<PAGE>
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 June 30, 1999
-------------
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 33-69768
--------
PRT FUNDING CORP.
PRATT CASINO CORPORATION
-------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502289
DELAWARE 75-2502292
- -------------------------------------- ----------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
c/o Advanced Casino Systems Corporation
200 Decadon Drive, Suite 100
Egg Harbor Township, New Jersey 08234
- ------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code): (609) 441-0704
--------------
(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 latest practicable date.
<TABLE>
<CAPTION>
Registrant Class Outstanding at August 12, 1999
- -------------------------- ----------------------------- ------------------------------
<S> <C> <C>
PRT Funding Corp. Common Stock, $1.00 par value 1,000 shares
Pratt Casino Corporation Common Stock, $1.00 par value 1,000 shares
</TABLE>
1
<PAGE>
PRT FUNDING CORP.
PRATT CASINO CORPORATION
PART 1: FINANCIAL INFORMATION
- -----------------------------
Introductory Notes to Financial Statements
- ------------------------------------------
The registered securities consist of 11 5/8% Senior Notes (the "PRT Funding
Notes") in the principal amount of $85,000,000 due April 15, 2004 issued by PRT
Funding Corp. ("PRT Funding"). PRT Funding is wholly owned by Pratt Casino
Corporation ("PCC"), a Delaware corporation and an indirect, wholly owned
subsidiary of Greate Bay Casino Corporation ("GBCC"), also a Delaware
corporation. Prior to December 31, 1996, Hollywood Casino Corporation ("HCC")
owned approximately 80% of the common stock of GBCC; such stock was distributed
by HCC to its shareholders. GBCC's common stock is listed on the OTC Bulletin
Board Service under the trading symbol "GEAAQ"; GBCC is subject to the reporting
requirements of the Securities Act of 1934. PRT Funding's obligations are
unconditionally guaranteed as to the timely payment of principal, premium, if
any, and interest by PCC. PRT Funding and PCC have principal executive offices
at 200 Decadon Drive, Suite 100, Egg Harbor Township, New Jersey 08234.
PRT Funding was organized during September 1993 as a special purpose
subsidiary of PCC for the purpose of borrowing funds through the issuance of the
PRT Funding Notes for the benefit of PCC and certain of its subsidiaries.
Prior to December 31, 1998, PCC owned all of the common stock of GB Holdings,
Inc. ("Holdings"); such ownership has since been reduced to 79%. Greate Bay
Hotel and Casino, Inc. ("GBHC"), a wholly owned subsidiary of Holdings, owns the
Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands").
Prior to July 7, 1998, New Jersey Management, Inc. ("NJMI"), a subsidiary of
PCC, was responsible for the operations of the Sands under a management
agreement with GBHC.
PCC is a holding company that, through Holdings, owns the Sands. In
addition to its ownership of Holdings, PCC is also the sole limited partner of
Pratt Management, L.P. ("PML"), a limited partnership which manages a riverboat
gaming and entertainment facility located in Aurora, Illinois (the "Aurora
Casino") owned by HCC. Effective April 1, 1997, HCC acquired the general
partnership interest in PML from another subsidiary of GBCC. PCC also has a
consulting agreement with HWCC-Tunica, Inc. ("HCT"), a wholly owned subsidiary
of HCC, which owns and operates a gaming and lodging facility in Tunica County,
Mississippi (the "Tunica Casino"). The contract, which expires on December 31,
2003, provides for a monthly fee of $100,000. Historically, debt service on the
PRT Funding Notes has been funded primarily from management fees earned by NJMI
from the Sands, from distributions made to PCC by PML resulting from fees
generated under the Aurora Casino Management Contract and from consulting fees
earned from the Tunica Casino.
On January 5, 1998, GBHC, Holdings, and GB Property Funding Corp. ("GB
Property Funding"), a wholly owned subsidiary of Holdings, each 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 "New Jersey Bankruptcy Court"). 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 remain in office, subject to the
supervision of the New Jersey Bankruptcy Court. On January 11, 1999, the New
Jersey Bankruptcy Court terminated the debtors' exclusive right to file a plan
of reorganization. On June 1, 1999, a plan of reorganization was filed by the
debtors with the New Jersey Bankruptcy Court. The reorganization plan, as
filed, provides for the secured bondholders to receive new debt and equity
ownership of Holdings in exchange for their current claims and for unsecured
creditors to receive a partial cash settlement of their claims. The plan is
presently under review by the creditors and the New Jersey Bankruptcy Court.
2
<PAGE>
The filings of petitions for relief by Holdings and its subsidiaries resulted
in a default under the indenture for the PRT Funding Notes; accordingly, the
outstanding principal amount of the PRT Funding Notes has accelerated and is
currently due and payable. PRT Funding deferred payment of interest due on the
April 15 and October 15, 1998 and April 15, 1999 interest payment dates. On
October 22, 1998, PRT Funding paid to bondholders an amount equal to a single
semiannual interest payment ($4.9 million) while negotiations to restructure the
PRT Funding Notes continued. In connection with the Restructuring (as defined
below), PRT Funding paid deferred interest amounting to $6.8 million to the
bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for the Aurora Casino and a consulting contract for the Tunica Casino and its
liabilities will consist of a newly issued promissory note in the principal
amount of $40.3 million payable to the Trustee for the PRT Funding noteholders.
The voting agreement provides for HCC to immediately discharge the promissory
note.
As part of the Restructuring, holders of the PRT Funding Notes will also
receive 100% of the remaining assets of PCC and its subsidiaries not acquired by
HCC. Such assets consist primarily of claims against Holdings, GB Property
Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring required that PCC, PRT Funding
and NJMI file for protection under Chapter 11 with the above transactions
included as part of a pre-negotiated plan of reorganization. Such petitions for
relief were filed on May 25, 1999 in the United States Bankruptcy Court for the
District of Delaware (the "Delaware Bankruptcy Court") and the related plan of
reorganization was filed on May 26, 1999. The plan will require approval by the
Delaware Bankruptcy Court as well as by various gaming regulatory organizations.
