SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 number 33-69716
GB PROPERTY FUNDING CORP.
GB HOLDINGS, INC.
GREATE BAY HOTEL AND CASINO, INC.
- --------------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502290
DELAWARE 75-2502293
NEW JERSEY 22-2242014
- ------------------------------------ -----------------------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
c/o Sands Hotel & Casino
Indiana Avenue & Brighton Park
Atlantic City, New Jersey 08401
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code): (609) 441-4517
(Not Applicable)
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether each of the Registrants (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
Registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Outstanding at
Registrant Class May 10, 2000
- --------------------------------- ----------------------------- --------------
GB Property Funding Corp. Common stock, $1.00 par value 1,000 shares
GB Holdings, Inc. Common stock, $1.00 par value 1,000 shares
Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
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PART I: FINANCIAL INFORMATION
Introductory Notes to Financial Statements
The registered securities consist of 10 7/8% First Mortgage Notes (the
"First Mortgage Notes") in the original principal amount of $185,000,000 due
January 15, 2004 issued by GB Property Funding Corp. ("GB Property Funding"). GB
Property Funding's obligations are unconditionally guaranteed by GB Holdings,
Inc. ("Holdings"), a Delaware corporation with principal executive offices at
136 South Kentucky Avenue, Atlantic City, New Jersey 08401, and by Greate Bay
Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation and a wholly owned
subsidiary of Holdings with principal executive offices at 136 South Kentucky
Avenue, Atlantic City, New Jersey 08401.
GB Property Funding is wholly owned by Holdings. Holdings was a wholly
owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998.
PCC in turn was a wholly owned subsidiary of PPI Corporation ("PPI"), which is
wholly owned by Greate Bay Casino Corporation ("GBCC"). Effective after December
31, 1998, PCC transferred 21% of its stock ownership in Holdings to PBV, Inc.
("PBV"), a newly formed entity, controlled by certain stockholders of GBCC.
GBCC's common stock is listed on the OTC Bulletin Board Service under the
trading symbol "GEAAQ". As a result of a certain confirmed plan of
reorganization of PCC and others in October 1999, the remaining 79% stock
interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC, whose
sole member as a result of the same reorganization is PPI ("GBLLC").
GB Property Funding was organized in September 1993 as a special purpose
subsidiary of Holdings for the purpose of borrowing funds through the issuance
of the First Mortgage Notes for the benefit of GBHC. GBHC owns the Sands Hotel
and Casino located in Atlantic City, New Jersey (the "Sands"). Substantially all
of Holdings' assets and operations relate to the Sands.
On January 5, 1998, Holdings, GB Property Funding and GBHC (collectively,
the "Debtors") filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court"). The prior Boards of
Directors resigned on January 2, 1998 and new Boards of Directors were elected
at that time. Each of the Debtor companies continues to operate in the ordinary
course of business as set forth in the Bankruptcy Code. Each company's executive
officers and directors as of the date of the filing remain in office, subject to
the jurisdiction of the Bankruptcy Court, other than the following: as required
by the Settlement Agreement as defined below, Richard Knight resigned as a
Director, President, and Chief Executive Officer of the Debtors effective July
8, 1998; John P. Belisle was elected President and Chief Executive Officer of
GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the
Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as
President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J.
Luciani was elected President and Chief Executive Officer of GBHC. On November
11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of
the Debtors, and one of the two independent members of the Audit Committee of
Holdings, citing a newly arisen potential conflict of interest, resigned.
Effective September 2, 1998, GBHC acquired the membership interests in
Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that
owns a land parcel adjacent to GBHC (the "Lieber Parcel"). GBHC acquired and
caused an option agreement on other adjacent land parcels (the "Option Parcels")
to be assigned to Lieber (the "Option Agreement"). On September 20, 1999, the
closing took place under the Option Agreement and Lieber, whose sole member is
GBHC, obtained title to the Option Parcels one of which
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was subject to a lease (the "Lease") and a sub-lease for the operation of a
"Gold Store" (the "Sub-lease"). The Lieber Parcel and the Option Parcels provide
GBHC with an expansion opportunity and frontage on Pacific Avenue, the principal
street running parallel and closest to the Boardwalk in Atlantic City, New
Jersey. The demolition of the existing structures on the parcels was completed
and construction of a new front entrance to the Sands' facility has commenced.
GBHC obtained the rights under the Lease on March 27, 2000 for $371,000 and on
the same date notified the operator of the Gold Store that GBHC had elected to
exercise a 90-day cancellation provision of the Sub-lease and tendered to the
sub-lessee a cancellation payment of approximately $30,000. GBHC intends to
demolish the Gold Store upon expiration of the notice period and incorporate the
land as part of its new front entrance. GBHC also entered into an agreement with
the entities controlling the Claridge Hotel and Casino (the "Claridge"), subject
to Bankruptcy Court approval, to acquire the Claridge Administration Building
("CAB"), which is situated between GBHC's existing main entrance and the new
Pacific Avenue entrance presently under construction. GBHC intends to demolish
the CAB and incorporate the land as part of the new front entrance. The purchase
price was $3.5 million, consisting of $1.5 million in cash at closing with the
remaining $2.0 million consideration tendered through the elimination for 40
months of a $50,000 monthly license fee paid by the Claridge to GBHC, under an
agreement between the Claridge and GBHC governing the development and operation
of the "People Mover" leading from the Boardwalk to the Sands and Claridge (the
"PM Agreement"). GBHC and the Claridge also sought Bankruptcy Court approval of
the assumption of the PM Agreement as modified. Additionally, after the
elimination of the monthly license fee for the 40 months, the license fee will
be reduced to $20,000 a month thereafter. On April 5, 2000, the Bankruptcy Court
approved the acquisition of the CAB for the purposes described and approved the
joint assumption of the PM Agreement as modified. On April 17, 2000, the closing
took place on the CAB.
On January 11, 1999, the exclusivity period during which only the Debtors
could file a plan of reorganization expired and, as a result, any party in
interest could file a plan of reorganization. On June 1, 1999, the Debtors filed
with the Bankruptcy Court a plan of reorganization and disclosure statement,
ultimately filing a third modified plan of reorganization (the "Plan") and third
modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved
the adequacy of the disclosure statement and a confirmation hearing on the Plan
was scheduled for December 17, 1999 (the "Confirmation Hearing").
On November 3, 1999, the Debtors received notice from Merrill Lynch Asset
Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE")
had reached agreement on a term sheet under which PPE would sponsor a plan of
reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE
controlled approximately 53% of the First Mortgage Notes. MLAM requested that
the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a
revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed
to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the
adjournment and set December 1, 1999 as a status conference for a report by the
Debtors on the status of their due diligence and evaluation of the provisions of
the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy
Court set December 22, 1999 as a final status conference for the Debtors to
report on their due diligence and evaluation of the Term Sheet. Entities
controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of
Reorganization of the Debtors prior to the December 22, 1999 status conference.
The Bankruptcy Court decided at the status conference that PPE and Icahn should
submit competing Plans of Reorganization and Supplemental Disclosure Statements
with the Debtors submitting a Master Disclosure Statement by January 18, 2000,
and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to
consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan
with the Official Committee of Unsecured Creditors (the "Committee") on January
18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court
conducted a hearing on the adequacy of the Disclosure Statements on February 16,
2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file
amended Plans and Supplemental Disclosure Statements with their final economic
offers to the creditors by March 6, 2000, and scheduled a further adequacy
hearing for March 23, 2000.
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At that hearing, the Bankruptcy Court directed Icahn and the Committee and PPE
to make certain revisions to their amended Plans and Supplemental Disclosure
Statements and file them on March 31, 2000 and scheduled April 5, 2000 as a
hearing date for the Bankruptcy Court to determine if any further changes to the
Supplemental Disclosure Statements would be directed to be made by the
Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy Court approved
the Debtors' Master Disclosure Statement, approved the Supplemental Disclosure
Statements of Icahn and the Committee and of PPE subject to their making certain
revisions, and established June 5, 2000 as the deadline for the creditors to
deliver their votes for or against the Plans and June 19, 2000 as the beginning
of the confirmation hearing. Subsequently, the Bankruptcy Court adjourned the
confirmation hearing to June 20, 2000.
A plan requires confirmation by the Bankruptcy Court and approval by the
New Jersey Casino Control Commission (the "Casino Commission"). There can be no
assurance at this time that a Plan will be confirmed by the Bankruptcy Court and
approved by the Casino Commission. In the event a plan is confirmed,
continuation of the business thereafter is dependent on GBHC's ability to
achieve successful future operations. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that may be necessary should GBHC be unable to continue as a going
concern. Although management has not made a determination whether an impairment
of the carrying value currently exists, future adjustments to the carrying
amount of GBHC's assets may be required with respect to the fresh-start
reporting which would take place on the effective date of the confirmation of a
Plan.
Historically, the Sands' gaming operations have been highly seasonal in
nature with the peak activity occurring from May to September. Consequently, the
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the operating results to be reported for the full
year.
The financial statements of GB Property Funding and the consolidated
financial statements of Holdings as of March 31, 2000 and for the three months
ended March 1, 2000 and 1999 have been prepared without audit pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, their respective financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
their respective financial positions as of March 31, 2000, and their respective
results of operations and cash flows for the three-month periods ended March 31,
2000 and 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
GB Property Funding's, Holdings' and GBHC's 1999 Annual Report on Form 10-K.
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2000 1999
------------ ------------
Current Asset:
Cash $ 1,000 $ 1,000
Interest receivable from affiliate 9,373,000 9,373,000
Note receivable from affiliate 181,977,000 181,980,000
------------ ------------
$191,351,000 $191,354,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities Subject to Compromise:
Accrued interest payable $ 9,373,000 $ 9,373,000
Long-term debt 181,977,000 181,980,000
------------ ------------
191,350,000 191,353,000
Commitments and Contingencies
Shareholder's Equity:
Common stock, $1.00 par value per share,
1,000 shares authorized and outstanding 1,000 1,000
------------ ------------
$191,351,000 $191,354,000
============ ============
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
Revenues:
Interest income (Note 2) $ -- $ --
Expenses:
Interest expense (contractual interest of
$4,948,000 and $4,955,000, respectively,
for the three months ended March 31,
2000 and 1999). -- --
----------- -----------
Net income $ -- $ --
=========== ===========
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net income $ -- $ --
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in interest receivable from affiliate -- --
Increase in accrued interest payable -- --
--------- ---------
Net cash provided by operating activities -- --
Cash at beginning of period 1,000 1,000
--------- ---------
Cash at end of period $ 1,000 $ 1,000
========= =========
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Operations
GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation,
was incorporated in September 1993. GB Property Funding is a wholly owned
subsidiary of GB Holdings, Inc. ("Holdings"), a Delaware corporation. Holdings
was a wholly owned subsidiary of Pratt Casino Corporation ("PCC"), also a
Delaware corporation, through December 31, 1998. Effective after December 31,
1998, PCC transferred 21% of the stock ownership of Holdings to PBV, Inc.
("PBV"), a newly formed entity, controlled by certain stockholders of Greate Bay
Casino Corporation ("GBCC"). PCC was incorporated in September 1993 and was a
wholly owned subsidiary of PPI Corporation ("PPI"), a New Jersey corporation and
a wholly owned subsidiary of GBCC. As a result of a certain confirmed plan of
reorganization of PCC and others in October 1999, the remaining 79% stock
interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC
("GBLLC"), whose sole member as a result of the same reorganization is PPI.
Holdings was incorporated in September 1993 and, on February 17, 1994, acquired,
through a capital contribution by its then parent, all of the outstanding
capital stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the
Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). GB Property
Funding was formed for the purpose of borrowing $185,000,000 of First Mortgage
Notes (the "First Mortgage Notes") for the benefit of GBHC; such debt was issued
in February 1994 bearing interest at the rate of 10 7/8% per annum. All of the
proceeds were loaned to GBHC (see Note 2).
GB Property Funding has no operations and is dependent on the repayment of
its note from GBHC for servicing its debt obligations (see Note 2).
Administrative services for GB Property Funding are provided by GBHC at no
charge. The cost of such services is not significant.
The operation of an Atlantic City casino/hotel is subject to significant
regulatory control. Under provisions of the Casino Act, GBHC is required to
maintain a non-transferable license to operate a casino in Atlantic City.
The accompanying financial statements have been prepared in accordance
with Statement of Position No. 90-7, "Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code," and include disclosure of liabilities
subject to compromise. On January 5, 1998, GB Property Funding, GBHC and
Holdings (collectively, the "Debtors") filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of New Jersey (the
"Bankruptcy Court"). Each company continues to operate in the ordinary course of
business as set forth in the Bankruptcy Code.
On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of
reorganization and disclosure statement, ultimately filing a third modified plan
of reorganization (the "Plan") and third modified disclosure statement. On
October 4, 1999, the Bankruptcy Court approved the adequacy of the Disclosure
Statement and a confirmation hearing on the Plan was scheduled for December 17,
1999 (the "Confirmation Hearing").
On November 3, 1999, the Debtors received notice from Merrill Lynch Asset
Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE")
had reached agreement on a term sheet under
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
which PPE would sponsor a plan of reorganization of GBHC (the "Term Sheet").
MLAM represented that it and PPE controlled approximately 53% of the First
Mortgage Notes. MLAM requested that the Debtors agree to seek to adjourn the
Confirmation Hearing, and accept a revised Plan incorporating the provisions of
the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999,
the Bankruptcy Court granted the adjournment and set December 1, 1999 as a
status conference for a report by the Debtors on the status of their due
diligence and evaluation of the provisions of the Term Sheet. Following the
December 1, 1999 status conference, the Bankruptcy Court set December 22, 1999
as a final status conference for the Debtors to report on their due diligence
and evaluation of the Term Sheet. Entities controlled by Carl Icahn ("Icahn")
submitted a competing bid for a Plan of Reorganization of the Debtors prior to
the December 22, 1999 status conference. The Bankruptcy court decided at the
status conference that PPE and Icahn should submit competing Plans of
Reorganization and Supplemental Disclosure Statements with the Debtors
submitting a Master Disclosure Statement by January 18, 2000, and that the
Bankruptcy Court would conduct a hearing on February 16, 2000 to consider the
adequacy of the Disclosure Statements. Icahn filed a joint Plan with the
Official Committee of Unsecured Creditors (the "Committee") on January 18, 2000,
and PPE also filed a Plan on the same date. The Bankruptcy Court conducted a
hearing on the adequacy of the Disclosure Statements on February 16, 2000. The
Bankruptcy Court directed Icahn and the Committee and PPE to file amended Plans
and Supplemental Disclosure Statements with their final economic offers to the
creditors by March 6, 2000, and scheduled a further adequacy hearing for March
23, 2000. At that hearing, the Bankruptcy Court directed Icahn and the Committee
and PPE to make certain revisions to their amended Plans and Supplemental
Disclosure Statements and file them on March 31, 2000, and scheduled April 5,
2000 as a hearing date for the Bankruptcy Court to determine if any further
changes to the Supplemental Disclosure Statements would be directed to be made
by the Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy Court
approved the Debtors' Master Disclosure Statement, approved the Supplemental
Disclosure Statements of Icahn and the Committee and of PPE subject to their
making certain revisions, and established June 5, 2000 as the deadline for
creditors to deliver their votes for or against the Plans and June 19, 2000 as
the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court
adjourned the confirmation hearing to June 20, 2000.
