficit Balance at the end of any taxable year after taking into account all
other allocations and adjustments under this Agreement other than allocations
under Section 3.04(e), then items of Book income and gain for such year (and, if
necessary, for subsequent years) will be reallocated to each such Member in the
amount and in the proportions needed to eliminate such Excess Deficit Balance as
quickly as possible.
(e) Gross Income Allocation. If, at the end of any taxable year,
the Capital Accounts of any Members have Excess Deficit Balances after taking
into account all other allocations and adjustments under this Agreement, then
items of Book income and gain for such year will be reallocated to such Members
in the amount and in the proportions needed to eliminate such Excess Deficit
Balances as quickly as possible.
3.05. Reallocation to Avoid Excess Deficit Balances. Notwithstanding any
other provisions of the Agreement, no Book loss or deduction shall be allocated
to any Member to the extent that such allocation would cause or increase an
Excess Deficit Balance in the Capital Account of such Member. Such Book loss or
deduction shall be reallocated away from such Member and to the other Members in
accordance with the Agreement, but only to the extent that such reallocation
would not cause or increase Excess Deficit Balances in the Capital Accounts of
such other Members.
3.06. Corrective Allocation. Subject to the provisions of Sections 3.02,
3.03, 3.04, and 3.05, but notwithstanding any other provision of the Agreement,
in the event that any Regulatory Allocation is made pursuant to this Appendix
for any taxable year, then remaining Book items for such year (and, if
necessary, Book items for subsequent years) shall be allocated or reallocated in
such amounts and proportions as are appropriate to restore the Adjusted Capital
7
<PAGE> 38
Account Balances of the Members to the position in which such Adjusted Capital
Account Balances would have been if such Regulatory Allocation had not been
made.
3.07. Other Allocations. (a) If during any taxable year of the Company
there is a change in any Member's Class A Sharing Percentage or Class B Sharing
Percentage, allocations of Book income or loss for such taxable year shall take
into account the varying interests of the Members in the Company in a manner
consistent with the requirements of Section 706 of the Code.
(b) If and to the extent that any distribution of Section 751 Property to a
Member in exchange for property other than Section 751 Property is treated as a
sale or exchange of such Section 751 Property by the Company pursuant to Treas.
Reg. section 1.751-1(b)(2), any Book gain or loss attributable to such deemed
sale or exchange shall be allocated only to Members other than the distributee
Member.
(c) If and to the extent that any distribution of property other than
Section 751 Property to a Member in exchange for Section 751 Property is treated
as a sale or exchange of such other property by the Company pursuant to Treas.
Reg. section 1.751-1(b)(3), any Book gain or loss attributable to such deemed
sale or exchange shall be allocated only to Members other than the distributee
Member.
ARTICLE IV.
ALLOCATION OF TAX ITEMS
4.01. In General. Except as otherwise provided in this Article IV, all
items of income, gain, loss and deduction shall be allocated among the Members
for federal income tax purposes in the same manner as the corresponding
allocation for Book purposes.
4.02. Section 704(c) Allocations. In the event that the Book Value of an
item of Company property differs from its Tax Basis, allocations of
depreciation, depletion, amortization, gain, and loss with respect to such
property will be made for federal income tax purposes in a manner that takes
account of the variation between the Tax Basis and Book Value of such property
in accordance with section 704(c)(1)(A) of the Code and Treas. Reg. section
1.704-1(b)(4)(i). The Manager may select any reasonable method or methods for
making such allocations, including, without limitation, any method described in
Treas. Reg. section 1.704-(b), (c), or (d).
4.03 Tax Credits. Tax credits shall be allocated among the Members in
accordance with Treas. Reg. section 1.704-1(b)(4)(ii).
ARTICLE V.
OTHER TAX MATTERS
5.01. Excess Nonrecourse Liabilities. For the purpose of determining the
Members' shares of the Company's Excess Nonrecourse Liabilities pursuant to
Treas. Reg. section 1.752-3(a)(3).
8
<PAGE> 39
and 1.707-5(a)(2)(ii), and solely for such purpose, the Members' interests in
profits are hereby specified to be their respective Overall Sharing Percentages.