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 remain in office, subject to jurisdiction of the Delaware Bankruptcy
Court.
As a result of the Chapter 11 filings by Holdings, GB Property Funding and
GBHC, PCC's control over the filing subsidiaries is subject to supervision of
the Bankruptcy Court and PCC does not expect to have ownership or operating
control of such subsidiaries after reorganization. Furthermore, as a result of
a settlement agreement reached by GBCC and Holdings during September 1998, GBCC
no longer participates in the management of the Sands. Accordingly, Holdings,
GB Property Funding and GBHC are no longer included on the accompanying
consolidated balance sheets of PCC. As more fully explained in Note 1 of the
Notes to Consolidated Financial Statements of PCC, during the period from
January 1, 1998 through June 30, 1998, the operations of Holdings and its
subsidiaries were accounted for by PCC under the equity method of accounting.
As a result of PCC no longer controlling the operations of the Sands, the
expectation that ownership control of Holdings will only be temporary and the
September 1998 settlement agreement which resolved certain significant
uncertainties, PCC's investment in Holdings and its subsidiaries was revalued to
a zero basis effective on July 1, 1998. Accordingly, for periods subsequent to
June 30, 1998, PCC is accounting for its investment in Holdings under the cost
method of accounting.
The financial statements of PRT Funding and the consolidated financial
statements of PCC as of June 30, 1999 and for the three and six month periods
ended June 30, 1999 and 1998 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 of only normal recurring adjustments) necessary to present fairly
their respective financial positions as of June 30, 1999, their results of
operations for the three and six month periods ended June 30, 1999 and 1998 and
their cash flows for the six month periods ended June 30, 1999 and 1998.
3
<PAGE>
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 PRT
Funding and PCC's 1998 Annual Report on Form 10-K.
4
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 1,000 $ 8,000
Notes receivable from affiliates, net of valuation
allowances 36,738,000 43,500,000
----------- ------------
36,739,000 43,508,000
----------- ------------
Deferred income taxes 482,000 -
----------- ------------
$37,221,000 $ 43,508,000
=========== ============
</TABLE>
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Current maturities of long-term debt $ - $ 85,000,000
Accrued interest payable - 14,397,000
Deferred income taxes 482,000 -
------------ ------------
Total current liabilities 482,000 99,397,000
------------ ------------
Notes payable to affiliates - 15,000,000
------------ ------------
Liabilities subject to compromise:
Long-term debt 85,000,000 -
Notes payable to affiliates 15,000,000 -
Accrued interest payable 12,459,000 -
------------ ------------
112,459,000 -
------------ ------------
Shareholder's deficit:
Common stock, $1.00 par value per
share, 1,000 shares authorized
and outstanding 1,000 1,000
Accumulated deficit (75,721,000) (70,890,000)
------------ ------------
Total shareholder's deficit (75,720,000) (70,889,000)
------------ ------------
$ 37,221,000 $ 43,508,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these balance sheets.
5
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Interest income $ - $ 2,653,000
Expenses:
Interest expense (contractual interest of $3,018,000 in 1999) 1,811,000 3,018,000
------------ -----------
Net loss before taxes (1,811,000) (365,000)
Tax provision (1,000) -
------------ -----------
Net loss $ (1,812,000) $ (365,000)
============ ===========
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these financial statements.
6
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Interest income $ - $5,306,000
Expenses:
Interest expense (contractual interest of $6,037,000 in 1999) 4,830,000 6,037,000
----------- ----------
Net loss before taxes (4,830,000) (731,000)
Income tax provision (1,000) -
----------- ----------
Net loss $(4,831,000) $ (731,000)
=========== ==========
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these financial statements.
7
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,831,000) $ (731,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Increase in receivable from affiliates - (5,306,000)
Decrease in accrued interest payable (1,938,000) 6,037,000
Net change in other current assets and liabilities - (5,000)
----------- -----------
Net cash used in operating activities (6,769,000) (5,000)
----------- -----------
INVESTING ACTIVITIES:
Collections on notes receivables 6,762,000 -
----------- -----------
Net decrease in cash (7,000) (5,000)
Cash at beginning of period 8,000 13,000
----------- -----------
Cash at end of period $ 1,000 $ 8,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these financial statements.
8
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Operations
PRT Funding Corp. ("PRT Funding"), a Delaware corporation, was incorporated
on September 29, 1993. PRT Funding is a wholly owned subsidiary of Pratt Casino
Corporation ("PCC"), which is an indirect, wholly owned subsidiary of Greate Bay
Casino Corporation ("GBCC"). Both PCC and GBCC are also Delaware corporations.
Prior to December 31, 1998, PCC also owned all of the common stock of GB
Holdings, Inc. ("Holdings"), the parent of Greate Bay Hotel and Casino, Inc.
("GBHC"), which owns the Sands Hotel and Casino in Atlantic City, New Jersey
(the "Sands"). Effective on December 31, 1998, PCC transferred 21% of its
ownership in Holdings to an entity owned by certain of GBCC's officers and
directors in order to comply with the terms of a legal settlement agreement.
Prior to July 7, 1998, the Sands was managed by New Jersey Management, Inc.
("NJMI"), a New Jersey corporation and also a subsidiary of PCC. PCC also earns
management and consulting fees with respect to gaming facilities owned by
Hollywood Casino Corporation ("HCC"), a Delaware corporation which, prior to
December 31, 1996, owned approximately 80% of the common stock of GBCC.
PRT Funding was formed for the purpose of borrowing funds through the
issuance of $85,000,000 of unsecured senior notes (the "PRT Funding Notes") for
the benefit of PCC and its affiliates. PRT Funding has no operations and is
dependent on the repayment of its notes due from various affiliates for
servicing its debt obligations. Administrative services for PRT Funding are
provided by other GBCC subsidiaries at no charge. The cost of such services is
not significant.