A plan of reorganization requires confirmation by the Bankruptcy Court and
approval by the New Jersey Casino Control Commission (the "Casino Commission").
There can be no assurance at this time that any plan of reorganization will be
confirmed by the Bankruptcy Court or approved by the Casino Commission. In the
event a plan of reorganization is confirmed, continuation of the business
thereafter is dependent on GBHC's ability to achieve successful future
operations. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classifications of liabilities that might be necessary should GB
Property Funding be unable to continue as a going concern.
As discussed above, GB Property Funding was formed for the purpose of
issuing the First Mortgage Notes for the benefit of GBHC. GB Property Funding
loaned the proceeds from the First Mortgage Notes to GBHC and, at March 31, 2000
has a note receivable, together with interest accrued through January 5,1998
due from GBHC totaling $191,350,000. GB Property Funding has no operations
and the note receivable and the accrued interest receivable represents virtually
all of GB Property Fundings' assets. As discussed above, on January 5, 1998, the
Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code. As a
result of the Chapter 11 filings, the First Mortgage Notes and related accrued
interest payable have been classified as liabilities subject to compromise in
the accompanying balance sheets. To the extent that any proceeds are
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
ultimately realized from GBHC as a result of the resolution of the bankruptcy
proceedings, such amounts would be offered in full satisfaction of the First
Mortgage Notes. No provision for any loss relating to the uncollectibility of
these receivables has been reflected in the accompanying financial statements.
New Jersey Management, Inc. ("NJMI"), also a wholly owned subsidiary of
PCC, was responsible for the operations of the Sands under a management
agreement dated August 19, 1987, as amended, with GBHC (the "Management
Agreement"). On May 22, 1998, GBHC filed a motion with the Bankruptcy Court to
reject the Management Agreement (the "Rejection Motion"). GBCC, NJMI, and
certain of their affiliates, on one side, and the Debtors, on the other, entered
into an agreement on June 27, 1998, which was approved by the Bankruptcy Court
on July 7, 1998, and by the Casino Commission on July 8, 1998 (the "Settlement
Agreement"). Under the Settlement Agreement, among other things, the Management
Agreement was suspended and replaced with a services agreement until a decision
by the Bankruptcy Court on the Rejection Motion, and GBHC ceded ownership rights
to an affiliate of GBCC in, and obtained a perpetual license from the same
affiliate for, the software used in its operations. On September 28, 1998, and
as a result of the Second Settlement Agreement, as defined below, the Bankruptcy
Court granted the Rejection Motion and, in conformity therewith, no further fees
will be paid under either the Management Agreement or the Settlement Agreement.
Effective September 2, 1998, GBHC acquired the membership interests in
Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company
which owns a land parcel adjacent to GBHC (the "Lieber Parcel") and GBHC
acquired and caused an option agreement on other adjacent land parcels (the
"Option Parcels") to be assigned to Lieber (the "Option Agreement"). The Lieber
Parcel and the Option Parcels provided GBHC with an expansion opportunity and
frontage on Pacific Avenue, the principal street running parallel and closest to
the boardwalk in Atlantic City, New Jersey. On September 20, 1999, closing took
place under the Option Agreement and Lieber, whose sole member is GBHC, obtained
title to the Option Parcels. The demolition of the existing structures on the
parcels was completed and construction of a new front entrance to the Sands'
facility has commenced with completion expected in June 2000.
On July 27, 1998, GBHC filed an adversary proceeding in the Bankruptcy
Court against GBCC, certain of its affiliates, and certain of the former
directors of GBHC (collectively the "Defendants") seeking to recover the Lieber
Parcel and the Option Agreement for the Option Parcels and to restrain the use
of its Net Operating Losses (the "NOL's"). Effective September 2, 1998, the
Debtors, on one side, and the Defendants, on the other, reached an agreement
resolving, among other things, the adversary proceeding (the "Second Settlement
Agreement"). Under the Second Settlement Agreement, among other things, the
Debtors agreed to be included in the consolidated federal income tax return of
GBCC for the years ended December 31, 1997 and 1998. GBCC agreed to allow the
Debtors to become deconsolidated from the GBCC group for federal income tax
purposes by causing PCC to transfer 21% of the stock ownership interest of PCC
in Holdings to a person other than any member of the GBCC group by December 31,
1998. In accordance with the Second Settlement Agreement and in order to effect
the deconsolidation of the Debtors from the GBCC group, effective after December
31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV. The
Second Settlement Agreement also resulted in the non-cash settlement of certain
outstanding intercompany transactions, the transfer of the membership interests
in Lieber to GBHC, and the assignment of the Option Agreement for the Option
Parcels to Lieber.
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
The preparation of 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. Actual results could differ from those estimates.
The financial statements as of March 31, 2000 and for the three-month
periods ended March 31, 2000 and 1999 have been prepared by GB Property Funding
without audit. In the opinion of management, these financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of GB Property Funding as of March 31,
2000, and the results of its operations and cash flows for the three-month
periods ended March 31, 2000 and 1999.
(2) Long-Term Debt
On February 17, 1994, GB Property Funding issued the First Mortgage Notes
due January 15, 2004. Interest on the First Mortgage Notes accrued at the rate
of 10 7/8% per annum, payable semiannually. Interest only was payable during the
first three years. Thereafter, semiannual principal payments of $2,500,000 were
due on each interest payment date with the balance due at maturity. Such
semiannual payments could be made in cash or by tendering First Mortgage Notes
previously purchased or otherwise acquired by GB Property Funding. GB Property
Funding acquired $2,500,000 face mount of First Mortgage Notes that were used to
make the July 15, 1997 required principal payment. As a result of the filing
under Chapter 11, the debt service payments due subsequent to January 5, 1998
were not made. The accrual of interest on the First Mortgage Notes for periods
subsequent to the filing has been suspended.
The indenture for the First Mortgage Notes (the "Indenture") contains
various provisions which, among other things, restrict the ability of certain
subsidiaries of GBCC to pay dividends to GBCC, to merge, to consolidate, to sell
substantially all of their assets or to incur additional indebtedness beyond
certain limitations. In addition, the Indenture requires the maintenance of
certain cash balances and requires minimum expenditures, as defined in the
Indenture, for property and fixture renewals, replacements and betterments at
the Sands.
Under an order of the Bankruptcy Court, permitting the disposition of
furniture and equipment in the ordinary course of business, any payments
received by GBHC for the sale of such assets, which are part of the security for
the First Mortgage Notes, must be remitted to the Indenture Trustee for the
First Mortgage Notes (the "Indenture Trustee") as reductions to the outstanding
principal of the First Mortgage Notes. Proceeds from the sale of such assets
amounting to $3,000 and $257,000 for the three months ended March 31, 2000 and
the year ended December 31, 1999, respectively, were remitted to the Indenture
Trustee.
No interest was paid or received with respect to the First Mortgage Notes
and the loan to GBHC during the three-month periods ended March 31, 2000 and
1999. Interest receivable and payable with respect to the notes of $9,373,000
are included on the accompanying balance sheets in non-current assets and
liabilities subject to compromise, respectively, as such payments are subject to
terms of a reorganization plan which requires confirmation by the Bankruptcy
Court.
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GB PROPERTY FUNDING CORP.
(Debtor-in-Possession, wholly owned by GB Holdings, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Income Taxes
Prior to 1997, GB Property Funding was included in the consolidated
federal income tax return of Hollywood Casino Corporation ("HCC"), the parent
company of GBCC until HCC distributed the GBCC stock it owned to the
shareholders of HCC as a dividend on December 31, 1996. As part of the Second
Settlement Agreement, GB Property Funding was included in GBCC's consolidated
federal income tax return through the year ended December 31, 1998, and GBCC
agreed to allow the Debtors to become deconsolidated from the GBCC group after
that date. In accordance therewith, effective after December 31, 1998, PCC
transferred 21% of its stock ownership in Holdings to PBV, effecting the
deconsolidation of GB Property Funding from the GBCC group. As a result, for tax
years ending after 1998, GB Property Funding will file its federal income tax
return on a consolidated basis with Holdings and GBHC. GB Property Funding made
no federal or state income tax payments during the three-month periods ended
March 31, 2000 and 1999.
The Debtors are dependent upon receipt of information from HCC and GBCC as
to the operations of their affiliates and the impact of those operations on the
former HCC and GBCC consolidated tax returns.
(4) Legal Proceedings
On January 5, 1998, the Debtors filed petitions for relief under Chapter
11 of the Bankruptcy code in the Bankruptcy Court (see Note 1).
12
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 25,506,000 $ 20,897,000
Accounts receivable, net of allowances
of $10,949,000 and $11,413,000, respectively 8,079,000 9,864,000
Inventories 3,000,000 3,784,000
Due from affiliates 16,000 236,000
Deferred income taxes 3,478,000 3,478,000
Prepaid expenses and other current assets 1,681,000 2,266,000
------------- -------------
Total current assets 41,760,000 40,525,000
------------- -------------
Property and Equipment:
Land 51,233,000 50,777,000
Buildings and improvements 185,508,000 185,508,000
Operating equipment 109,965,000 108,260,000
Construction in progress 3,509,000 2,295,000
------------- -------------
350,215,000 346,840,000
Less - accumulated depreciation and
amortization (192,456,000) (189,805,000)
------------- -------------
Net property and equipment 157,759,000 157,035,000
------------- -------------
Other Assets:
Obligatory investments, net of allowances of
$9,357,000 and $9,122,000, respectively 8,660,000 8,386,000
Other assets 2,406,000 2,470,000
------------- -------------
Total other assets 11,066,000 10,856,000
------------- -------------
$ 210,585,000 $ 208,416,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated financial statements.
13
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Current Liabilities Not Subject to Compromise:
Current maturities of long-term debt $ 81,000 $ 79,000
Accounts payable 5,292,000 4,849,000
Accrued liabilities -
Salaries and wages 4,258,000 3,458,000
Reorganization costs 1,803,000 1,843,000
Insurance 1,966,000 1,872,000
Other 6,536,000 5,879,000
Due to affiliates 990,000 1,099,000
Other current liabilities 3,946,000 4,322,000
------------- -------------
Total current liabilities 24,872,000 23,401,000
------------- -------------
Liabilities Subject to Compromise (Note 3) 216,582,000 217,028,000
------------- -------------
Long-Term Debt 818,000 839,000
------------- -------------
Deferred Taxes and Other Noncurrent Liabilities 6,770,000 6,741,000
------------- -------------
Commitments and Contingencies
Shareholder's Deficit:
Common stock, $1.00 par value per share;
1,000 shares authorized and outstanding 1,000 1,000
Additional paid-in capital 27,946,000 27,946,000
Accumulated deficit (66,404,000) (67,540,000)
------------- -------------
Total shareholder's deficit (38,457,000) (39,593,000)
------------- -------------
$ 210,585,000 $ 208,416,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated financial statements.
14
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Casino $ 54,845,000 $ 53,404,000
Rooms 2,169,000 2,019,000
Food and beverage 6,527,000 6,261,000
Other 1,080,000 1,414,000
------------ ------------
64,621,000 63,098,000
Less - promotional allowances (5,832,000) (5,171,000)
------------ ------------
Net revenues 58,789,000 57,927,000
------------ ------------
Expenses:
Casino 46,936,000 47,466,000
Rooms 677,000 765,000
Food and beverage 1,951,000 2,332,000
Other 809,000 954,000
General and administrative 2,411,000 2,683,000
Depreciation and amortization 3,089,000 2,857,000
------------ ------------
Total expenses 55,873,000 57,057,000
------------ ------------
Income from operations 2,916,000 870,000
------------ ------------
Non-operating income (expense):
Interest income 187,000 141,000
Interest expense (contractual interest of $5,515,000
and $5,523,000, respectively, for the three months
ended March 31, 2000 and 1999) (73,000) (20,000)
Reorganization and other related costs (1,245,000) (529,000)
Gain/(loss) on disposal of assets (10,000) 28,000
------------ ------------
Total non-operating expense, net (1,141,000) (380,000)
------------ ------------
Income before income taxes 1,775,000 490,000
Income tax provision (639,000) --
------------ ------------
Net income $ 1,136,000 $ 490,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated financial statements.
15
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,136,000 $ 490,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,089,000 2,857,000
(Gain)/loss on disposal of assets 10,000 (28,000)
Provision for doubtful accounts 633,000 475,000
Decrease/(increase) in accounts receivable 1,152,000 (459,000)
Increase in accounts payable and accrued expenses 1,825,000 1,016,000
Net change in other current assets and liabilities 463,000 (431,000)
Net change in other noncurrent assets and liabilities 65,000 (158,000)
------------ ------------
Net cash provided by operating activities 8,373,000 3,762,000
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,102,000) (2,208,000)
Proceeds from disposal of assets 12,000 28,000
Obligatory investments (652,000) (664,000)
------------ ------------
Net cash used in investing activities (3,742,000) (2,844,000)
------------ ------------
FINANCING ACTIVITIES:
Repayments of long-term debt (22,000) (58,000)
------------ ------------
Net cash used in financing activities (22,000) (58,000)
------------ ------------
Net increase in cash and cash equivalents 4,609,000 860,000
Cash and cash equivalents at beginning of period 20,897,000 23,844,000
------------ ------------
Cash and cash equivalents at end of period $ 25,506,000 $ 24,704,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated financial statements.
16
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly
owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998.
PCC, a Delaware corporation, was incorporated in September 1993 and was wholly
owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned
subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after December
31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc.
("PBV"), a newly formed entity controlled by certain stockholders of GBCC. As a
result of a certain confirmed plan of reorganization of PCC and others in
October 1999, the remaining 79% stock interest of PCC in Holdings was
transferred to Greate Bay Holdings, LLC, whose sole member as a result of the
same reorganization is PPI ("GBLLC"). In February 1994, Holdings acquired Greate
Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital
contribution by its then parent. GBHC's principal business activity is its
ownership of the Sands Hotel and Casino in Atlantic City, New Jersey (the
"Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware
corporation and a wholly owned subsidiary of Holdings, was incorporated in
September 1993 for the purpose of borrowing funds through the issuance of
$185,000,000 of ten-year, First Mortgage Notes for the benefit of GBHC; such
debt was issued in February 1994 at the rate of 10 7/8% per annum and the
proceeds were loaned to GBHC (see Note 2). Holdings has no operating activities
and its only significant asset is its investment in GBHC.
On January 5, 1998, GBHC, Holdings and GB Property Funding (collectively,
the "Debtors") filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court"). Accordingly, the
accompanying consolidated financial statements have been prepared in accordance
with Statement of Position No. 90-7, "Financial Reporting By Entities in
Reorganization under the Bankruptcy Code", and include disclosure of liabilities
subject to compromise (see Note 3).