5.02. Exculpatory Liabilities. The Manager may (a) treat deductions
attributable to Exculpatory Liabilities as deductions that are not Nonrecourse
Deductions and (b) disregard Exculpatory Liabilities in the determination of
Company Minimum Gain.
5.03. Treatment of Certain Distributions. (a) In the event that: (i) the
Company makes a distribution that would (but for this Subsection (a)) be treated
as a Nonrecourse Distribution; and (ii) such distribution does not cause or
increase a deficit balance in the Capital Account of the Member receiving such
distribution as of the end of the Company's taxable year in which such
distribution occurs; then the Manager may treat such distribution as not
constituting a Nonrecourse Distribution to the extent permitted by Treas. Reg.
Section 1.704-2(h)(3).
(b) In the event that: (i) the Company makes a distribution that
would (but for this Subsection (b)) be treated as a Member Nonrecourse
Distribution; and (ii) such distribution does not cause or increase a deficit
balance in the Capital Account of the Member receiving such distribution as of
the end of the Company's taxable year in which such distribution occurs; then
the Manager may treat such distribution as not constituting a Member Nonrecourse
Distribution to the extent permitted by Treas. Reg. Section 1.704-2(i)(6).
5.04. Reduction of Basis. In the event that a Member's interest in the
Company may be treated in whole or in part as depreciable property for purposes
of reducing such Member's basis in such interest pursuant to section
1017(b)(3)(C) of the Code, the Manager may, upon the request of such Member,
make a corresponding reduction in the basis of the Company's depreciable
property with respect to such Member. Such request shall be submitted to the
Company in writing, and shall include such information as may be reasonably
required in order to effect such reduction in basis.
5.05. Withholding. (a) The Company shall withhold any amounts required to
be withheld pursuant to any applicable provisions of the Code, including without
limitation sections 1441 through 1446 of the Code, or pursuant to any applicable
provisions of state or local law.
(b) Any amounts withheld with respect to a Member's distributive
share of Company income (whether or not distributed) shall be treated by the
Company and by such Member for all purposes as amounts distributed to such
Member. Any amounts withheld with respect to any payment to a Member shall be
treated by the Company and by such Member for all purposes as amounts paid to
such Member. Amounts so treated as distributed or paid to any Member shall
reduce the amount otherwise distributable or payable to such Member.
(c) In the event that the Company withholds with respect to a
Member's distributive share of Company income for a taxable year, and such
distributive share exceeds the amount distributed to such Member in such taxable
year, then subsequent distributions to such Member shall be deemed to be made
first from income with respect to which the Company has already withheld.
9
<PAGE> 40
5.06. Pass-through Entities as Members. Any Member that is a Pass-through
Entity shall promptly notify the Company in writing upon any of the following
occurrences:
(a) any event, such as a sale or exchange of an interest in such
Member, that will result in an adjustment to the basis of the assets of such
Member under section 743(b) of the Code pursuant to an election under section
754 of the Code;
(b) any event, such as a distribution of cash or other property by
such Member, that will result in an adjustment to the basis of such Member's
assets under section 734(b) of the Code pursuant to and election under section
754 of the Code; or
(c) any event that will result in the termination of such Member as
a partnership pursuant to section 708(b)(1)(B) of the Code.
5.07. Tax-exempt or Foreign Ownership of Members. In the event that any
interest in a Member that is a Pass-through Entity as owned directly or
indirectly by any Tax-exempt Entity or Foreign Person, such Member shall
promptly notify the Company in writing of such Tax-exempt Entity's or Foreign
Person's proportionate share of such Member's items of income and gain
(determined as a percentage pursuant to section 168(h)(6)(C) of the Code) and of
any change in such proportionate share.
5.08. Entity Classification. Neither the Company nor any Member shall file
or cause to be filed any election, the effect of which would be to cause the
Company to be classified as other than a partnership for federal income tax
purposes, without the prior written consent of all Members.
[End of Appendix A]
10
<PAGE> 1
Exhibit 10(19)
ASSIGNMENT OF CLAIMS
This Assignment of Claims is made as of the 20th day of January, 1999 by
IBJ Whitehall Bank & Trust Company f/k/a IBJ Schroder Bank & Trust Company, as
Indenture Trustee, a New York corporation ("IBJ Whitehall") in favor of
Stratosphere Litigation, LLC, a Delaware limited liability company (the
"Litigation LLC").