On January 5, 1998, Holdings, GBHC and GB Property Funding Corp. ("GB
Property Funding") 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 "New Jersey Bankruptcy Court"). 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 remain
in office, subject to the supervision of the New Jersey Bankruptcy Court. On
January 11, 1999, the New Jersey Bankruptcy Court terminated the debtors'
exclusive right to file a plan of reorganization. On June 1, 1999, a plan of
reorganization was filed by the debtors with the New Jersey Bankruptcy Court.
The reorganization plan, as filed, provides for the secured bondholders to
receive new debt and equity ownership of Holdings in exchange for their current
claims and for unsecured creditors to receive a partial cash settlement of their
claims. The plan is presently under review by the creditors and the New Jersey
Bankruptcy Court.
The filings for relief by Holdings and its subsidiaries resulted in a
default under the indenture for PRT Funding's debt obligations; accordingly, the
outstanding principal amount of the PRT Funding Notes accelerated and became due
and payable. PRT Funding deferred payment of interest due on the April 15 and
October 15, 1998 and April 15, 1999 interest payment dates. On October 22, 1998,
PRT Funding paid to the bondholders an amount equal to a single semiannual
interest payment ($4,941,000) while negotiations to restructure the PRT Funding
Notes continued. In connection with the Restructuring (as defined below), PRT
Funding paid deferred interest amounting to $6,768,000 to the bondholders on
April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's assets
will consist of its limited partnership interest in a management contract for
HCC's Aurora, Illinois gaming
9
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
operation and a consulting contract for HCC's Tunica, Mississippi gaming
operation and its liabilities will consist of a newly issued promissory note in
the principal amount of $40,329,000 payable to the Trustee for the PRT Funding
noteholders. The voting agreement provides for HCC to immediately discharge the
promissory note.
As part of the Restructuring, holders of the PRT Funding Notes will also
receive 100% of the remaining assets of PCC and its subsidiaries not acquired by
HCC. Such assets consist primarily of claims against Holdings, GB Property
Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring required that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
petitions for relief were filed on May 25, 1999 in the United States Bankruptcy
Court for the District of Delaware (the "Delaware Bankruptcy Court") and the
related plan of reorganization was filed on May 26, 1999. The plan will require
approval by the Delaware Bankruptcy Court as well as by various gaming
regulatory organizations. 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 remain in office, subject to jurisdiction of
the Delaware Bankruptcy Court. 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. There can be no assurance at this time
that the Restructuring will be successfully completed. The default under the
indenture for PRT Funding's debt obligations raises substantial doubt about PRT
Funding's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
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 of PRT Funding as of June 30, 1999 and for the
three and six month periods ended June 30, 1999 and 1998 have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of PRT Funding as of June 30,
1999, its results of operations for the three and six month periods ended June
30, 1999 and 1998 and its cash flows for the six month periods ended June 30,
1999 and 1998.
(2) Long-Term Debt
On February 17, 1994, PRT Funding issued the PRT Funding Notes due April
15, 2004. Interest on the PRT Funding Notes accrued at the rate of 11 5/8% per
annum, payable semiannually commencing October 15, 1994. As a result of the
Chapter 11 filings by PCC and its subsidiaries discussed in Note 1, the accrual
of interest on the PRT Funding Notes for periods subsequent to the filing has
been suspended.
10
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
The PRT Funding Notes are currently in default and will be replaced by new notes
to be issued by PCC as part of the Restructuring (see Note 1).
Proceeds of the PRT Funding Notes were loaned to various affiliates of PRT
Funding on the same terms. The events of default under the PRT Funding Notes
also resulted in the classification of such affiliate loans as currently due on
the accompanying balance sheets at June 30, 1999 and December 31, 1998. Based on
PRT Funding's evaluations of the realizability of the affiliate loans, a
valuation allowance in the amount of $41,500,000 was provided for at both June
30, 1999 and December 31, 1998 and the notes receivable are shown net of such
valuation allowance on the accompanying balance sheets. In addition, valuation
allowances on the interest receivable from affiliates with respect to such notes
amounting to $11,809,000 and $6,999,000 were provided for at June 30, 1999 and
December 31, 1998, respectively.
On February 17, 1994, PRT Funding issued $15,000,000 of junior subordinated
notes due in February 2005 (the "Junior Subordinated Notes") and loaned the
proceeds to various affiliates on the same terms. Interest on the Junior
Subordinated Notes accrues at the rate of 14 5/8% per annum and is payable
semiannually commencing August 17, 1994, with payment subject to PCC, the
guarantor, meeting certain financial coverage and other payment restriction
tests required by the indenture for the PRT Funding Notes. Because PCC has not
met the financial coverage tests, no interest has been paid since the end of
1995. At June 30, 1999 and December 31, 1998, accrued interest of $8,275,000 and
$7,398,000, respectively, was payable to GBCC with respect to the Junior
Subordinated Notes and is included in interest payable on the accompanying
balance sheets. At December 31, 1998, a valuation provision of $15,000,000 was
provided to reduce the carrying amount of the affiliate notes receivable to
their estimated realizable value. Valuation allowances have also been
established to fully reserve the interest receivable on such notes in the
amounts of $7,398,000 and $6,300,000, respectively, at June 30, 1999 and
December 31, 1998. The Junior Subordinated Notes and related interest payable
will be forgiven as part of the Restructuring.
Interest paid during the six month period ended June 30, 1999 totaled
$6,768,000. No interest was paid during the six month period ended June 30,
1998.
11
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Income Taxes
Components of the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------------
1999 1998 1999 1998
--------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Current state tax provision $ (1,000) $ - $ (1,000) $ -
Deferred federal income tax benefit 560,000 112,000 1,494,000 226,000
Deferred state income tax benefit 163,000 33,000 435,000 66,000
Change in valuation allowance (723,000) (145,000) (1,929,000) (292,000)
--------- --------- ----------- ---------------
$ (1,000) $ - $ (1,000) $ -
========= ========= =========== ===============
</TABLE>
PRT Funding's operations are included in the consolidated federal income
tax return of GBCC. Pursuant to agreements between PCC and GBCC, PRT Funding's
provision for federal income taxes is calculated as if a separate federal return
were filed. No payments have been made under the tax allocation agreements
during either of the six month periods ended June 30, 1999 or 1998.