The prior Boards of Directors resigned on January 2, 1998 and new Boards
of Directors were elected at that time. Each company continues to operate in the
ordinary course of business as set forth in the Bankruptcy Code. Each company's
executive officers and directors as of the date of the filing also remain in
office, subject to the jurisdiction of the Bankruptcy Court, other than the
following: as required by the Settlement Agreement, as defined below, Richard
Knight resigned as a Director, President, and Chief Executive Officer of the
debtors effective July 8, 1998; John P. Belisle was elected President and Chief
Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a
Director of GBHC on August 3, 1998. On November 1, 1999, John P. Belisle
resigned as President and Chief Executive Officer of GBHC. On November 5, 1999,
Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On
November 11, 1999, Jerome T. Smith, the independent member of the Boards of
Directors of the Debtors and one of the two independent members of the Audit
Committee of Holdings, citing a newly arisen potential conflict of interest,
resigned.
Effective September 2, 1998, GBHC acquired the membership interests in
Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that
owns a land parcel adjacent to GBHC (the "Lieber Parcel"). GBHC also acquired
and/or caused an option agreement on other adjacent land parcels (the "Option
Parcels") to be assigned to Lieber (the "Option Agreement").
17
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The accompanying consolidated financial statements include the accounts
and operations of Holdings, GBHC, GB Property Funding and Lieber. All
significant intercompany balances and transactions have been eliminated.
On September 20, 1999, closing took place under the Option Agreement and
Lieber, whose sole member is GBHC, obtained title to the Option Parcels. The
Lieber Parcel and the Option Parcels provide GBHC with an expansion opportunity
and frontage on Pacific Avenue, the principal street running parallel and
closest to the boardwalk in Atlantic City, New Jersey. The demolition of the
existing structures on the parcels was completed and construction of a new front
entrance to the Sands' facility has commenced.
On January 11, 1999, the exclusivity period during which only the debtors
could file a plan of reorganization expired and, as a result, any party in
interest could file a plan of reorganization. On June 1, 1999, the Debtors filed
with the Bankruptcy Court a plan of reorganization and disclosure statement,
ultimately filing a third modified plan of reorganization (the "Plan") and third
modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved
the adequacy of the disclosure statement and a confirmation hearing on the Plan
was scheduled for December 17, 1999 (the "Confirmation Hearing").
On November 3, 1999, the Debtors received notice from Merrill Lynch Asset
Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE")
had reached agreement on a term sheet under which PPE would sponsor a plan of
reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE
controlled approximately 53% of the First Mortgage Notes. MLAM requested that
the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a
revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed
to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the
adjournment and set December 1, 1999 as a status conference for a report by the
Debtors on the status of their due diligence and evaluation of the provisions of
the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy
Court set December 22, 1999 as a final status conference for the Debtors to
report on their due diligence and evaluation of the Term Sheet. Entities
controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of
Reorganization of the Debtors prior to the December 22, 1999 status conference.
The Bankruptcy court decided at the status conference that PPE and Icahn should
submit competing Plans of Reorganization and Supplemental Disclosure Statements
with the Debtors submitting a Master Disclosure Statement by January 18, 2000,
and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to
consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan
with the Official Committee of Unsecured Creditors (the "Committee") on January
18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court
conducted a hearing on the adequacy of the Disclosure Statements on February 16,
2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file
amended Plans and Supplemental Disclosure Statements with their final economic
offers to the creditors by March 6, 2000, and scheduled a further adequacy
hearing for March 23, 2000. At that hearing, the Bankruptcy Court directed Icahn
and the Committee and PPE to make certain revisions to their amended Plans and
Supplemental Disclosure Statements and file them on March 31, 2000, and
scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine
if any further changes to the Supplemental Disclosure Statements would be
directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000,
the Bankruptcy court approved the Debtors' Master Disclosure Statement, approved
the Supplemental Disclosure Statements of Icahn and the Committee and of PPE
subject to
18
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
their making certain revisions, and established June 5, 2000 as the deadline for
creditors to deliver their votes for or against the Plans and June 19, 2000 as
the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court
adjourned the confirmation hearing to June 20, 2000.
A plan requires confirmation by the Bankruptcy Court and approval by the
New Jersey Casino Control Commission (the "Casino Commission"). There can be no
assurance at this time that a plan will be confirmed by the Bankruptcy Court and
approved by the Casino Commission. In the event a plan is confirmed,
continuation of the business thereafter is dependent on GBHC's ability to
achieve successful future operations. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should GBHC be unable to continue as a going
concern. Although management has not made a determination whether an impairment
of the carrying value currently exists, future adjustments to the carrying
amount of GBHC's assets may be required with respect to the fresh-start
reporting which would take place on the effective date of the confirmation of a
plan.
A significant amount of the Sands' revenues are derived from patrons
living in northern New Jersey, southeastern Pennsylvania and metropolitan New
York City. Competition in the Atlantic City gaming market is intense and
management believes that this competition will continue or intensify in the
future.
The preparation of 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. Actual results could differ from those estimates.
Prior to July 8, 1998, New Jersey Management, Inc. ("NJMI"), then a wholly
owned subsidiary of PCC, was responsible for the operations of the Sands under a
management agreement dated August 19, 1987, as amended, with GBHC (the
"Management Agreement"). On May 22, 1998, GBHC filed a motion with the
Bankruptcy Court to reject the Management Agreement (the "Rejection Motion").
GBCC, NJMI, and certain of their affiliates, on one side, and the Debtors, on
the other, entered into an agreement on June 27, 1998, which was approved by the
Bankruptcy Court on July 7, 1998, and by the Casino Commission on July 8, 1998
(the "Settlement Agreement"). Under the Settlement Agreement, among other
things, the Management Agreement was suspended and replaced with a services
agreement until a decision by the Bankruptcy Court on the Rejection Motion, and
GBHC ceded ownership rights to an affiliate of GBCC in, and obtained a perpetual
license from the same affiliate for, the computer software used in its
operations. On September 28, 1998, and as a result of the Second Settlement
Agreement, as defined below, the Bankruptcy Court granted the Rejection Motion
and, in conformity therewith, no further fees will be paid under either the
Management Agreement or the Settlement Agreement (see Note 5).
On July 27, 1998, GBHC filed an adversary proceeding in the Bankruptcy
Court against GBCC, certain of its affiliates, and certain of the former
directors of GBHC (collectively the "Defendants"), seeking to recover the Lieber
Parcel and the Option Agreement for the Option Parcels and to restrain the use
of its Net Operating Losses (the "NOL's"). Effective September 2, 1998, the
Debtors, on one side, and the Defendants, on the other, reached
19
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
an agreement resolving, among other things, the adversary proceeding (the
"Second Settlement Agreement"). Under the Second Settlement Agreement, among
other things, the Debtors agreed to be included in the consolidated federal
income tax return of GBCC for the years ended December 31, 1997 and 1998.
GBCC agreed to allow the Debtors to become deconsolidated from the GBCC
group for federal income tax purposes and, in accordance therewith, effective
after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings
to PBV, effecting the deconsolidation of the Debtors from the GBCC group. The
Second Settlement Agreement also resulted in the non-cash settlement of certain
outstanding intercompany transactions, the transfer of the membership interests
in Lieber to GBHC and the assignment of the Option Agreement for the Option
Parcels to Lieber (see Note 7).
GBHC is self insured for a portion of its general liability, certain
health care and other liability exposures. A third party insures losses over
prescribed levels. Accrued claims reserves represent estimates of such
liabilities based on an evaluation of the merits of individual claims and
historical claims experience. Accordingly, GBHC's ultimate liability may differ
from the amounts accrued.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of"
requires, among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
As discussed above, GBHC filed for protection under the Bankruptcy Code.
Although management has not made a determination whether an impairment of the
carrying value currently exists, future adjustments to the carrying amount of
GBHC's assets are possible with respect to the fresh-start reporting which would
take place on the effective date of the confirmation of a plan of
reorganization.
The consolidated financial statements for the three-month periods ended
March 31, 2000 and 1999 have been prepared by Holdings without audit. In the
opinion of management, these consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the consolidated financial position of Holdings as of March 31,
2000, and the results of its operations and cash flows for the three-month
periods ended March 31, 2000 and 1999.
20
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(2) Long-Term Debt and Pledge of Assets
Long-term debt is comprised of the following:
March 31, December 31,
2000 1999
-------------- --------------
10 7/8% first mortgage, notes due 2004 (a) $ 181,977,000 $ 181,980,000
14 5/8% affiliate loan, due 2005 (b) 10,000,000 10,000,000
Lieber Mortgage (c) 498,000 513,000
Other 401,000 405,000
-------------- --------------
Total 192,876,000 192,898,000
Less - current maturities (81,000) (79,000)
Less - debt subject to compromise (Note 3) (191,977,000) (191,980,000)
-------------- --------------
Total long-term debt $ 818,000 $ 839,000
============== ==============
- --------------------
(a) On February 17, 1994, GBHC obtained the net proceeds from the sale by GB
Property Funding of $185,000,000 of First Mortgage Notes due January 15,
2004 (the "First Mortgage Notes"). Interest on the First Mortgage Notes
accrued at the rate of 10 7/8% per annum, payable semiannually. Interest
only was payable during the first three years. Thereafter, semiannual
principal payments of $2,500,000 were due on each interest payment date
with the balance due at maturity. Holdings acquired $2,500,000 face amount
of First Mortgage Notes at a discount in May 1997, which it used to make
its July 15, 1997 principal payment. As a result of the filing under
Chapter 11, the debt service payments due subsequent to January 5, 1998
were not made and the accrual of interest on the First Mortgage Notes for
periods subsequent to the filing has been suspended.
Subject to certain exceptions in the Security Agreement, substantially all
of Holdings' and GBHC's assets are pledged in connection with their
long-term indebtedness. GBHC filed a motion in the Bankruptcy Court,
seeking to use "Cash Collateral", as defined by 11 U.S.C. ss.363, in the
ordinary course of its business. By opinion filed April 3, 1998 (the
"Opinion"), the Bankruptcy Court granted GBHC the right to use "Cash
Collateral" subject to providing certain adequate protection in favor of
the Indenture Trustee for the First Mortgage Notes (the "Indenture
Trustee") and concluded, among other things, that the Indenture Trustee
did not have a perfected security interest in GBHC's deposit accounts or
cash generated from casino operations. An order was entered in conformity
with the Opinion on May 5, 1998. The Indenture Trustee took an appeal of
the order to the United States District Court for the District of New
Jersey. On March 19, 1999, the United States District Court for the
District of New Jersey affirmed the Bankruptcy Court's decision. The
Indenture Trustee filed an appeal with the United States Court of Appeals
for the Third Circuit, which affirmed the decision on January 31, 2000.
21
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Indenture for the First Mortgage Notes (the "Indenture") contains
various provisions which, among other things, restrict the ability of
certain subsidiaries of GBCC to pay dividends to GBCC, to merge, to
consolidate, to sell substantially all of their assets or to incur
additional indebtedness beyond certain limitations. In addition, the
Indenture requires the maintenance of certain cash balances and requires
minimum expenditures, as defined in the Indenture, for property and
fixture renewals, replacements and betterments at the Sands.
Under an order of the Bankruptcy Court, permitting the disposition of
furniture and equipment in the ordinary course of business, any payments
received by GBHC for the sale of such assets, which are part of the
security for the First Mortgage Notes, must be remitted to the Indenture
Trustee as reductions of the outstanding principal of the First Mortgage
Notes. Proceeds from the sale of such assets amounting to $3,000 and
$263,000, for the three months ended March 31, 2000 and the year ended
December 31, 1999, respectively, were remitted to the Indenture Trustee.
(b) On February 17, 1994, PRT Funding Corp. ("PRT"), then an affiliate, loaned
GBHC $10,000,000 under a promissory note (the "PRT Subordinated Note"),
which is subordinated to the First Mortgage Notes. The PRT Subordinated
Note is due on February 17, 2005 and bore interest at the rate of 14 5/8%
per annum, payable semiannually. Interest has been paid only through
February 17, 1996. Repayment of the PRT Subordinated Note and the payment
of the related interest are subject to any setoffs and defenses available
under the Bankruptcy Code and applicable law. The accrual of interest on
the PRT Subordinated Note for periods subsequent to the filing under
Chapter 11 has been suspended. As a result of the confirmation of a
certain plan of reorganization of PRT Funding Corp. in October 1999, the
PRT Subordinated Note was transferred to GBLLC, whose sole member is PPI.
(c) On September 2, 1998, and as part of the Second Settlement Agreement, GBHC
acquired the membership interests in Lieber (see Note 7) which owns the
Lieber Parcel. Principal mortgage indebtedness at the time of the
acquisition was $591,000 and the indebtedness bears interest at the rate
of 7% per annum. Principal and interest are paid monthly based on a
ten-year amortization schedule. The balance of the note is due in July
2001.
As a result of the Chapter 11 filing, principal payments and accrued
interest with respect to the First Mortgage Notes and the PRT Subordinated Note
are subject to a Plan of Reorganization, which requires confirmation by the
Bankruptcy Court and approval by the Casino Commission. Pending such
reorganization, the entire amount of the First Mortgage Notes and the PRT
Subordinated Note and accrued interest are included in liabilities subject to
compromise on the accompanying consolidated balance sheets.
22
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Scheduled payments of long-term debt as of March 31, 2000, exclusive of
payments on the First Mortgage Notes and the PRT Subordinated Note, are set
forth below:
2000 (nine months) $ 60,000
2001 467,000
2002 19,000
2003 21,000
2004 23,000
Thereafter 309,000
--------------
Total $ 899,000
==============
Interest paid amounted to $19,000 and $20,000, respectively, for the three
months ended March 31, 2000 and 1999. At March 31, 2000 and December 31, 1999,
accrued interest on the First Mortgage Notes in the amount of $9,373,000 is
included with liabilities subject to compromise on the accompanying consolidated
balance sheets.
(3) Liabilities Subject to Compromise
Liabilities subject to compromise under Holdings' reorganization
proceedings consist of the following:
March 31, December 31,
2000 1999
------------ ------------
Accounts payable and accrued liabilities $ 6,589,000 $ 6,811,000
First Mortgage Notes (Note 2) 181,977,000 181,980,000
PRT Subordinated Note (Note 2) 10,000,000 10,000,000
Borrowings from affiliate (Note 5) 5,000,000 5,000,000
Accrued interest (Notes 2 and 5) 12,855,000 12,855,000
Due to affiliates 161,000 382,000
------------ ------------
Total $216,582,000 $217,028,000
============ ============
(4) Income Taxes
Prior to 1997, Holdings was included in the consolidated federal income
tax return of Hollywood Casino Corporation ("HCC"). In accordance with the
Second Settlement Agreement (see Note 1), Holdings' operations were included in
GBCC's consolidated federal income tax returns for the years ended December 31,
1998 and 1997 but GBCC agreed to allow Holdings to become deconsolidated from
the GBCC group effective after December 31, 1998. In accordance therewith, PCC
transferred 21% of the stock ownership in Holdings to PBV,
23
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
effecting the deconsolidation of Holdings from the GBCC group for federal income
tax purposes. Accordingly, beginning in 1999, Holdings' provision for federal
income taxes is calculated and paid on a consolidated basis with GB Property
Funding and GBHC.