PRELIMINARY STATEMENTS
A. Pursuant to that certain Second Amended Plan of Reorganization Under Chapter
11 of the Bankruptcy Code for Stratosphere Corporation and Stratosphere Corp.
(the "Plan") which was confirmed by that certain Order Confirming Second Amended
Plan of Reorganization under Chapter 11 of the Bankruptcy Code on June 9, 1998
(the "Confirmation Order"), each of the holders of the Original First Mortgage
Notes (as defined in the Plan) were deemed to have transferred as of the
Effective Date (as defined in the Plan) any and all claims and causes of action
they had, whether or not any action had been commenced with respect thereto,
relating to the Original First Mortgage Notes. See Plan, Section 6.3(a).
B. There is currently pending in the United States District Court, District of
Nevada, that certain proceeding entitled IBJ Schroder v. Grand Casinos, Inc.,
Case No. CV-S-97-01252-DWH (RJJ) (the "Grand Litigation") brought by IBJ
Whitehall in its capacity as successor Indenture Trustee under that certain
Indenture dated March 9, 1995.
C. The Litigation LLC has been assigned any and all claims of the holders of the
Original First Mortgage Notes pursuant to the Plan and desires to be substituted
for IBJ Whitehall in the Grand Litigation.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
1. IBJ Whitehall hereby acknowledges the Plan in its entirety and acknowledges
the transfer by the holders of the Original First Mortgage Notes to the
Litigation LLC of any and all claims and causes of action including any and all
claims, causes of action, counterclaims, defenses, affirmative defenses and
setoffs that IBJ Whitehall has asserted or could have asserted in the Grand
Litigation.
2. IBJ Whitehall hereby expressly reconfirms the transfer and assignment to the
Litigation LLC of any and all claims and causes of action it holds respecting
the Original First Mortgage Notes, including any and all claims, causes of
action, counterclaims, defenses, affirmative defenses and setoffs that IBJ
Whitehall has asserted or could have asserted in the Grand Litigation.
3. The Litigation LLC hereby expressly reaffirms its acceptance of the claims
and causes of action of the holders of the Original First Mortgage Notes.
<PAGE> 2
4. The parties hereto will cooperate to have the Litigation LLC substituted in
the place of IBJ Whitehall in the Grand Litigation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
IBJ Whitehall Bank & Trust Company, Stratosphere Litigation, LLC
f/k/a IBJ Schroder Bank & Trust a Delaware limited liability
Company, as Indenture Trustee, company
a New York corporation
By: _____________________________ By: _____________________________
Name: _____________________________ Name: _____________________________
Title:_____________________________ Title:_____________________________
<PAGE> 1
Exhibit 21
(21) Subsidiaries
<TABLE>
<CAPTION>
Name State Incorporated
- ---- ------------------
<S> <C>
Stratosphere Gaming Corp Nevada
Stratosphere Land Corporation Nevada
Stratosphere Advertising Agency Nevada
2000 Las Vegas Boulevard Retail Corporation Nevada
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> DEC-27-1998
<CASH> 12,623,817
<SECURITIES> 0
<RECEIVABLES> 3,075,066
<ALLOWANCES> (456,448)
<INVENTORY> 2,867,662
<CURRENT-ASSETS> 2,558,960
<PP&E> 152,747,531
<DEPRECIATION> 26,574,751
<TOTAL-ASSETS> 155,545,834
<CURRENT-LIABILITIES> 28,557,356
<BONDS> 0
<COMMON> 20,300
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 155,545,834
<SALES> 129,972,093
<TOTAL-REVENUES> 142,588,196
<CGS> 17,453,312
<TOTAL-COSTS> 99,136,829
<OTHER-EXPENSES> 25,301,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,532,380
<INCOME-PRETAX> 3,378,631
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,378,631
<DISCONTINUED> 0
<EXTRAORDINARY> 153,436,882
<CHANGES> 0
<NET-INCOME> 156,815,513
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