At June 30, 1999, PRT Funding has tax net operating loss carryforwards of
approximately $1,725,000, none of which expire before 2009 for federal purposes
and 2006 for state purposes. In addition, at June 30, 1999 and December 31,
1998, PRT Funding had valuation provisions on affiliate receivables (see Notes 2
and 4) resulting in deferred tax assets of $24,720,000 and $22,652,000,
respectively. At June 30, 1998, PRT Funding also had a deferred tax liability of
$482,000 with respect to the non-recognition of interest expense on its debt
subject to compromise.
Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires
that the tax benefit of net operating loss carryforwards and other 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 deferred tax assets is more likely than not, a valuation allowance
should be recorded. Due to the limited operations of PRT Funding and questions
regarding its ability to continue as a going concern, management is unable to
determine that realization of such asset is more likely than not and, thus, has
provided a valuation allowance for the entire deferred tax asset at June 30,
1999 and December 31, 1998.
(4) Notes Receivable
GBHC issued a promissory note in the amount of $10,000,000 to PRT Funding
on February 17, 1994 in exchange for $10,000,000 of the proceeds PRT Funding
received with respect to the Junior Subordinated Notes. The promissory note
accrues interest at the rate of 14 5/8% per annum payable semiannually
commencing on August 17, 1994 with the principal due on February 17, 2005.
Interest income on the accompanying statement of operations for the three and
six month periods ended June 30, 1999 is shown net of full valuation reserves of
$365,000 and $731,000, respectively. As a result of the Chapter 11 filings, PRT
Funding has evaluated the collectability of such note and, as previously
described in Note 2, has established valuation allowances to fully reserve the
$10,000,000 note together with the
12
<PAGE>
PRT FUNDING CORP.
(Debtor-in-Possession, wholly owned by Pratt Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
related interest due from GBHC of $4,932,000 and $4,200,000, respectively, at
June 30, 1999 and December 31, 1998. On September 2, 1998, various subsidiaries
of GBCC and HCC entered into an agreement (the "Settlement Agreement") with
Holdings, GB Property Funding and GBHC. Although PRT Funding was not a direct
party to the Settlement Agreement, the Settlement Agreement provides, among
other things, that GBHC preserves whatever rights of offset, if any, it might
have with respect to the $10,000,000 notes and related interest against certain
other obligations owed to GBHC by another GBCC subsidiary.
(5) Litigation
On May 25, 1999, PCC, PRT Funding and NJMI filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the Delaware Bankruptcy Court. 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 Delaware
Bankruptcy Court. On May 26, 1999, PCC, PRT Funding and NJMI filed a joint plan
of reorganization with the Delaware Bankruptcy Court.
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief 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,
and each company's executive officers and directors remain in office, subject to
the supervision of the New Jersey Bankruptcy Court. On January 11, 1999, the New
Jersey Bankruptcy Court terminated the debtors' exclusive right to file a plan
of reorganization. On June 1, 1999, a plan of reorganization was filed by the
debtors with the bankruptcy court. The reorganization plan, as filed, provides
for the secured bondholders to receive new debt and equity ownership of Holdings
in exchange for their current claims and for unsecured creditors to receive a
partial cash settlement of their claims. The plan is presently under review by
the creditors and the New Jersey Bankruptcy Court.
13
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
----------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $1,069,000 $3,746,000
Due from affiliates 211,000 237,000
Refundable deposits and other
current assets 278,000 114,000
---------- ----------
Total current assets 1,558,000 4,097,000
---------- ----------
Investment in Limited Partnership 2,057,000 3,104,000
---------- ----------
Property and Equipment:
Operating equipment - 3,000
Less - accumulated depreciation and
amortization - (3,000)
---------- ----------
Net property and equipment - -
---------- ----------
Other Assets:
Due from affiliates, net of valuation allowances - 30,000
Deferred income taxes 482,000 -
Other assets - 8,000
---------- ----------
Total other assets 482,000 38,000
---------- ----------
$4,097,000 $7,239,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
14
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
-------------- --------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ - $ 85,000,000
Accounts payable 104,000 83,000
Accrued liabilities -
Interest - 14,397,000
Other - 4,000
Due to affiliates 6,000 342,000
Deferred income taxes 482,000 -
------------- -------------
Total current liabilities 592,000 99,826,000
------------- -------------
Liabilities subject to compromise 112,757,000 -
------------- -------------
Long-Term Debt - 15,000,000
------------- -------------
Commitments and Contingencies
Shareholder's Deficit:
Common stock $1.00 par value per share,
1,000 shares authorized and outstanding 1,000 1,000
Accumulated deficit (109,253,000) (107,588,000)
------------- -------------
Total shareholder's deficit (109,252,000) (107,587,000)
------------- -------------
$ 4,097,000 $ 7,239,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
15
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Management and consulting fees $ 300,000 $ 1,044,000
General and administrative expenses 101,000 319,000
----------- -----------
Income from operations 199,000 725,000
----------- -----------
Non-operating income (expense):
Interest income 30,000 76,000
Interest expense (contractual interest of $3,018,000 in 1999) (1,811,000) (3,018,000)
Equity in earnings of Limited
Partnership 1,068,000 712,000
Equity in earnings of GB Holdings, Inc. - 619,000
Restructuring costs (263,000) (984,000)
----------- -----------
Total non-operating expense, net (976,000) (2,595,000)
----------- -----------
Loss before income taxes (777,000) (1,870,000)
Income tax provision (1,000) (3,000)
----------- -----------
Net loss $ (778,000) $(1,873,000)
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
16
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Management and consulting fees $ 600,000 $ 2,510,000
General and administrative expenses 265,000 800,000
------------- -------------
Income from operations 335,000 1,710,000
------------- -------------
Non-operating income (expense):
Interest income 86,000 140,000
Interest expense (contractual interest of $6,037,000 in 1999) (4,830,000) (6,037,000)
Equity in earnings of Limited
Partnership 3,090,000 2,632,000
Equity in earnings of GB Holdings, Inc. - 3,254,000
Restructuring costs (345,000) (1,044,000)
------------- -------------
Total non-operating expense, net (1,999,000) (1,055,000)
------------- -------------
(Loss) income before income taxes (1,664,000) 655,000
Income tax provision (1,000) (1,395,000)
------------- -------------
Net loss $(1,665,000) $ (740,000)
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
17
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1999 1998
------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,665,000) $ (740,000)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Provision for doubtful accounts 56,000 141,000
Equity in earnings of Limited Partnership (3,090,000) (2,632,000)
Distributions received from Limited Partnership 4,137,000 3,089,000
Equity in earnings of GB Holdings, Inc. - (3,254,000)
(Decrease) increase in accounts payable and other accrued liabilities (1,997,000) 6,361,000
Net change in other current assets and liabilities (126,000) (258,000)
Net change in other noncurrent assets and liabilities 8,000 1,225,000
------------- -----------
Net (decrease) increase in cash and cash equivalents (2,677,000) 3,932,000
Cash and cash equivalents at beginning of period 3,746,000 2,231,000
------------- -----------
Cash and cash equivalents at end of period $ 1,069,000 $ 6,163,000
============= ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
18
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
Pratt Casino Corporation ("PCC") is a Delaware corporation and a wholly
owned subsidiary of PPI Corporation, a New Jersey corporation which is wholly
owned by Greate Bay Casino Corporation ("GBCC"). Prior to December 31, 1998, PCC
also owned all of the common stock of GB Holdings, Inc. ("Holdings"), the parent
of Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation which
owns the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands").