Federal and state income tax provisions or benefits are based upon
estimates of the results of operations for the current period and reflect the
non-deductibility for income tax purposes of certain items, including certain
amortization, meals and entertainment, and other expenses. Holdings made no
federal or state income tax payments during the three month periods ended March
31, 2000 and 1999.
Deferred income taxes result primarily from the use of the allowance
method rather than the direct write-off method for doubtful accounts, the use of
accelerated methods of depreciation for federal and state income tax purposes,
and differences in the timing of deductions taken between tax and financial
reporting purposes for contributions of, and adjustments to, the carrying value
of certain investment obligations and for other accruals.
At March 31, 2000, Holdings and its subsidiaries have deferred tax assets
including State net operating losses and Federal credit carryforwards. The net
operating losses ("NOL's") do not expire before the year 2003 for state tax
purposes. A portion of the credit carryforwards, if not utilized, will expire in
the year 2000, and each year thereafter through 2004. The remaining credit
carryforwards do not expire until the year 2019. The availability of the NOL's
and credit carryforwards may be subject to the tax consequences of a plan of
reorganization approved by the Bankruptcy Court. In addition, as provided in the
Second Settlement Agreement GBCC may utilize NOL's of Holdings and its
subsidiaries through December 31, 1998 to offset federal taxable income
("Federal NOL's") of GBCC and other members of its consolidated tax group.
Representatives of HCC and GBCC originally advised Holdings in March 1999 that
Holdings should have approximately $13 million in Federal NOL's available
subsequent to December 31, 1998. Subsequent adjustments recognized by GBHC and
reported to GBCC attributable to the year ended December 31, 1997, reduced the
available Federal NOL"S. GBCC advised GBHC in February 2000 that a portion of
the Debtors' Federal NOL's were utilized in the 1998 GBCC group consolidated
federal income tax return. However, GBCC also notified GBHC in February 2000
that all of the Debtors' Federal NOL's attributable to periods prior to January
1, 1997 will be utilized to shield certain additional excess loss account
adjustments attributable to the Spin Off, which may result in available Federal
NOL's in 1999 being reduced to approximately $4.4 million. GBHC is in the
process of examining the propriety of the use of its pre-1997 NOL's. The Debtors
expect that these remaining Federal NOL's will be utilized in the 1999 federal
tax return of the Debtors. Statement of Financial Accounting Standards No. 109
("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets
resulting from temporary differences be recorded as an asset and, to the extent
that management can not assess that the utilization of all or a portion of such
NOL's and deferred tax assets is more likely than not, requires the recording of
a valuation allowance. As a result of book and tax losses incurred in 1997 and
the filing under Chapter 11 by Holdings in January 1998, management is unable to
determine that realization of Holdings' deferred tax asset is more likely than
not and, thus, has provided a valuation allowance for the entire amount at March
31, 2000.
Sales or purchases of Holdings' common stock could cause a "change of
control", as defined in Section 382 of the Internal Revenue Code of 1986, as
amended, which would limit the ability of Holdings to utilize its NOL's in later
tax periods. Should such a change of control occur, the amount of NOL's
available for use would most
24
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
likely be substantially reduced. Future treasury regulations, administrative
rulings, or court decisions may also affect Holdings' future utilization of its
NOL's.
The Internal Revenue Service is currently examining the consolidated
federal income tax returns of HCC for the years 1993 through 1996 in which
Holdings' was included (the "Audit"). During 1998, HCC reported that it may be
required to file an amended federal tax return for calendar year 1996 and that
it may experience a material increase in income tax liability as a result of the
dividend by HCC to its shareholder of approximately 80% of the common stock of
GBCC (the "Spin Off"). However, as part of the Second Settlement Agreement, and
after use of any tax attributes available to members of the former HCC
consolidated group, HCC and GBCC agreed to pay any increased taxes, that are
attributable to the Spin Off without contribution from the Debtors.
Representatives of HCC have advised GBHC that the HCC group's NOL's will first
be used to shield audit adjustments relating to the years 1993 through 1996
before being used to offset excess loss account adjustments occurring at
December 31, 1996. Representatives of GBCC and HCC also represented to the
Debtors' independent accountants in March 1999 that the results of the Audit
should not have a material adverse effect on the consolidated financial position
or results of operations of the Debtors. In March 2000, GBCC reported in its
1999 SEC Form 10-K that the allocation of tax attributes to the entities
consolidated with HCC cannot be determined until the Audit is completed. GBCC
also reported that due to the inclusion of Holdings and its subsidiaries in the
consolidated returns an as yet undetermined portion of any resulting tax
liability to GBCC may be recoverable from Holdings. Any such claim will be
subject to the terms of the Second Settlement Agreement. While this disclosure
by GBCC is contrary to prior representations made by HCC and GBCC to Holdings
and its independent auditors, such disclosure causes management to be presently
unable to estimate the ultimate impact of the Audit on the consolidated
financial position or results of operations of Holdings. The Debtors are
dependent upon receipt of information from HCC and GBCC as to the operations of
their affiliates and the impact of those operations on the former HCC and GBCC
consolidated groups' Federal NOL's.
(5) Transactions with Related parties
Prior to July 8, 1998, NJMI was responsible for the operations of the
Sands under a Management Agreement with GBHC. Under such agreement, NJMI was
entitled to receive annually (i) a basic consulting fee of 1.5% of "adjusted
gross revenues," as defined, and (ii) incentive compensation of between 5% and
7.5% of gross operating profits in excess of certain stated amounts should
annual "gross operating profits," as defined, exceed $5,000,000. On May 22,
1998, GBHC filed the Rejection Motion. The Settlement Agreement, partially
resolving the Rejection Motion, was entered into on June 27, 1998 and was
approved by the Bankruptcy Court on July 7, 1998 and by the Casino Commission on
July 8, 1998. Under the Settlement Agreement and effective as of May 1, 1998 and
until decision on the Rejection Motion, NJMI agreed to provide certain services
to GBHC and GBHC agreed to pay a monthly fee of $165,000, which was payable
$122,000 on a monthly basis in arrears and $43,000 per month upon confirmation
of a plan of reorganization for the Debtors by the Bankruptcy Court. On
September 28, 1998, and as part of the Second Settlement Agreement, the
Bankruptcy Court approved the Rejection Motion. The current fees under the
Settlement Agreement have been paid and the deferred fees have been accrued. As
part of the Second Settlement Agreement, a rejection damages claim of NJMI was
preserved provided it was filed in the Bankruptcy Court within 30 days of the
entry of the order of the Bankruptcy Court on September 11, 1998 approving the
Second Settlement Agreement. The rejection damages claim was not filed and
25
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
expired along with the corresponding avoiding powers causes of action under the
Bankruptcy Code of GBHC, as provided in the Second Settlement Agreement.
Accordingly, other than the deferred fees, no further management fees will be
paid under either the Management Agreement or the Settlement Agreement except
that NJMI possessed a claim for pre-petition management fees, which was settled
for an unsecured claim in the amount of $75,000 and which was transferred to
GBLLC along with the claim for the deferred fees.
As a result of the Second Settlement Agreement and the Rejection Motion,
no such fees were incurred for the three months ended March 31, 2000 and 1999.
Amounts payable under the Settlement Agreement to NJMI, which have been assigned
to GBLLC, and included in due to affiliates on the accompanying consolidated
balance sheets at March 31, 2000 and December 31, 1999, amounted to $211,000.
The $75,000 unsecured claim arising from the settlement in 1999 of the
pre-petition management fee claim under the Management Agreement is included in
liabilities subject to compromise on the accompanying consolidated balance
sheets at March 31, 2000 and December 31, 1999.
GBHC's rights to the trade name "Sands" (the "Trade Name") are derived
from a license agreement between GBCC and an unaffiliated third party. Amounts
payable by the Sands for these rights are equal to the amounts paid to the
unaffiliated third party. Such charges amounted to $65,000 and $60,000,
respectively, for the three month periods ended March 31, 2000 and 1999. Under
the Settlement Agreement, GBCC agreed not to seek to cancel the rights of GBHC
to use the Trade Name prior to December 15, 1998, and GBHC preserved its legal
position that GBCC lacked the right to cancel the rights of GBHC to use the
Trade Name. GBCC filed a motion in the Bankruptcy Court seeking relief from the
automatic stay, pursuant to 11 U.S.C. ss.362(a), to send a letter to the
licensor, purporting to terminate the license agreement. GBHC opposed the motion
and the motion was denied by Order of the Bankruptcy Court dated March 2, 1999.
On March 10, 1999, GBCC took an appeal to the United States District Court for
the District of New Jersey. On June 10, 1999, the United States District Court
for the District of New Jersey affirmed the Bankruptcy Court's decision. On July
13, 1999, GBCC filed an appeal with the United States Court of Appeals for the
Third Circuit. GBCC and GBHC filed a motion with the Third Circuit on March 23,
2000, seeking an adjournment of the briefing schedule in the appeal based on the
belief that the likelihood of the confirmation of either the Icahn/Committee or
PPE Plan in the near future by the Bankruptcy Court will eliminate the automatic
stay by the effective date of a Plan, will moot the issue raised by GBCC in the
appeal and will permit GBCC to seek to terminate the license agreement if it
still chooses to do so.
An advance from GBHC to another GBCC subsidiary in the amount of
$5,672,000 was outstanding at March 31, 2000, except that, under the Second
Settlement Agreement, GBHC agreed not to sue the entity receiving the advance
and its affiliates and reserved any rights it had to offset the advance against
the PRT Subordinated Note, and the PCC Subordinated Note, as hereafter defined
(collectively, the "Subordinated Notes"). Interest on the advance accrues at the
rate of 16.5% per annum. The advance, together with accrued interest amounting
to $6,084,000 and $5,850,000 at March 31, 2000 and December 31, 1999,
respectively, is fully reserved as collection of the receivable is uncertain.
During the third quarter of 1996, GBCC borrowed a total of $6,500,000 from
HCC, which GBCC then loaned to GBHC to enable GBHC to make its debt service
obligations and a property tax payment. According to the terms of the
corresponding note, such borrowings accrued interest at the rate of 13 3/4% per
annum payable
26
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
quarterly commencing October 1, 1996. During the first quarter of 1997, GBHC
borrowed an additional $1,500,000 from GBCC on similar stated terms. As part of
the Second Settlement Agreement, GBHC settled certain intercompany obligations
on a non-cash basis. This loan to GBHC from GBCC, totaling $8,000,000 along with
accrued interest totaling $1,508,000, and a deferred federal tax asset of
GBHC's, totaling $10,902,000, representing a claim against an affiliate for the
overpayment of federal income taxes under a previously existing tax sharing
agreement, were mutually released. As the deferred federal tax asset had been
previously fully reserved as required by SFAS 109, this mutual release resulted
in the recording of a capital contribution in the amount of $9,508,000.
GBHC also borrowed $5,000,000 from another subsidiary of GBCC during
January, 1997 at the stated rate of 14 5/8% per annum payable semiannually
commencing July 15, 1997 and, as set forth in the terms of the corresponding
note, the loan is subordinated to the First Mortgage Notes and payment is
subject to certain conditions (the "PCC Subordinated Note"). Interest accrued on
the PCC Subordinated Note amounted to $728,000 at both March 31, 2000 and
December 31, 1999, and is included in liabilities subject to compromise on the
accompanying consolidated balance sheets. Repayment of the PCC Subordinated Note
and the payment of the related interest are subject to approval of the Casino
Commission and any setoffs and defenses available under the Bankruptcy Code and
applicable law and to the terms of a Plan, which requires confirmation by the
Bankruptcy Court and approval by the Casino Commission. The accrual of interest
on the PCC Subordinated Note for periods subsequent to the filing under Chapter
11 has been suspended. As a result of the confirmation of a certain plan of
reorganization of PCC in October 1999, the PCC Subordinated Note was transferred
to GBLLC.
Interest accrued on the PRT Subordinated Note (Note 2) of $2,754,000 is
included in liabilities subject to compromise on the accompanying consolidated
balance sheets at March 31, 2000 and December 31, 1999.
Effective September 2, 1998, GBHC acquired Lieber as part of the Second
Settlement Agreement and caused the Option Agreement for the Option Parcels to
be assigned to Lieber. The assignment of the Option Agreement for the Option
Parcels under the Second Settlement Agreement requires a confirmation payment of
$500,000 to be paid to a designated affiliate of GBCC upon confirmation of a
plan of reorganization. This obligation was transferred to GBLLC by GBCC and is
included in due to affiliates in the accompanying consolidated balance sheets at
March 31, 2000 and December 31, 1999.
27
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
GBHC performed certain services for other subsidiaries of GBCC and for HCC
and its subsidiaries and invoiced those companies for the Sands' cost of
providing those services. Similarly, GBHC was charged for certain equipment and
other expenses incurred by GBCC and HCC and their respective subsidiaries that
relate to GBHC's business. Such affiliate transactions are summarized below:
Three Months Ended
March 31,
-------------------------------
2000 1999
-------------- --------------
Billings to affiliates $ -- $ 24,000
Charges from affiliates 139,000 313,000
(6) Legal Proceedings
On January 5, 1998, the Debtors filed petitions for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1).
On May 22, 1998, GBHC filed the Rejection Motion with the Bankruptcy
Court. The Management Agreement was suspended as a result of the Settlement
Agreement and was replaced with a service agreement until the decision on the
Rejection Motion. On September 28, 1998, and as part of the Second Settlement
Agreement, the Bankruptcy Court granted the Rejection Motion (see Note 1).
On July 27, 1998, GBHC filed an action in the Bankruptcy Court (the
"Action") against GBCC, certain affiliates of GBCC, and Jack E. Pratt, Edward T.
Pratt Jr. and William D. Pratt, former directors of GBHC (collectively, the
"Defendants"), alleging, inter alia, usurpation of corporate opportunities of
GBHC and breach of fiduciary duty with respect to GBHC in connection with the
acquisition of an option for certain land parcels and the acquisition of a land
parcel on Pacific Avenue in Atlantic City, New Jersey adjoining the Sands
(collectively, the "Parcels"), and seeking, inter alia, an order enjoining the
Defendants from transferring the Parcels to third parties and requiring the
Defendants to convey the Parcels to GBHC. The Action also sought to enjoin the
Defendants from using the NOL's of the Debtors (see Note 4). Effective September
2, 1998, the parties entered into the Second Settlement Agreement resolving,
among other things, the Action. The Second Settlement Agreement also resulted in
the dismissal of all applications in the Bankruptcy Court related to the Action.
The Debtors and the Defendants also entered into mutual and general releases
subject to certain exceptions described in the Second Settlement Agreement.
GBHC has filed tax appeals with the New Jersey Tax Court challenging the
amount of its real property assessment for calendar years 1996, 1997, 1998, 1999
and 2000. The City of Atlantic City has also appealed the amount of the
assessments for the same years.
GBHC is a party in various legal proceedings with respect to the conduct
of casino and hotel operations. Although a possible range of losses cannot be
estimated, in the opinion of management, based upon the advice of
28
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
counsel, settlement or resolution of these proceedings should not have a
material adverse impact upon the consolidated financial position or results of
operations of Holdings and GBHC. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainties described above.
(7) Acquisition of Lieber Check Cashing and the Agreement for the Option Parcels
Effective September 2, 1998, and as part of the Second Settlement
Agreement, (see Note 1), GBHC acquired the membership interests in Lieber from
affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights
under the Option Agreement for the Option Parcels from another affiliate of GBCC
for a payment of $1.3 million and a payment of $500,000 at confirmation of a
plan of reorganization. During September 1998, GBHC provided Lieber with $1
million, which Lieber paid to the owner of the Option Parcels to extend the
closing under the Option Agreement for the Option Parcels to September 30, 1999.
On April 20, 1999, GBHC filed a motion with the Bankruptcy Court seeking
approval to close on the Option Agreement for the Option Parcels (the "Closing
Motion"). In addition, on May 6, 1999, and subject to Bankruptcy Court approval,
Lieber entered into a second amendment to the Option Agreement to set the
closing date as September 20, 1999, to increase the down payment by $500,000,
and to provide for the right to seek certain state and local land use approvals
prior to the closing date without violation of the Option Agreement (the
"Amendment"). On May 10, 1999, the Bankruptcy Court granted the Closing Motion
and approved the Amendment. On May 10, 1999, $500,000 was paid to the Escrow
Agent under the Option Agreement as required by the Amendment. The purchase
price of the Option Parcels was $10 million, $2.5 million of which was paid
prior to closing and $7.5 million of which was due at closing. On September 20,
1999, closing took place under the Option Agreement and Lieber, whose sole
member is GBHC, obtained title to the Option Parcels. The demolition of the
existing structures has been completed and GBHC is in the process of
constructing a new front entrance to the Sands' facility on Pacific Avenue. The
new front entrance is expected to be completed by June 2000.
29
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of Holdings. The actual
results could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties including, among other
things, changes in competition, economic conditions, tax regulations, state
regulations applicable to the gaming industry in general or Holdings in
particular, and other risks indicated in Holdings' filings with the Securities
and Exchange Commission. Such risks and uncertainties are beyond management's
ability to control and, in many cases, cannot be predicted by management. When
used in this Quarterly Report on Form 10-Q, the words "believes", "estimates",
"anticipates" and similar expressions as they relate to Holdings or its
management are intended to identify forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
Holdings owns GBHC, which owns the Sands Hotel and Casino in Atlantic City
(the "Sands"). Prior to 1996, the Sands' cash flow from operations was
sufficient to meet debt service obligations and to fund a substantial portion of
annual maintenance capital expenditures. In addition, the Sands used short-term
borrowings as necessary to fund seasonal cash needs and for certain capital
projects. After 1995, however, the competitive position of the Sands became
impaired, which was due, in part, to insufficient capital expenditures
particularly compared to certain competing Atlantic City casinos. In 1996, due
to adverse weather in the first quarter, a decline in both table games and slot
hold percentages and increased industry competition resulting in higher
marketing expenditures, the Sands cash flow decreased significantly compared to
prior years. While cash flow improved in 1997, it remained significantly below
historical levels. These declines in operating cash flow at the Sands resulted
in the need for periodic financial assistance from PCC and GBCC in order for
GBHC to meet its debt service obligations. Substantial additional financial
assistance would have been required to make the January 15, 1998 principal and
interest payments due on the First Mortgage Notes.
GBHC was unable to obtain additional borrowings from affiliates or other
sources and, accordingly, on January 5, 1998, the Debtors filed petitions
seeking protection under Chapter 11 of the Bankruptcy Code. Each company
continues to operate in the ordinary course of business, as set forth in the
Bankruptcy Code. Each company's executive officers and directors as of the date
of filing remain in office, subject to the jurisdiction of the Bankruptcy Court,
other than the following: as required under the Settlement Agreement, Richard
Knight resigned as a Director, President, and Chief Executive Officer of the
Debtors effective July 8, 1998; John P. Belisle was elected President and Chief
Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a
Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle
resigned as President and Chief Executive Officer of GBHC. On November 5, 1999,
Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On
November 11, 1999, Jerome T. Smith, the independent member of the Boards of
Directors of the Debtors, and one of the two independent members of the Audit
Committee of Holdings, citing a newly arisen potential conflict of interest,
resigned.
On January 11, 1999, the exclusivity period during which only the Debtors
could file a plan of reorganization expired and, as a result, any party in
interest could file a plan of reorganization. On June 1, 1999, the Debtors filed
with the Bankruptcy Court a plan of reorganization and disclosure statement,
ultimately filing a
30
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
third modified plan of reorganization (the "Plan") and third modified disclosure
statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the
Disclosure Statement and a confirmation hearing on the Plan was scheduled for
December 17, 1999 (the "Confirmation Hearing").
On November 3, 1999, the Debtors received notice from Merrill Lynch Asset
Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE")
had reached agreement on a term sheet under which PPE would sponsor a plan of
reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE
controlled approximately 53% of the First Mortgage Notes. MLAM requested that
the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a
revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed
to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the
adjournment and set December 1, 1999 as a status conference for a report by the
Debtors on the status of their due diligence and evaluation of the provisions of
the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy
Court set December 22, 1999 as a final status conference for the Debtors to
report on their due diligence and evaluation of the Term Sheet. Entities
controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of
Reorganization of the Debtors prior to the December 22, 1999 status conference.
The Bankruptcy court decided at the status conference that PPE and Icahn should
submit competing Plans of Reorganization and Supplemental Disclosure Statements
with the Debtors submitting a Master Disclosure Statement by January 18, 2000,
and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to
consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan
with the Official Committee of Unsecured Creditors (the "Committee") on January
18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court
conducted a hearing on the adequacy of the Disclosure Statements on February 16,
2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file
amended Plans and Supplemental Disclosure Statements with their final economic
offers to the creditors by March 6, 2000, and scheduled a further adequacy
hearing for March 23, 2000. At that hearing, the Bankruptcy Court directed Icahn
and the Committee and PPE to make certain revisions to their amended Plans and
Supplemental Disclosure Statements and file them on March 31, 2000, and
scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine
if any further changes to the Supplemental Disclosure Statements would be
directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000,
the Bankruptcy court approved the Debtors' Master Disclosure Statement, approved
the Supplemental Disclosure Statements of Icahn and the Committee and of PPE
subject to their making certain revisions, and established June 5, 2000 as the
deadline for creditors to deliver their votes for or against the Plans and June
19, 2000 as the beginning of the confirmation hearing. Subsequently, the
Bankruptcy Court adjourned the confirmation hearing to June 20, 2000.
A plan requires confirmation by the Bankruptcy Court and approval by the
New Jersey Casino Control Commission (the "Casino Commission"). There can be no
assurance at this time that a plan will be confirmed by the Bankruptcy Court and
approved by the Casino Commission. In the event a plan is confirmed,
continuation of the business thereafter is dependent on GBHC's ability to
achieve successful future operations. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should GBHC be unable to continue as a going
concern. Although management has not made a determination whether an impairment
of the carrying value currently exists, future adjustments to the carrying
amount of
31
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
GBHC's assets may be required with respect to the fresh-start reporting which
would take place on the effective date of the confirmation of a Plan.
Operating Activities
At March 31, 2000, GBHC had cash and cash equivalents of $25.5 million.
GBHC generated cash flow from operations of $8.4 million for the three months
ended March 31, 2000 compared to $3.8 million for the three months ended March
31,1999. During the first quarter of 2000, GBHC utilized cash generated by its
operations to fund capital additions of $3.1 million and to make obligatory
investments of $652,000.
Financing Activities
Semiannual principal payments of $2.5 million, which became due commencing
in July 1997 with respect to the First Mortgage Notes, have been suspended as a
result of the Chapter 11 filing. Exclusive of the First Mortgage Notes and the
Subordinated Notes, which are subject to reorganization, the current portion of
long-term debt due during the remainder of 2000 is $60,000.
Under an order of the Bankruptcy Court, permitting the disposition of
furniture and equipment in the ordinary course of business, any payments
received by GBHC for the sale of such assets, which are part of the security for
the First Mortgage Notes, must be remitted to the Indenture Trustee as
reductions to the outstanding principal of the First Mortgage Notes. Proceeds
from the sale of such assets, amounting to $3,000 and $41,000 for the three
months ended March 31, 2000 and 1999, respectively, were remitted to the
Indenture Trustee.
Investing Activities
Capital expenditures at the Sands for the three months ended March 31,
2000 amounted to approximately $3.1 million, including $1.7 for the ongoing
construction of the new front entrance to the Sands facility. Management
anticipates that capital expenditures in the ordinary course of business for the
remainder of 2000 will be approximately $8.2 million. In addition, it is
estimated that $4.0 million in capital expenditures will be spent for the new
front entrance to the Sands facility during the remainder of 2000.
Effective September 2, 1998, and as part of the Second Settlement
Agreement, GBHC acquired the membership interests in Lieber from affiliates of
GBCC for $251,000. GBHC also caused Lieber to acquire the rights under the
Option Agreement for the Option Parcels from another affiliate of GBCC for
payment of $1.3 million and a payment of $500,000 at confirmation of a plan of
reorganization. During September 1998, GBHC provided Lieber with $1 million,
which Lieber paid to the owner of the Option Parcels to extend the closing under
the Option Agreement for the Option Parcels to September 30, 1999. On May 10,
1999, the Bankruptcy Court approved the Closing Motion filed by GBHC seeking
approval to close on the Option Agreement. On May 10, 1999, an additional
deposit of $500,000 was paid to the owner of the Option Parcels. The purchase
price of the Option Parcels was $10 million, $2.5 million of which was paid
prior to closing and $7.5 million of which was due at closing. On September 20,
1999, the closing took place under the Option Agreement and Lieber, whose sole
member is GBHC, obtained title to the Option Parcels one of which was subject to
a lease (the "Lease") and
32
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
a sub-lease for the operation of a "Gold Store" (the "Sub-lease") Demolition of
the existing structures was completed and construction of a new front entrance
to the Sands' facility has commenced. The new front entrance is expected to be
completed by June 2000. GBHC obtained the rights under the Lease on March 27,
2000 for $371,000 and on the same date notified the operator of the Gold Store
that GBHC had elected to exercise a 90-day cancellation provision of the
Sub-lease and tendered to the sub-lessee a cancellation payment of approximately
$30,000. GBHC intends to demolish the Gold Store upon expiration of the notice
period and incorporate the land as part of its new front entrance.
GBHC also entered into an agreement with the entities controlling the
Claridge Hotel and Casino (the "Claridge"), subject to Bankruptcy Court
approval, to acquire the Claridge Administration Building ("CAB"), which is
situated between GBHC's existing main entrance and the new Pacific Avenue
entrance presently under construction. GBHC intends to demolish the CAB and
incorporate the land as part of the new front entrance. The purchase price was
$3.5 million, consisting of $1.5 million in cash at closing with the remaining
$2.0 million consideration tendered through the elimination for 40 months of a
$50,000 monthly license fee paid by the Claridge to GBHC under an agreement
between the Claridge and GBHC, governing the development and operation of the
"People Mover" leading from the Boardwalk to the Sands and Claridge (the "PM
Agreement"). GBHC and the Claridge also sought Bankruptcy Court approval of the
assumption of the PM Agreement as modified. Additionally, after the elimination
of the monthly license fee for the 40 months, the license fee will be reduced to
$20,000 a month thereafter. On April 5, 2000, the Bankruptcy Court approved the
acquisition of the CAB for the purpose described and approved the joint
assumption of the PM Agreement as modified. On April 17, 2000, the closing took
place on the CAB.
The Sands is required by the New Jersey Casino Control Act ("Casino Act")
to make certain quarterly deposits based on gross revenue with the Casino
Reinvestment Development Authority ("CRDA") in lieu of a certain investment
alternative tax. The deposits for the three months ended March 31, 2000 totaled
$652,000 and are anticipated to be approximately $2.3 million during the
remainder of 2000. The Sands has agreed to donate certain of its future deposit
obligations to the CRDA in connection with the construction related to the
Atlantic City Boardwalk Convention Center. The projected total donation will
amount to approximately $7.0 million, which will be paid over the next 12 years
based on an estimate of certain of the Sands' future CRDA deposit obligations.
Summary
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code. Accordingly,
there is significant doubt about Holdings' ability to continue as a going
concern. A plan of reorganization requires confirmation by the Bankruptcy Court
and approval by the Casino Commission. As a result of the Chapter 11 filing, the
debt service payments due subsequent to January 5, 1998 were not made and the
accrual of interest on both the First Mortgage Notes and the Subordinated Notes
for periods subsequent to the filing has been suspended. Management believes
that cash flows generated from operations during 2000 will be sufficient to meet
its operating plan and provide for scheduled capital expenditures.
33
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Gaming Operations
The following sets forth certain unaudited financial and operating data
relating to the Sands' casino operations:
Three Months Ended
March 31,
----------------------------
2000 1999
----------- -----------
($000's)
Units: (at end of quarter)
Table Games - Sands 100 99
- Atlantic City (ex. Sands) 1,240 1,279
Slot Machines - Sands 1,949 2,010
- Atlantic City 33,339 33,769
Gross Wagering (1)
Table Games - Sands $ 109,640 $ 102,738
- Atlantic City 1,692,981 1,588,086
Slot Machines - Sands 484,705 438,841
- Atlantic City 83,340,020 76,144,417
Hold Percentages (2)(3)
Table Games - Sands 15.2% 17.5%
- Atlantic City 15.5% 15.9%
Slot Machines - Sands 7.7% 7.9%
- Atlantic City 8.2% 8.2%
Revenues (2)
Table Games - Sands $ 16,659 $ 17,959
- Atlantic City 261,561 252,180
Slot Machines - Sands 37,390 34,750
- Atlantic City 679,399 623,092
Other (4) - Sands 796 695
- Atlantic City N/A N/A
- -----------------
(1) Gross wagering consists of the total value of coins wagered in slot
machines (the "handle") and the total value of chips purchased for table
games (the "drop") excluding poker.
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the
"hold percentage".
(3) The Sands' hold percentages are reflected on an accrual basis. Comparable
data for the Atlantic City gaming industry is not available; industry
percentages have been calculated based on information made available by
the Casino Commission and are possibly higher than if computed on the
accrual basis.
(4) Consists of revenues from poker and simulcast horse racing wagering.
34
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Patron Gaming Volume
Table game drop increased by $6.9 million (6.7%) during the three months
ended March 31, 2000 compared with the same period of 1999. By comparison,
according to Casino Commission reports, table game drop at all other Atlantic
City casinos during the same period reflected an increase of 6.6%. As a result,
the Sands table game market share (expressed as a percentage of the Atlantic
City gaming industry (the "industry") aggregate table game drop) remained
unchanged at 6.1%. The Sands table game drop increase in 2000 is attributable to
an increased volume of play from patrons whose wagering is tracked and whose
level of play generally entitles them to a varying level of rewards, including
cash and/or complimentary rooms, food, beverage, entertainment and gifts ("rated
players"). Between the first quarter of 1999 and the first quarter of 2000, the
number of table games did not change significantly at the Sands, compared with a
decrease of 3.1% at all other Atlantic City casinos. Aggregate gaming space at
all other Atlantic City casinos decreased by approximately 42,300 square feet at
March 31, 2000 compared to 1999 due to the closure of a portion of a competing
facility. The amount of gaming space at the Sands remained virtually unchanged
between periods.