Effective on December 31, 1998, PCC transferred 21% of its ownership in Holdings
to an entity owned by certain of GBCC's officers and directors in order to
comply with the terms of a legal settlement agreement (see Note 8). Prior to
July 7, 1998, the Sands was managed by New Jersey Management, Inc. ("NJMI"),
also a wholly owned subsidiary of PCC. PCC also earns management and consulting
fees with respect to gaming facilities owned by Hollywood Casino Corporation
("HCC") which, prior to December 31, 1996, owned approximately 80% of the common
stock of GBCC.
GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation
and a wholly owned subsidiary of Holdings, was incorporated on September 29,
1993 for the purpose of borrowing funds through the issuance of $185,000,000 of
ten-year, nonrecourse first mortgage notes (the "10 7/8% First Mortgage Notes")
for the benefit of GBHC. PRT Funding Corp. ("PRT Funding"), also a Delaware
corporation and a wholly owned subsidiary of PCC, was incorporated on September
29, 1993 for the purpose of borrowing funds through the issuance of $85,000,000
of unsecured notes (the "PRT Funding Notes") for the benefit of PCC and its
affiliates. GB Property Funding and PRT Funding completed their respective debt
offerings on February 17, 1994 and the proceeds were loaned to various
affiliates.
On January 5, 1998, Holdings, GB Property Funding and GBHC 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 "New Jersey Bankruptcy Court"). 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 remain in office, subject to the
supervision of the New Jersey Bankruptcy Court. On January 11, 1999, the New
Jersey Bankruptcy Court terminated the debtors' exclusive right to file a plan
of reorganization. On June 1, 1999, a plan of reorganization was filed by the
debtors with the New Jersey Bankruptcy Court. The reorganization plan, as filed,
provides for the secured bondholders to receive new debt and equity ownership of
Holdings in exchange for their current claims and for unsecured creditors to
receive a partial cash settlement of their claims. The plan is presently under
review by the creditors and the New Jersey Bankruptcy Court.
The filings under Chapter 11 by Holdings and its subsidiaries resulted in a
default under the indenture for PRT Funding's debt obligations; accordingly, the
outstanding principal amount of the PRT Funding Notes accelerated and became due
and payable. As a result of the Chapter 11 filings, GBHC filed a motion seeking
to reject the Sands' management contract with NJMI which was granted by the New
Jersey Bankruptcy Court on September 28, 1998. As a consequence of the September
1998 settlement agreement (see Note 8), GBCC and GBHC may no longer assert
claims against each other with respect to the management agreement and, with the
passage of time, the cancellation thereof. PCC, as guarantor of the PRT Funding
Notes, does not have sufficient assets to satisfy the outstanding amounts
applicable to the PRT Funding Notes. PRT Funding deferred payment of interest
due on the April 15 and October 15, 1998 and April 15, 1999 interest payment
dates. On October 22, 1998, PRT Funding paid to the bondholders an amount equal
to a single semiannual interest payment ($4,941,000) while negotiations to
restructure the
19
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
PRT Funding Notes continued. In connection with the Restructuring (as defined
below), PRT Funding paid deferred interest amounting to $6,768,000 to the
bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for HCC's Aurora, Illinois gaming operation and a consulting contract for HCC's
Tunica, Mississippi gaming operation and its liabilities will consist of a newly
issued promissory note in the principal amount of $40,329,000 payable to the
Trustee for the PRT Funding noteholders. The voting agreement provides for HCC
to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes will also
receive 100% of the remaining assets of PCC and its subsidiaries not acquired by
HCC. Such assets consist primarily of claims against Holdings, GB Property
Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring required that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
petitions were filed on May 25, 1999 in the United States Bankruptcy Court for
the District of Delaware (the "Delaware Bankruptcy Court") and the related plan
of reorganization was filed on May 26, 1999. The plan will require approval by
the Delaware Bankruptcy Court as well as by various gaming regulatory
organizations. 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 remain in office, subject to the jurisdiction of the
Delaware Bankruptcy Court.