Slot machine handle increased $45.9 million (10.5%) during the three
months ended March 31, 2000 compared with the same period of 1999. By
comparison, the percentage increase in slot machine handle for all other
Atlantic City casinos in the first quarter of 2000 vs. the same period in 1999
was 9.5%. As a result, the Sands' market share of slot machine handle as a
percentage of total industry slot handle remained virtually unchanged at 5.5%.
The increased Sands slot handle during 2000 is primarily attributable to an
increased volume of play from rated players although the volume of unrated slot
play increased as well. The amount of available gaming space did not change at
the Sands from the first quarter of 1999 to the first quarter of 2000, but the
number of slot machines decreased slightly. On an industry-wide basis, the
number of slot machines decreased slightly in 2000 compared to 1999 due to the
closure of a portion of a competing casino. During the last half of 1998 and in
1999, approximately 700 older or less popular slot machines were replaced with
new and more popular machines as part of the Sands capital expenditure program
approved by the Bankruptcy Court in March 1998.
35
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The following table sets forth the changes in operating revenues and
expenses (unaudited) for the three-month periods ended March 31, 2000 and 1999:
2000 1999 $ %
------- ------- ------- -------
($000's)
Revenues:
Casino $54,845 $53,404 $ 1,441 2.7
Rooms 2,169 2,019 150 7.4
Food and Beverage 6,527 6,261 266 4.2
Other 1,080 1,414 (334) (23.6)
Promotional Allowances 5,832 5,171 661 12.8
Costs and Expenses:
Casino 46,936 47,466 (530) (1.1)
Rooms 677 765 (88) (11.5)
Food and Beverage 1,951 2,332 (381) (16.3)
Other 809 954 (145) (15.2)
General and Administrative 2,411 2,683 (272) (10.1)
Depreciation and Amortization 3,089 2,857 232 8.1
Income from Operations 2,916 870 2,046 235.2
Non-operating items, net 1,141 380 761 200.3
Income Tax Provision 639 -- 639 N/A
Revenues
Casino revenues increased $1.4 million due to the 10.5 % increase in slot
handle that was partially offset by a slight decrease in slot hold percentage.
While table game drop also increased by 6.7%, the increased volume was offset by
a 13.1% decrease in the table game hold percentage resulting in a decrease in
table games revenue.
Rooms revenue increased $150,000 as a result of higher occupancy partially
offset by a decrease in the average daily room rate (ADR).
Food and beverage revenues increased $266,000 due to an increase in
revenue per cover ("average check").
Other revenues decreased $334,000 as a result of a decrease in the number
of theatre entertainment offerings.
36
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Promotional Allowances
Promotional allowances represent the estimated retail value of goods and
services provided free of charge to casino customers under various marketing
programs. As a percentage of rooms, food and beverage and other revenues, these
allowances increased to 59.7% during the three months ended March 31, 2000 from
53.4% during the same period of 1999. The increase is primarily attributable to
additions to and changes in marketing programs and other promotional activities
that resulted in the increased gaming volume from rated players.
Departmental Expenses
Casino expenses at the Sands decreased by $530,000 as a result of
management's ongoing efforts to create operating efficiencies in casino
marketing.
Rooms expense decreased $88,000 in part from an increase in the allocation
of rooms expense to casino expense due to a higher percentage of rooms being
utilized on a complimentary basis and in part from a reduction in the
utilization of operating supplies.
Food and beverage expense decreased $381,000 due to an increase in the
allocation of food and beverage expense to casino expense due to a higher
percentage of food and beverage being given away on a complimentary basis to
rated players.
Other expenses decreased $145,000 as a result of decreased costs
associated with theatre entertainment. This decrease was partially offset by a
lower allocation of other expenses to casino expense.
General and Administrative Expenses
General and administrative expenses decreased $272,000 due to higher than
normal repairs and maintenance costs in 1999 and reduced utility costs in 2000.
Depreciation and Amortization
Depreciation and amortization expense increased as a result of capital
additions including the 700 new slot machines which were on line for the entire
quarter in 2000 vs. 1999.
37
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Interest Income and Expense
Interest income increased by $46,000 (32.6%) during the three months ended
March 31, 2000 compared to the same period in 1999. The increase was due to
payments received on obligatory investments that were previously reserved.
Interest earned on cash balances accumulated as a result of the Chapter 11
filing (i.e., from not making debt service payments) is recorded as a reduction
of reorganization costs.
Interest expense increased $53,000 (265%) during the three months ended
March 31, 2000 compared to the same period in 1999. The increase is due to the
recognition of interest expense on the future CRDA donation liability. As a
result of the Chapter 11 filing, the accrual of interest expense on the First
Mortgage Notes, the Subordinated Notes and other affiliate advances for periods
subsequent to the filing has been suspended.
Income Tax Provision
Prior to 1997, Holdings was included in the consolidated federal income
tax return of HCC, the parent company of GBCC until HCC distributed the GBCC
stock it owned to its shareholders as a dividend on December 31, 1996. As part
of the Second Settlement Agreement (see Note 1), Holdings' operations were
included in GBCC's consolidated federal income tax return for the years ended
December 31, 1997 and 1998. Effective after December 31, 1998, PCC transferred
21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of
Holdings from the GBCC group for federal income tax purposes. Accordingly,
beginning in 1999, Holdings and its subsidiaries' provisions for federal income
taxes will be calculated and paid on a consolidated basis.
At March 31, 2000, GBHC has deferred tax assets including state net
operating losses and Federal credit carryforwards. The net operating losses
("NOL's") do not expire before the year 2003 for state tax purposes. A portion
of the credit carryforwards, if not utilized, will expire in the year 2000, and
each year thereafter through 2004. The remaining credit carryforwards do not
expire until the year 2019. The availability of the NOL's and credit
carryforwards will be subject to the tax consequences of a plan of
reorganization approved by the Bankruptcy Court. In addition, as provided in the
Second Settlement Agreement GBCC may utilize NOL's of GBHC through December 31,
1998 to offset federal taxable income ("Federal NOL's") of GBCC and other
members of the consolidated tax group. Representatives of HCC and GBCC
originally advised GBHC in March 1999 that GBHC should have approximately $13
million in Federal NOL's available subsequent to December 31, 1998. Subsequent
adjustments recognized by GBHC and reported to GBCC attributable to the year
ended December 31, 1997 reduced the available Federal NOL's. GBCC advised GBHC
in February 2000 that a portion of the Debtors' Federal NOL's were utilized in
the 1998 GBCC group consolidated federal income tax return. However, GBCC also
notified GBHC in February 2000 that all of the Debtors' Federal NOL's
attributable to periods prior to January 1, 1997 will be utilized to shield
certain additional excess loss account adjustments attributable to the Spin Off,
which may result in available Federal NOL's in 1999 being reduced to
approximately $4.4 million. GBHC is in the process of examining the propriety of
the use of its pre-1997 NOL's. GBHC expects that these remaining Federal NOL's
will be utilized in the 1999 federal tax return. Statement of Financial
Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's
and deferred tax assets resulting from temporary differences be recorded as
38
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
an asset and, to the extent that management can not assess that the utilization
of all or a portion of such NOL's and deferred tax assets is more likely than
not, requires the recording of a valuation allowance. As a result of book and
tax losses incurred in 1997 and the filing under Chapter 11 by GBHC in January
1998, management is unable to determine that realization of GBHC's deferred tax
asset is more likely than not and, thus, has provided a valuation allowance for
the entire amount at March 31, 2000. The Debtors are dependent upon receipt of
information from HCC and GBCC as to the operations of their affiliates and the
impact of those operations on the former HCC and GBCC consolidated groups'
Federal NOL's.
As part of the Second Settlement Agreement, GBHC settled certain
intercompany obligations on a non-cash basis. A loan to GBHC from GBCC, totaling
$8,000,000 along with accrued interest totaling $1,508,000, and a deferred
federal tax asset of GBHC's, totaling $10,902,000, representing a claim against
an affiliate for the overpayment of federal income taxes under a previously
existing tax sharing agreement, were mutually released. As the deferred federal
tax asset had been previously fully reserved as required by SFAS 109, this
mutual release resulted in the recording of a capital contribution in the amount
of $9,508,000.
Year 2000 Compliance
Management completed on a timely basis a comprehensive program to prepare
the Sands' computer systems and applications for a smooth transition to the Year
2000. The objective of this program was to determine and assess the risks of the
Year 2000 issues and to plan and institute mitigating actions to minimize those
risks. An assessment and inventory of systems, computer applications and
software programs was completed and changes implemented where required. The
Sands developed a contingency plan that included the identification of
significant vendors that would be Year 2000 compliant to replace significant
vendors that would not be Year 2000 compliant. The costs associated with testing
and converting systems were not material. All Year 2000 costs were funded
through operating cash flow. Because of these preparations, the Sands did not
experience any significant disruptions in its operations as a result of the
transition to the Year 2000. Additionally, there are no claims pending or, to
our knowledge, threatened against the Sands arising out of the Year 2000 issue.
Reorganization and Other Related Costs
Reorganization and other related costs include costs associated with
Holdings' reorganization under Chapter 11, including, among other things,
professional fees, costs associated with the termination of agreements, and
other administrative costs. As noted previously, interest income on cash
accumulated during the reorganization is reflected as a reduction to
reorganization and other related costs.
Inflation
Management believes that in the near term, modest inflation, together with
increasing competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
39
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Seasonality
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of operations for the first and fourth quarters are traditionally less
profitable than the other quarters of the fiscal year. In addition, the Sands'
operations may fluctuate significantly due to a number of factors, including
chance. Such seasonality and fluctuations may materially affect casino revenues
and profitability.
40
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On January 5, 1998, Holdings, GB Property Funding, and GBHC (collectively,
the "Debtors") filed petitions for relief under Chapter 11 of the Bankruptcy
Code in the Bankruptcy Court. The prior Boards of Directors resigned on January
2, 1998 and new Boards of Directors were elected at that time. Each company
continues to operate in the ordinary course of business, as set forth in the
Bankruptcy Code, and each company's executive officers and directors as of the
date of the filing remain in office, subject to the jurisdiction of the
Bankruptcy Court, other than the following: as required under the Settlement
Agreement, Richard Knight resigned as a Director, President, and Chief Executive
Officer of the Debtors effective July 8, 1998; John P. Belisle was elected
President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T.
Smith was elected as a Director of the Debtors on August 3, 1998. On November 1,
1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC.
On November 11, 1999, Jerome T. Smith, the independent member of the Boards of
Directors of the Debtors, and one of the two independent members of the Audit
Committee of Holdings, citing a newly arisen potential conflict of interest,
resigned. On November 5, 1999, Alfred J. Luciani was elected President and Chief
Executive Officer of GBHC.
On January 11, 1999, the exclusivity period during which only the Debtors
could file a plan of reorganization expired and, as a result, any party in
interest could file a plan of reorganization. On June 1, 1999, the Debtors filed
with the Bankruptcy Court a plan of reorganization and disclosure statement,
ultimately filing a third modified plan of reorganization and third modified
disclosure statement. On October 4, 1999, the Bankruptcy Court approved the
adequacy of the third modified disclosure statement and a confirmation hearing
on the Plan was scheduled for December 17, 1999(the "Confirmation Hearing").
On November 3, 1999, the Debtors received notice from Merrill Lynch Asset
Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE")
had reached an agreement on a term sheet under which PPE would sponsor a plan of
reorganization of GBHC (the "Term Sheet"). MLAM requested that the Debtors agree
to seek to adjourn the Confirmation Hearing. The Debtors agreed to seek the
adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment
and set December 1, 1999 as a status conference for a report by the Debtors on
the status of their due diligence and evaluation of the provisions of the Term
Sheet. Following the December 1, 1999 status conference , the Bankruptcy Court
set December 22, 1999 as a final status conference for the Debtors to report on
their due diligence and evaluation of the Term Sheet. Entities controlled by
Carl Icahn ("Icahn") submitted a competing bid for a Plan of Reorganization of
the Debtors prior to the December 22, 1999 status conference. The Bankruptcy
Court decided that PPE and Icahn should submit competing Plans of Reorganization
and Supplemental Disclosure Statements with the Debtors submitting a Master
Disclosure Statement by January 18, 2000 and that the Bankruptcy Court would
conduct a hearing on February 16, 2000 to consider the adequacy of the
Disclosure Statements. Ichan filed a joint plan with the Official Committee of
Unsecured Creditors (the "Committee") on January 18, 2000 and PPE also filed a
plan on the same date. The Bankruptcy Court conducted a hearing on the adequacy
of the Disclosure Statements on February 16, 2000. The Bankruptcy Court directed
Icahn and the Committee and PPE to file amended Plans and Supplemental
Disclosure Statements with their final economic offers to the creditors by March
6, 2000, and scheduled a further adequacy hearing for March 23, 2000. At that
hearing, the Bankruptcy Court directed Icahn and the Committee and PPE to make
certain revisions to their amended Plans and Supplemental Disclosure Statements
and file them by March 31, 2000, and scheduled April 5, 2000 as a hearing date
for the Bankruptcy Court to determine if any further changes to the Supplemental
Disclosure Statements would be directed to be made by the Bankruptcy Court. At
the hearing on April 5, 2000, the Bankruptcy Court approved the Debtors' Master
Disclosure Statement, approved the Supplemental Disclosure Statements of Icahn
and the Committee and of PPE subject to their making certain revisions, and
established June 5, 2000 as the deadline for
41
<PAGE>
creditors to deliver their votes for or against the Plans and June 19, 2000 as
the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court
adjourned the confirmation hearing to June 20, 2000.
Item 3. Defaults Upon Senior Securities
As a result of the filings discussed in Item 1. above, $182,500,000
principal amount of First Mortgage Notes issued by GB Property Funding are in
default. The debt service payments due subsequent to January 5, 1998 were not
made. Under an order of the Bankruptcy Court, permitting the disposition of
furniture and equipment in the ordinary course of business, any payments
received by GBHC for the sale of such assets, which are part of the security for
the First Mortgage Notes, must be remitted to the Indenture Trustee as
reductions to the outstanding principal of the First Mortgage Notes. Through May
11, 2000, $524,000 has been remitted to the Indenture Trustee as the proceeds on
the sale of furniture and equipment. The accrual of interest on the First
Mortgage Notes for periods subsequent to the filings has been suspended; such
interest on a contractual basis amounts to $56,205,000 as of May 11, 2000.
Item 6.(a) - Exhibits
10.1 Amendment to Brighton Park Improvements Agreement ("PM Agreement") dated
April 5, 2000
10.2 Agreement between Greate Bay Hotel and Casino, Inc., and Atlantic City
Boardwalk Associates, L.P. and/or the Claridge at the Park to acquire the
Claridge Administration Building dated February 10, 2000
Item 6.(b) - Reports on Form 8-K
The Registrants did not file any reports on Form 8-K for the quarter ended
March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
of the Registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GB HOLDINGS, INC.
GB PROPERTY FUNDING CORP.
----------------------------------------
Registrants
Date: May 15, 2000 By: /s/ Timothy A. Ebling
------------------------------------
Timothy A. Ebling
Executive Vice President, Chief
Financial Officer and Principal
Accounting Officer
42
[LOGO] SANDS
CASINO HOTEL - ATLANTIC CITY
February 10, 2000
Frank Bellis, Esq.
Chief Executive Officer
Claridge at Park Place, Incorporated
Boardwalk and Park Place
Atlantic City, New Jersey 08401
Re: Block 47, Lot 11, formerly Block 30, Lot 35, as shown on the Tax Map
of the city of Atlantic City, and as more particularly described as
Tract I on Exhibit A to that certain deed dated June 15, 1989 from
Del E. Webb New Jersey, Inc. to Atlantic city Boardwalk Associates,
L.P. filed on June 20, 1989 in Deed Book 4922, Page 0001 in the
Atlantic County Clerk's Office, and commonly known as 111-113 South
Indiana Avenue (the "Lot") and the Improvements Located thereon,
commonly known as the Claridge Administration Building (the
"Building") (the Lot and the Building collectively the Property")
Dear Mr. Bellis:
This letter sets forth the terms of an agreement between Greate Bay Hotel
and Casino, Inc. t/a "Sands Hotel & Casino" ("the Sands"), on one side, and
Atlantic City Boardwalk Associates, L.P. ("the Partnership"), The Claridge Hotel
and Casino Corporation ("the Company") and/or the Claridge at Park Place,
Incorporated ("CPPI"), on the other side, under which (i) with the consent or
CPPI, the Partnership would grant the Sands a certain license with respect to
the North wall of the Building, (ii) with the consent of CPPI, end on notice to
the Bank of New York as the Trustee for the holders of the Company's 11 3/4*
Notes and approval of the Bankruptcy Court (as hereafter defined), the
Partnership would deliver title to the Property to the Sands (the "Purchase")
free and clear of all liens, encumbrances or leases, except as provided below,
in exchange for the Sands paying the Price, as defined and described in this
letter, and (iii) the Sands, CPPI, and the Partnership would jointly move in
their respective Chapter 11 cases pending before the United States Bankruptcy
Court for the District of New Jersey (the "Bankruptcy Court") at Docket Nos.
98-10001 (JHW), 99-17399 (JHW), and 99-18903 (JHW), respectively, (x) to assume,
if executory and as modified below, that certain Brighton Park Improvements
Agreement dated November 5, 1997 between the Sands and CPPI (the "Improvements
Agreement"), (y) to assume, if executory, that certain Brighton Park Development
Agreement dated November 9, 1987 between the Sands and CPPI, on one side, and
the City of Atlantic City (the "City"), on the other side (the
Indiana Avenue & Brighton Park o Atlantic City, New Jersey 08401
o (609) 441-4000
<PAGE>
"Development Agreement"), and (z) to approve the Purchase of the Property.
You have informed us that CPPI is the casino licensee that operates the
Claridge Casino Hotel (the "Casino"), holds the license for the Casino, owns all
the gaming related equipment used in connection with the Casino, and is a wholly
owned subsidiary of the Company. Except as described in the next sentence, the
Partnership owns the Property and all the other real property utilized by CPPI
in operating the casino-hotel complex comprising the Boardwalk and Park Place
address for the Casino, also known as Block 46, Lot 4, on the Tax Map of the
City of Atlantic City (the "Casino Complex") and the Partnership leases the
Casino Complex and the Property to CPPI pursuant to a certain lease(s)
(individually and collectively "the Operating Lease"). The casino Complex does
not include that certain self park garage bordered by Pacific Avenue, Park Place
and Ohio Avenue and the adjoining valet park garage (the land and the structure
collectively "the Self Park Garage") and the Self Park Garage is owned by CPPI.
THE LICENSE
CPPI presently uses the Building solely as an administrative office in
connection with the Casino (the "Office") under the operating and Ground Lease
with the Partnership. The north wall of the Office (the "North Wall") adjoins
the site of the former Midtown Hotel on Block 47, Lots 1, 2, and 3 of the Tax
Map of the City of Atlantic City (the "Midtown Hotel Lots"). The Sands is
constructing a new entrance to its existing casino-hotel complex located at
Block 47, Lot 12 of the Tax Map of the City of Atlantic City on the Midtown
Hotel Lots and other contiguous lots (the "New Entrance"). The Midtown Hotel
previously directly adjoined the Building and shielded the Building from the
elements. The demolition of the Midtown Hotel as part of the construction of the
New Entrance has now exposed the North Wall to the elements and to the public
view. The erection of a shield wall attached to the North Wall would restore
some of the protection from the elements that was previously provided by the
Midtown Hotel. Without warranty as to the protection from the elements, the
Sands seeks a license for the right to attach a dry-vit panel wall or some
similar design element to the North Wall and in, about, and/or along the
northern boundary of the Lot as a shield wall to the North Wall and to affix
signage to the shield wall (the "License"), thereby, establishing a facade
consistent with the New Entrance, and will indemnify the Partnership and CPPI
against any damages caused to the North Wall or to the Building as a result of
acting upon or implementing any rights under the License.
The term of the License is perpetual except that the Building may be
demolished provided that the Sands may at its own expense attach a shield wall
to any replacement structure. The consideration for the License is $1.00 and
such protection from the
<PAGE>
elements as would be afforded by the shield wall as provided herein. By signing
this letter Agreement, and subject to Bankruptcy Court approval, the Partnership
grants the License, CPPI consents to the License, and CPPI agrees to promptly
apply at its expense for any necessary Bankruptcy Court approval of the License.
The agreement with respect to the License is a separate and severable part of
this letter agreement.
PURCHASE OF THE PROPERTY
The background for the Purchase is that it would be beneficial and more
efficient for CPPI to consolidate the Office within the Self Park Garage (the
"Relocated Office") because the Self Park Garage is connected under roof to the
Casino Complex. Therefore, the Relocated Office would be more easily accessible
from other offices in the Casino Complex unlike the Office in the Building,
which is a separate structure across Indiana Avenue from the Casino Complex. In
addition, with the Relocated Office, CPPI would enjoy expense savings from not
having to incur the costs of occupying the Building.
By signing below, CPPI consents to the sale of the Property based upon the
Sands agreement as set forth herein to purchase the Property and to pay the
consideration described below. The consent of CPPI to the sale of the Property
includes any consent that may be required by CPPI under the Operating and Ground
Lease with the Partnership and as may be required under that certain Expandable
Wraparound Mortgage and Security Agreement between the Partnership and CPPI, as
amended, inter alia, by that certain First Supplemental Amendment to Expandable
Wraparound Mortgage and Security Agreement, and by that certain Second Amendment
to Expandable Wraparound Mortgage and Security Agreement between the Partnership
and CPPI ("the Wraparound Mortgage").
CPPI also recommends to the Partnership that it sell the Property to the
Sands under the terms described below. By signing below, the Partnership agrees
to the same.
The Sands agrees to pay the sum of $3,500,000 for the Property (the
"Price") in the manner described in this paragraph. $1,500,000 of the Price
shall be paid at Closing (as hereafter defined) to CPPI (the "Closing Lump Sum")
in order to provide CPPI with the amount necessary to fit-out the Relocated
Office to accommodate the office personnel presently working in the Office. The
remaining portion of the Price in the amount of $2,000,000 shall be paid as a
monthly credit of $50,000 against the $50,000 monthly license fee otherwise
required in the Improvements Agreement to be paid by CPPI to the Sands for a
total of 40 months
3
<PAGE>
(the "Initial Monthly Credit") commencing with the first full month following
Closing.
In return for the payment of the Price as described above to CPPI, the
Partnership hereby agrees to deliver at Closing (as hereinafter defined) to the
Sands a properly executed, good, sufficient, marketable, and recordable Deed,
and an Affidavit of Title and such other documentation reasonably required by
and acceptable to the Title Company of Jersey. The Deed shall be known as a
Bargain and Sale Deed with Covenants Against Grantor's Acts and, except as set
forth below, shall convey the Property free and clear of all claims,
encumbrances, mortgages, leases or liens, other than ordinary utility easements
and restrictions including as set forth in Deed Book 46, Page 29 on file in the
Atlantic County Clerk's Office, and the conveyance shall include the termination
as respects the Property of the Wraparound Mortgage and the Operating and Ground
Lease except that the rent specified therein to be paid by CPPI to the
Partnership shall be unaffected by this letter agreement and subject to any
prior or subsequent orders of the Bankruptcy Court or any agreements between
CPPI and the Partnership. Title to the Property shall be insurable at regular
title insurance rates and charges by the Title Company of Jersey. In addition,
the Partnership and CPPI shall each provide the Sands with a quit claim deed for
any property in which each may have any ownership right in Block 47 of the Tax
Map of the City of Atlantic City.
The Sands shall pay the cost of its title insurance, any survey ordered by
it, any attorney's fees of its counsel, and closing costs customarily allocated
or items prorated to buyer. Closing costs of CPPI and/or the Partnership shall
include the attorney's fees of its or their counsel, the realty transfer tax,
and closing costs customarily allocated or items prorated to seller.
Notwithstanding the previous sentence, all costs of the transaction of the
Partnership shall be paid by CPPI.
On the first Monday through Friday that is 10 days after the later of (i)
the approval of this letter agreement by the Bankruptcy Court in each of the
Chapter 11 cases of the Sands, CPPI, and the Partnership or (ii) notice by the
Sands of waiver or satisfaction of the financing contingency, as described
below, for the Closing Lump Sum, closing shall take place at the office of the
Sands and the Claridge shall vacate the Property after the Closing as described
in the next paragraph. For the purpose of this paragraph, upon execution of this
letter agreement by the parties hereto, CPPI, the Sands, and the Partnership
shall promptly and jointly seek Bankruptcy Court approval of this letter
Agreement, and the obligations of either party with respect to the Purchase are
contingent upon receiving such Bankruptcy Court approval.
4
<PAGE>
The application for Bankruptcy Court approval shall include joint
applications pursuant to 11 U.S.C. ss. 365 by the Sands and CPPI to assume the
Improvements Agreement, as modified as described in the next sentence, and to
assume the Development Agreement (the "Joint Applications"). The modifications
sought to the Improvements Agreement shall consist of the Initial Monthly
Credit, and a reduction in the monthly license fee of $50,000 thereafter for the
duration of the Improvements Agreement to the sum of $20,000 (the
"Modifications"). The relief sought in the Joint Applications and the
Modifications are contingent upon, and subject to, Bankruptcy Court approval of
the Purchase, and closing on the Purchase, and the upon assumption of the
Improvements Agreement (subject only to the Modifications otherwise described
herein) and the Development Agreement in accordance with their terms. Time is of
the essence for Closing except that Closing nay take place earlier or later than
the date specified in the first sentence of the preceding paragraph if all of
the parties hereto consent in writing.
Effective as of the Closing, the Sands and CPPI shall enter into a lease
of the Property so that the Building can continue to be used as the Office until
the Relocated Office is sufficiently suitable to accommodate the office staff
from the Office (the "Lease") CPPI will cause the Relocated Office to be
fitted--out as soon as reasonably possible, using its good faith best efforts to
do so by May 31, 2000 because the Sands needs to demolish the Building in a time
frame so as not to interfere with the opening of the new Entrance and to avoid
any restriction, if any, on immediate demolition based on the time of the year.
however, in no event shall the Lease extend beyond July 31, 2000 and the maximum
term of the Lease shall be July 31, 2000 (the "Term"). The remaining terms of
the Lease include rent for the Term of $1.00 on a triple net basis to the Sands
with CPPI responsible for payment of the cost of insurance real estate taxes on
the Property, and maintenance of the Property including, but not limited to, the
provision of all necessary utility services. CPPI also hereby agrees to defend
and indemnify the Sands and hold it harmless from any and all claims arising out
of the use of the Property during the Term including claims of its employees. In
addition, CPPI will name the Sands as an additional insured on its general
liability policy and provide the Sands with a certificate of insurance thereof
endorsed to provide the Sands 15 days prior notice of cancellation and to delete
the "other insurance" clause as against the Sands. Likewise, CPPI agrees to
defend and indemnify the Partnership and its partners with respect to matters
arising from or related to the Property.
Notwithstanding anything to the contrary in this letter agreement, the
obligation of the Sands to Purchase the Property are
5
<PAGE>
contingent upon the Sands obtaining first mortgage financing on and for the
Property that is satisfactory to the Sands for the payment of the closing Lump
Sum. The Sands must either obtain such first mortgage financing that is
completely satisfactory to the Sands and so notify CPPI within 60 calendar days
after the day that a fully executed copy of this letter agreement is delivered
to the Sands or notify CPPI of the waiver by the Sands of this first mortgage
financing contingency. In the event that the Sands fails to timely notify CPPI
of the satisfaction or waiver of the first mortgage financing contingency, the
obligations of CPPI and the Sands with respect to the Purchase shall be null and
void except that the Sands shall reimburse CPPI for its reasonable costs and
attorney's and architect's fees incurred in entering into this letter agreement
and in seeking approval of this letter agreement including such costs and fees
of the Partnership and reasonable expenses incurred in preparing for, and
seeking approvals of, or construction of components necessary for the fit out of
the Relocated Office in anticipation of, the move to the Relocated Office. The
costs of construction of such components is subject to the agreement of the
Sands prior to such costs being incurred.
This Agreement is the entire and only agreement between the parties, and
no oral representations or promises have been made with respect thereto. This
Agreement replaces and cancels any previous agreements between the parties. This
Agreement can only be changed by an agreement in writing signed by the parties
hereto.
This Agreement shall be governed by and be construed in accordance with
the laws of the State of New Jersey applicable to agreements made and to be
performed within the State of New Jersey without giving effect to the principles
governing the conflicts of laws. The parties also agree that any claim arising
hereunder or relating hereto shall be adjudicated within the County of Atlantic,
State of New Jersey and consent to the jurisdiction of the Superior Court of New
Jersey, Atlantic County except for matters required or permitted to be
determined in the Bankruptcy Court.
No general or limited partner of the Partnership nor any of their
respective agents, officers, directors or employees as such shall be personally
liable to any other party hereunder or any other person for any obligation of
the Partnership under this Agreement or for any claim based upon or with respect
to such obligations. Recourse to the Partnership with respect of all such
obligations is expressly limited to the real and personal property that the
Partnership may from time to time have available therefore.
This Agreement is binding upon all parties who sign it and all that
succeed to their rights and responsibilities, and their
6
<PAGE>
successors and assigns. This agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement and a signature appearing on a telecopied
signature page shall be as effective as an original signature page.
Any notices pursuant to this Agreement must be in writing. The notices may
be delivered personally, mailed by certified mail, return receipt requested, or
delivered by telecopier to the other party at the address(es) set forth below
subject to change as to the person(s) to be notified and/or their respective
addresses upon ten (10) days notice as provided herein. Any such notice shall be
deemed to have been given on the date delivered, if delivered by hand, on the
date three days after the date mailed, if given by certified mail, or the date
delivered by telecopier, if electronic confirmation of receipt of the telecopier
transmission is obtained and retained. The notices shall be addressed as
follows:
To the Sands: Alfred Luciani
President
Greate Bay Hotel and Casino, Inc.