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. There can be no assurance at this time that the
Restructuring will be successfully completed. The default under the indenture
for PRT Funding's debt obligations raises substantial doubt about PCC's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Except as noted in the following paragraph, the accompanying consolidated
financial statements include the operating activities and cash flows of PCC and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
As a result of the Chapter 11 filings by Holdings and its subsidiaries
discussed above, PCC's control over the filing subsidiaries is subject to
supervision of the New Jersey Bankruptcy Court and PCC does not expect to have
ownership or operating control of such subsidiaries after reorganization. Prior
to July 7, 1998, NJMI was responsible for the operations of the Sands under a
management agreement with GBHC (see Note 5). On May 22, 1998, GBHC filed a
motion with the New Jersey Bankruptcy Court seeking to reject the existing
management agreement with NJMI. A substitute agreement (the "Interim Agreement")
was entered into on June 27, 1998 and approved by the New Jersey Bankruptcy
Court on July 7, 1998. Under the Interim Agreement, NJMI continued to provide
certain agreed upon services to GBHC until
20
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
September 28, 1998. Furthermore, as the result of a settlement agreement reached
by GBCC and Holdings during September 1998 (see Note 8), PCC no longer controls
the management of the Sands. Accordingly, Holdings, GB Property Funding and GBHC
are no longer included on the accompanying consolidated balance sheets. During
the period from January 1, 1998 through June 30, 1998, the operations of
Holdings and its subsidiaries were accounted for under the equity method of
accounting (see Note 7). As a result of PCC no longer controlling the operations
of the Sands, the expectation that ownership control of Holdings will only be
temporary and the September 1998 settlement agreement which resolved certain
significant uncertainties, PCC's investment in Holdings and its subsidiaries was
revalued to a zero basis effective on July 1, 1998. Accordingly, for periods
subsequent to June 30, 1998, PCC is accounting for its investment in Holdings
under the cost method of accounting.
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.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), which, as amended, is
effective for fiscal years beginning after June 15, 2000. SFAS 133 requires,
among other things, that derivatives be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives may, depending on circumstances,
be recognized in earnings or deferred as a component of shareholders' equity
until a hedged transaction occurs. PCC does not believe the adoption of SFAS 133
will have a significant impact on its financial position or results of
operations.
The financial statements of PCC as of June 30, 1999 and for the three and
six month periods ended June 30, 1999 and 1998 have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the consolidated financial position of PCC as of June 30, 1999,
the results of its operations for the three and six month periods ended June 30,
1999 and 1998 and its cash flows for the six month periods ended June 30, 1999
and 1998.
(2) Long-Term Debt and Pledge of Assets
On February 17, 1994, PRT Funding issued the PRT Funding Notes due April
15, 2004. Interest on the PRT Funding Notes accrued at the rate of 11 5/8% per
annum, payable semiannually commencing October 15, 1994. Certain of the
indentures to PCC's indebtedness contained cross-default provisions with first
mortgage notes issued by GB Property Funding. The petitions for relief filed by
Holdings and its subsidiaries resulted in a default under the indenture for the
PRT Funding Notes. Accordingly, the outstanding principal amount of the PRT
Funding Notes accelerated, became due and payable and was classified as current
on the accompanying consolidated balance sheets at December 31, 1998. As the
result of the subsequent Chapter 11 filings by PCC and its subsidiaries, the
debt obligations and related accrued interest are included in Liabilities
Subject to Compromise on the accompanying consolidated balance sheet at June 30,
1999 (see Note 3). The PRT Funding Notes will be replaced by a new note to be
issued by PCC as part of the Restructuring (see Note 1).
21
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
On February 17, 1994, PRT Funding issued $15,000,000 of junior subordinated
notes (the "Junior Subordinated Notes"). The Junior Subordinated Notes are due
in February 2005 and bear interest at the rate of 14 5/8% per annum which,
subject to PCC, the guarantor, meeting certain financial coverage and other
payment restriction tests required by the indenture for the PRT Funding Notes,
is payable semiannually commencing August 17, 1994. Because PCC has not met the
financial coverage tests, no interest has been paid since the end of 1995. The
Junior Subordinated Notes and related interest payable are included in
Liabilities Subject to Compromise on the accompanying consolidated balance sheet
at June 30, 1999 (see Note 3) and would be forgiven as part of the
Restructuring.
Interest paid during the six month period ended June 30, 1999 totaled
$6,768,000. No interest was paid during the six month period ended June 30,
1998.
(3) Liabilities Subject to Compromise
Liabilities subject to compromise under PCC's plan of reorganization as
filed with the Delaware Bankruptcy Court consist of the following:
<TABLE>
<S> <C>
PRT Funding Notes $ 85,000,000
Junior Subordinated Notes 15,000,000
Accrued interest 12,459,000
Accounts payable and accrued liabilities 17,000
Due to affiliates 281,000
-------------
$ 112,757,000
=============
</TABLE>
(4) Income Taxes
Components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------------
1999 1998 1999 1998
---------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Federal income tax (provision
for) benefit:
Current $ - $ - $ - $ (1,392,000)
Deferred 260,000 982,000 563,000 2,202,000
State income tax (provision)
benefit:
Current (1,000) (3,000) (1,000) (3,000)
Deferred 61,000 70,000 226,000 481,000
Change in valuation allowance (321,000) (1,052,000) (789,000) (2,683,000)
---------- ---------- ------------ --------------
$ (1,000) $ (3,000) $ (1,000) $ (1,395,000)
========== ========== =========== ==============
</TABLE>
22
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
PCC is included in the consolidated federal income tax return of GBCC.
Pursuant to tax allocation agreements, PCC's provision for federal income taxes
is based on the amount of tax which would be provided if a separate federal
income tax return were filed.
No federal tax payments were made during the six month period ended June
30, 1999. PCC made federal tax payments under the tax allocation agreements
totaling $5,000 during the six month period ended June 30, 1998. State taxes
paid by PCC during the six month period ended June 30, 1999 totaled $1,000. No
such payments were made during the six month period ended June 30, 1998.
Deferred income taxes result primarily from the provision of valuation
allowances on affiliate receivables, the write off of deferred financing costs
and differences in the timing of deductions taken between tax and financial
reporting purposes for certain restructuring costs.
At June 30, 1999, PCC and its subsidiaries have net operating loss
carryforwards ("NOL's") for federal and state tax purposes totaling
approximately $3,050,000 and $10,800,000, respectively. The federal tax NOL's do
not begin to expire until 2009 and most of the state tax NOL's expire by 2003.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("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, a valuation
allowance should be recorded. Due to (i) the continued availability of NOL's
originating in prior years for federal and state tax purposes, (ii) the limited
operations of PCC following the December 31, 1998 deconsolidation for federal
income tax purposes of Holdings, PCC's most significant operating subsidiary,
and (iii) questions regarding PCC's ability to continue as a going concern,
management is unable to determine that the realization of such asset is more
likely than not and, thus, has provided valuation allowances for the entire
deferred tax asset at both June 30, 1999 and December 31, 1998.
23
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
The components of PCC's net deferred tax asset as of June 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 2,010,000 $ 760,000
Allowance for doubtful accounts 56,000 102,000
Write off deferred financing costs 685,000 756,000
Restructuring costs 756,000 618,000
----------- -----------
Total deferred tax assets 3,507,000 2,236,000
Deferred tax liability:
Interest expense not recognized (482,000) -
----------- -----------
3,025,000 2,236,000
Valuation allowance (3,025,000) (2,236,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
Sales or purchases of PCC's 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 PCC to utilize these loss carryforwards in
later tax periods. Should such a change of control occur, the amount of annual
loss carryforwards available for use would most likely be substantially reduced.
Future treasury regulations, administrative rulings or court decisions may also
effect PCC's future utilization of its loss carryforwards.
The Internal Revenue Service is currently examining the consolidated
federal income tax returns of HCC for the years 1993 through 1996 in which PCC
was included. Management believes that the results of such examination will not
have a material adverse effect on the consolidated financial position or results
of operations of PCC.
(5) Transactions with Related Parties
As a result of the Chapter 11 filings by Holdings and its subsidiaries
discussed in Note 1, the assets and liabilities of Holdings and its subsidiaries
are not included on the accompanying consolidated balance sheets at June 30,
1999 and December 31, 1998. Accordingly, intercompany receivables and payables
with Holdings and its subsidiaries are considered balances outstanding with
affiliates and transactions with Holdings and its subsidiaries are considered
transactions with affiliates.
Prior to May 1, 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
24
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 a motion with the New Jersey Bankruptcy Court seeking to
reject the existing management agreement with NJMI. The Interim Agreement was
entered into on June 27, 1998 and was approved by the New Jersey Bankruptcy
Court on July 7, 1998. Under the Interim Agreement, effective as of May 1, 1998
and terminating on September 28, 1998, NJMI continued to provide certain agreed
upon services to GBHC at a monthly fee of $165,000 of which $122,000 was paid on
a monthly basis in arrears and the remaining $43,000 was deferred and is to be
paid upon confirmation of GBHC's plan of reorganization by the New Jersey
Bankruptcy Court. All management fees terminated upon the granting of GBHC's
motion to reject the management contract by the New Jersey Bankruptcy Court on
September 28, 1998. As a consequence of the September 1998 settlement agreement
(see Note 8), GBCC and GBHC may no longer assert claims against each other with
respect to the operation of the management contract and, with the passage of
time, the cancellation thereof.
Fees earned by NJMI under the management agreement and Interim Agreements
amounted to $744,000 and $1,910,000, respectively, during the three and six
month periods ended June 30, 1998. Management fees receivable from the Sands at
June 30, 1999 and December 31, 1998 amounted to $211,000 and $267,000,
respectively, net of a valuation allowance of $167,000 and $115,000,
respectively. Of the amount receivable at December 31, 1998, $30,000, net of the
aforementioned valuation allowance, which was earned prior to GBHC's bankruptcy
filing, was included in noncurrent due from affiliates on the accompanying
consolidated balance sheet and is subject to terms of a reorganization plan
which requires confirmation by the Bankruptcy Court (see Note 8). Such amount
was fully reserved during the second quarter of 1999.
HWCC - Tunica, Inc. ("HCT"), a wholly owned subsidiary of HCC, owns and
operates a gaming and lodging facility in Tunica County, Mississippi (the
"Tunica Casino") which commenced operations in August 1994. Pursuant to a
consulting agreement with HCT which expires in December 2003, PCC receives
monthly consulting fees of $100,000. Such fees amounted to $300,000 and
$600,000, respectively, for each of the three and six month periods ended June
30, 1999 and 1998.
Interest expense incurred with respect to the Junior Subordinated Notes
(Note 2) amounted to $329,000 and $877,000, respectively, during the three and
six month periods ended June 30, 1999. Interest due to GBCC on the Junior
Subordinated Notes of $8,275,000 and $7,398,000, respectively, is included in
liabilities subject to compromise and in interest payable on the accompanying
consolidated balance sheets at June 30, 1999 and December 31, 1998. Repayment of
such borrowings from GBCC and the payment of the related interest are subject to
the terms of the plan or reorganization which requires confirmation by the
Delaware Bankruptcy Court. The accrual of interest on the affiliate advances for
the periods subsequent to the filing under Chapter 11 has been suspended.
GBHC issued a promissory note in the amount of $10,000,000 on February 17,
1994 to PRT Funding. Such note accrues interest at the rate of 14 5/8% per annum
and is payable semiannually commencing on August 17, 1994. The principal amount
of the note is due on February 17, 2005. During the first quarter of 1997, PCC
loaned $5,000,000 to GBHC for working capital purposes. Such borrowing accrues
interest at the rate of 14 5/8% per annum payable semiannually commencing July
15, 1997. As a result of (i) GBHC no longer being included as a consolidated
subsidiary and (ii) GBHC's filing under Chapter 11 making prospects for ultimate
collection doubtful, the notes, together with accrued interest
25
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
receivable aggregating $3,458,000, were reflected as an adjustment to PCC's
negative investment in Holdings at December 31, 1997. Interest income on the
notes has not been recognized for periods subsequent to GBHC's filing under
Chapter 11 on January 5, 1998. In accordance with certain provisions of the
September 1998 settlement agreement with GBCC (see Note 8), GBHC preserves
whatever rights of offset, if any, it might have with respect to an advance made
by GBHC to another GBCC subsidiary against the $10,000,000 and $5,000,000 loans
described above. The notes, together with accrued interest of $6,749,000 and
$5,652,000, are fully reserved on the accompanying consolidated balance sheets
at June 30, 1999 and December 31, 1998, respectively.