Indiana Avenue and Brighton Park
Atlantic City, NJ 08401
telecopier (609) 441-4624
With Copy to: Frederick H. Kraus, Esq.
Greate Bay Hotel Casino, Inc.
Indiana Avenue and Brighton Park
Atlantic City, NJ 08401
telecopier (609) 441-4937
To CPPI: Frank Bellis, Esq.
Chief Executive Officer
Claridge at Park Place, Incorporated
Boardwalk at Park Place
Atlantic City, NJ 08401
telecopier (609) 345-1128
With Copy to: Corporate Counsel
Claridge at Park Place, Incorporated
Boardwalk at Park Place
Atlantic City, NJ 08401
telecopier (609) 345-1128
To the Company: Frank Bellis, Esq.
Chief Executive Officer
The Claridge Hotel and Casino Corporation
Boardwalk at Park Place
Atlantic City, NJ 08401
7
<PAGE>
telecopier (609) 345-1128
With Copy to: Corporate Counsel
The Claridge Hotel and Casino Corporation
Boardwalk at Park Place
Atlantic City, NJ 08401
telecopier (609) 345-1128
To the Partnership: Atlantic City Boardwalk Associates, L.P.
2880 West Meade Avenue
Suite 201
Las Vegas, Nevada 89102
telecopier (702) 253-7663
with Copy to: Alan Wovsaniker, Esq.
Lowenstein, Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
telecopier (973) 597-2565
If this Agreement is acceptable to CPPI and to the Company, would you
kindly execute the same on behalf of CPPI and the Company forward the same to
the Partnership for its consideration and
THE REST OF THIS PAGE LEFT INTENTIONALLY BLANK
8
<PAGE>
execution and return one of the three enclosed copies to my attention.
Very truly yours,
/s/ Alfred Luciani
Alfred Luciani
President
Accepted and Agreed:
Claridge at Park Place, Incorporated
BY: Dated:
------------------------------------------- ------------------
Frank Bellis, Esq.
Chief Executive Officer
The Claridge Hotel and Casino Corporation
BY: Dated:
------------------------------------------- ------------------
Frank Bellis, Esq.
Chief Executive Officer
Atlantic City Boardwalk Associates, L.P.
BY: Dated:
------------------------------------------- ------------------
ANTHONY ATCHLEY - A General Partner
BY: Dated:
------------------------------------------- ------------------
GERALD HEATLAND - Its Remaining General Partner
9
<PAGE>
execution and return one of the three enclosed copies to my attention.
Very truly yours,
Alfred Luciani
President
Accepted and Agreed:
Claridge at Park Place, Incorporated
BY: /s/ Frank Bellis Dated: 2/10/00
------------------------------------------- ------------------
Frank Bellis, Esq.
Chief Executive Officer
The Claridge Hotel and Casino Corporation
BY: /s/ Frank Bellis Dated: 2/10/00
------------------------------------------- ------------------
Frank Bellis, Esq.
Chief Executive Officer
Atlantic City Boardwalk Associates, L.P.
BY: Dated:
------------------------------------------- ------------------
ANTHONY ATCHLEY - A General Partner
BY: Dated:
------------------------------------------- ------------------
GERALD HEATLAND - Its Remaining General Partner
9
<PAGE>
execution and return one of the three enclosed copies to my attention.
Very truly yours,
/s/ Alfred Luciani
Alfred Luciani
President
Accepted and Agreed:
Claridge at Park Place, Incorporated
BY: Dated:
------------------------------------------- ------------------
Frank Bellis, Esq.
Chief Executive Officer
The Claridge Hotel and Casino Corporation
BY: Dated:
------------------------------------------- ------------------
Frank Bellis, Esq.
Chief Executive Officer
Atlantic City Boardwalk Associates, L.P.
BY: /s/ Anthony C. Atchley Dated:
------------------------------------------- ------------------
ANTHONY ATCHLEY - A General Partner
BY: /s/ Gerald Heatland Dated:
------------------------------------------- ------------------
GERALD HEATLAND - Its Remaining General Partner
9
<PAGE>
AMENDMENT TO
BRIGHTON PARK IMPROVEMENTS AGREEMENT
DATED NOVEMBER 5,1987 (the "Agreement")
BY AND BETWEEN
CLARIDGE AT PARK PLACE, INC. ("CPPI")
AND
GREATE BAY HOTEL AND CASINO, INC. ("GBHC")
1. CPPI and others, on one side, and GBHC, on the other, entered into a
certain letter agreement dated February 10, 2000 (the "Letter Agreement"')
providing, among other things, for an amendment to the Agreement to
eliminate the monthly "rent" of $50,000, as provided for at Paragraph 4(d)
of the Agreement (the "Rent"), for a period of 40 months in connection
with the sale to GBHC Block 47, Lot 11 on the Tax Map of the City of
Atlantic City (the "Sale") and to a reduction to $20,000 a month
thereafter (the "Amendment").
2. Became GBHC was and is a Debtor in Possession at Case No. 98-1001 (JW) in
the United States Bankruptcy Court for the District of New Jersey (the
"Bankruptcy Court"), and CPPI was and is a Debtor in Possession at Case
No. 99-17399 (JW) in the Bankruptcy Court, the Amendment and joint
assumption of the Agreement as Amended were conditioned upon receipt of
Bankruptcy Court approval.
3. CPPI, GBHC and others made a joint application to the Bankruptcy Court for
approval, among other things, of the Amendment and the assumption of the
Agreement as Amended and the Bankruptcy Court approved the Amendment and
the joint assumption of the Agreement as Amended by Order dated April 5,
2000, a copy of which Order is attached as Exhibit A (the "Order").
4. By execution of this agreement, CPPI, and GBHC agree that the Agreement is
amended as provided for in the Amendment, that the elimination of the Rent
shall commence with the Rent due for the month of April, 2000 and end with
the Rent due for the month of July, 2003, that the Rent due thereafter
shall be reduced to $20,000 a month, and that in all other respect the
Agreement is ratified and in full force and effect.
WHEREFORE, CPPI and GBHC have entered into this agreement as of April 5, 2000.
ACCEPTED AND AGREED:
Claridge at Park Place, Incorporated
BY: /s/ Frank Bellis
-------------------------------------------
Frank Bellis, Esq.
Chief Executive Officer
GREATE BAY HOTEL AND CASINO, INC.
BY: /s/ Alfred Luciani
-------------------------------------------
Alfred Luciani, Esq.
Chief Executive Officer
<PAGE>
---------------------------------
FILED
JAMES J. WALDRON
APR 5, 2000
US BANKRUPTCY COURT
CAMDEN, NJ
BY: /s/ [ILLEGIBLE], DEPUTY
---------------
---------------------------------
GIBBONS, DEL DEO, DOLAN,
GRIFFINGER & VECCHIONE
A Professional Corporation
One Riverfront Plaza
Newark, New Jersey 07102-5497
(973) 596-4500
Attorneys for Greate Bay Hotel and Casino, Inc.,
GB Holdings, Inc. and GB Property Funding Corp.,
Debtors and Debtors-in-Possession
PD-9779
LOWENSTEIN SANDLER PC
65 Livingston Avenue
Roseland, New Jersey 07068
Attorneys for Atlantic City Boardwalk Associates, L.P.,
Debtor and Debtor-in-Possession
AW-0742
CLIFFORD CHANCE ROGERS & WELLS LLP
200 Park Avenue
New York, New York 10166-0153
- - and -
ARCHER & GREINER
One Centennial Square
P.O. Box 3000
Haddonfield, New Jersey 08033-0968
Co-attorneys for Claridge at Park Place, Inc., and
Claridge Hotel & Casino Corp., Debtors
and Debtors-in-Possession
JF-7850
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW JERSEY
- --------------------------------------------------------------------------------
In re:
GREATE BAY HOTEL AND CASINO, INC., GB HOLDINGS, INC., and GB PROPERTY FUNDING
CORP.,
Debtors.
- --------------------------------------------------------------------------------
Case No. 98-10001 (JW), et seq.
(Jointly Administered)
Chapter 1l
Hearing Date: April 3, 2000, 2:00 p.m.
- --------------------------------------------------------------------------------
In re:
CLARIDGE AT PARK PLACE INC., and CLARIDGE HOTEL & CASINO CORP.,
Debtors.
- --------------------------------------------------------------------------------
Case No. 99-17399 (JW), et seq.
(Jointly Administered)
Chapter 11
Hearing Date: April 3, 2000, 2:00 p.m.
- --------------------------------------------------------------------------------
In re:
ATLANTIC CITY BOARDWALK ASSOCIATES, LP.,
Debtor.
- --------------------------------------------------------------------------------
Case No. 99-18903 (JW), et seq.
Chapter 11
Hearing Date: April 3, 2000, 2:00 p.m.
ORAL ARGUMENT REQUESTED
ORDER AUTHORIZING GBHC, CPPI AND THE PARTNERSHIP TO (i) ENTER INTO LICENSE AND
PURCHASE AGREEMENT FOR CLARIDGE ADMINISTRATION BUILDING, (ii) ASSUME, AS
MODIFIED, BRIGHTON PARK IMPROVEMENTS AGREEMENT, (iii) ASSUME BRIGHTON PARK
DEVELOPMENT AGREEMENT, AND (iv) FOR RELATED RELIEF PURSUANT TO SECTIONS 363(b)
AND 365 OF THE BANKRUPTCY CODE
<PAGE>
Upon the verified joint motion (the "Joint Motion") of Greate Bay Hotel
and Casino, Inc. ("GBHC"), Claridge at Park Place, Inc. ("CPPI"), and Atlantic
City Boardwalk Associates, L.P., (the "Partnership"), debtors and
debtors-in-possession (the "Debtors"), for an Order Authorizing GBHC, CPPI and
the Partnership to (i) Enter Into License Purchase and Assumption Agreement for
the Claridge Administration Building, (ii) Assume, as Modified, Brighton Park
Improvements Agreement (iii) Assume Brighton Park Development Agreement and (iv)
for Related Relief Pursuant to Sections 363(b) and 365 of the Bankruptcy Code;
and notice of the Joint Motion having been given to the Office of the United
States Trustee (the "U.S. Trustee"), the Official Committees of Unsecured
Creditors of GBHC and CPPI (the "Creditors' Committees"), all secured creditors
of GBHC, CPPI, and the Partnership, any indenture trustee and all
parties-in-interest having filed and served a notice of appearance on the
Debtors; and it appearing that such notice is appropriate under the
circumstances and that no other notice need be given; and the Court being
satisfied that the legal and factual bases in the Joint Motion set forth just
cause for the relief requested in the Joint Motion; and that the relief
requested in the Joint Motion is in the best interests of the Debtors, their
estates and their creditors; and for good cause shown,
IT IS on this 5 day of April, 2000,
HEREBY FOUND THAT:
(1) GBHC filed its voluntary petition for relief wider Chapter 11 of the
Bankruptcy Code in this case on January 5, 1998, CPPI filed its voluntary
petition for relief under Chapter 11 of the Bankruptcy Code in this case on
August 16, 1999 and the Partnership filed its voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in this case on October 5, 1999.
2
<PAGE>
(2) Under all of the circumstances presented, the granting of a license to
place a shield wall (or similar design element) on and the sale of the Claridge
Administration Building on the terms and provisions of the LPAA (as defined in
the Joint Motion and as modified on the record of the hearing on the joint
motion) are in the best interest of both estates and creditors of the Debtors.
(3) Solely within the context of this transaction and without prejudice to
any valuation arguments made in other matters, including but not limited to
pending tax appeals by GBHC, negotiations between the Debtors have been
conducted in good faith and at arm's length and, therefore, GBHC is a purchaser
in good faith.
(4) Solely within the context of this transaction and without prejudice to
any valuation arguments made in other matters, including but not limited to
pending tax appeals by GBHC, the purchase price of $3.5 million offered by GBHC
constitutes fair and an adequate consideration for the Claridge Administration
Building.
(5) The Debtors provided 26 days' notice of the sale of the Property to
all parties entitled thereto under Bankruptcy Rules 2002(a)(1), 6004(a) and
6006, such notice is proper and adequate and no higher or better offers were
filed and served pursuant to said notice.
IT IS HEREBY ORDERED that:
1. The Joint Motion is hereby granted.
2. The LPAA is hereby is approved in all respects, and Debtors are hereby
authorized to enter into the LPAA.
3. The sale of the Claridge Administration Building to GBHC, free and
clear of liens, with valid liens to attach the $1.5 million cash proceeds of
sale
3
<PAGE>
is hereby approved. The $1.5 million shall be placed in an interest.*
4. CPPI and GBHC are hereby authorized and empowered to assume the
Brighton Park Improvements Agreement, as modified by the LPAA, and the Brighton
Park Developments Agreement, pursuant to 11 U.S.C.ss.365(a).
5. CPPI and GBHC are hereby authorized to pay all amounts necessary to
cure monetary defaults under the Brighton Park Agreements, if any.
6. The Debtors are authorized and directed to perform all acts and to
make, execute and deliver any and all instruments as may be necessary to
implement the terms and conditions of this Order and the transactions described
herein and in the Joint Motion.
7. The County of Atlantic and the City of Atlantic City are hereby
directed to cause to be issued and/or filed in the appropriate public records,
within ten (10) days of the closing any and all documents necessary to release
any liens they may have on the Claridge Administrative Building for periods
occurring prior to the closing.
8. The Clerk of the Court shall enter this Order on the docket of the
chapter 11 cases of GBHC, CPPI and the Partnership.
9. This Court shall retain jurisdiction to resolve any disputes arising
from or related to the sale of the Property.
10. The Indenture Trustee's request for stay pending appeal is denied.
/s/ Judith H. Wizmur
--------------------------------------
JUDITH H. WIZMUR
UNITED STATES BANKRUPTCY JUDGE
* bearing escrow account of the Partnership to be held at Summit Bank, N.A.
and a first priority lien and security interest of the Indenture Trustee
for the benefit of the Noteholders, shall attach to all amounts in such
accounts.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GB PROPERTY FUNDING CORP. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912906
<NAME> GB PROPERTY FUNDING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 191,351
<CURRENT-LIABILITIES> 0
<BONDS> 181,977
0
0
<COMMON> 1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 191,351
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GB HOLDINGS, INC. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912926
<NAME> GB HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 25,506
<SECURITIES> 0
<RECEIVABLES> 19,028
<ALLOWANCES> 10,949
<INVENTORY> 3,000
<CURRENT-ASSETS> 41,760
<PP&E> 350,215
<DEPRECIATION> (192,456)
<TOTAL-ASSETS> 210,585
<CURRENT-LIABILITIES> 24,872
<BONDS> 181,977
0
0
<COMMON> 1
<OTHER-SE> (38,458)
<TOTAL-LIABILITY-AND-EQUITY> 210,585
<SALES> 0
<TOTAL-REVENUES> 58,789
<CGS> 0
<TOTAL-COSTS> 49,740
<OTHER-EXPENSES> 6,755
<LOSS-PROVISION> 633
<INTEREST-EXPENSE> (114)
<INCOME-PRETAX> 1,775
<INCOME-TAX> 639
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,136
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