Prior to the September 1998 settlement agreement (see Note 8), PCC and its
subsidiaries performed certain services for GBHC and billed GBHC for such
services. Similarly, PCC and its subsidiaries were charged for certain legal,
accounting and other expenses incurred by GBCC and HCC and their respective
subsidiaries that related to PCC's business. For the three and six month periods
ended June 30, 1998, billings to GBHC amounted to $21,000 and $42,000,
respectively, and charges from affiliates amounted to $237,000 and $502,000,
respectively.
(6) Investment in Limited Partnership
During February 1994, PCC acquired a limited partnership interest in Pratt
Management, L.P. ("PML"), a limited partnership which, since February 17, 1994,
has managed a riverboat gaming and entertainment complex owned by HCC and
located in Aurora, Illinois (the "Aurora Casino"). PML earned management fees
amounting to $1,612,000 and $1,279,000, respectively, during the three month
periods ended June 30, 1999 and 1998 and $4,212,000 and $3,825,000,
respectively, during the six month periods ended June 30, 1999 and 1998. PML
also incurred operating and other expenses amounting to $284,000 and $309,000,
respectively, during the three month periods ended June 30, 1999 and 1998 and
$591,000 and $666,000, respectively, during the six month periods ended June 30,
1999 and 1998. In accordance with certain terms of the Partnership Agreement,
PCC, as limited partner, receives 1% of the first $84,000 of net income earned
by the partnership each month and 99% of any net income earned above such
amount, with all remaining income distributed to the general partner.
(7) Equity in Earnings of GB Holdings, Inc.
As discussed in Note 1, the operations of Holdings and its subsidiaries
were accounted for under the equity method of accounting for the six month
period from January 1, 1998 through June 30, 1998. Due
26
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
to the significance of Holdings' operations, summarized consolidated results of
operations of Holdings and its subsidiaries for the three and six month periods
from January 1, 1998 through June 30, 1998 are set forth below. Transactions
with Holdings and its subsidiaries are included in Note 5.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------- -----------------
<S> <C> <C>
Net revenues $ 58,453,000 $ 114,066,000
---------------- --------------
Departmental expenses 50,214,000 95,499,000
General and administrative expenses 3,134,000 7,115,000
Depreciation and amortization 2,926,000 5,825,000
---------------- --------------
Total operating expenses 56,274,000 108,439,000
---------------- --------------
Income from operations 2,179,000 5,627,000
---------------- --------------
Interest, net 170,000 430,000
Gain on disposal of assets - 28,000
---------------- --------------
Total non-operating income 170,000 458,000
---------------- --------------
Income before taxes and other items 2,349,000 6,085,000
Income tax provision - -
---------------- --------------
Income before other items 2,349,000 6,085,000
Reorganization and other related costs (1,730,000) (2,831,000)
---------------- --------------
Net income $ 619,000 $ 3,254,000
================ ==============
</TABLE>
(8) Litigation
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief 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,
and each company's executive officers and directors remain in office, subject to
the supervision of the New Jersey Bankruptcy Court. On January 11, 1999, the New
Jersey Bankruptcy Court terminated the debtors' exclusive right to file a plan
of reorganization. On June 1, 1999, a plan of reorganization was filed formally
by the debtors with the New Jersey Bankruptcy Court. The reorganization plan, as
filed, provides for the secured bondholders to receive new debt and equity
ownership of Holdings in exchange for their current claims and for unsecured
creditors to receive a partial cash settlement of their claims. The plan is
presently under review by the creditors and the New Jersey Bankruptcy Court.
The filings of petitions for relief by Holdings and its subsidiaries
resulted in a default and automatic acceleration under the indenture for the PRT
Funding Notes.
27
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement with
HCC which provides for the Restructuring of the PRT Funding Notes. The
agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for the Aurora Casino and a consulting contract for the Tunica Casino and its
liabilities will consist of a newly issued promissory note in the principal
amount of $40,329,000 payable to the Trustee for the PRT Funding noteholders.
The voting agreement provides for HCC to immediately discharge the promissory
note.
As part of the Restructuring, holders of the PRT Funding Notes will also
receive 100% of the remaining assets of PCC and its subsidiaries not acquired by
HCC. Such assets consist primarily of claims against Holdings, GB Property
Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring required that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
petitions for relief were filed on May 25, 1999 in the Delaware Bankruptcy Court
and the related plan of reorganization was filed on May 26, 1999. The plan will
require approval by the Delaware Bankruptcy Court as well as by various gaming
regulatory organizations. 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 remain in office, subject to jurisdiction of
the Delaware Bankruptcy Court.
On May 22, 1998, GBHC filed a motion with the New Jersey Bankruptcy Court
seeking to reject the management agreement with NJMI (see Note 5). The Interim
Agreement was entered into and approved by the New Jersey Bankruptcy Court on
July 7, 1998 and the motion to reject the management agreement was approved by
the New Jersey Bankruptcy Court on September 28, 1998. As a consequence of the
September 1998 settlement agreement described below, GBCC and GBHC may no longer
assert claims against each other with respect to the operation of the management
contract and, with the passage of time, the cancellation thereof.
On July 27, 1998, GBHC filed an action in the New Jersey Bankruptcy Court
against GBCC seeking, among other things, to enjoin GBCC from using the tax
NOL's of GBHC. On September 2, 1998, GBCC reached a settlement with GBHC which
was approved by the New Jersey Bankruptcy Court. The terms of the settlement
agreement provided, among other things, that GBHC be included in the
consolidated federal income tax return of GBCC for 1997 and 1998 enabling GBCC
to utilize GBHC's tax NOL's. The agreement also provided that on or before
December 31, 1998, GBCC would cause Holdings and its subsidiaries to be
deconsolidated from GBCC for federal income tax purposes by means of
transferring 21% of the stock ownership of Holdings to an unconsolidated entity.
Such transfer was accomplished effective as of December 31, 1998.
On April 22, 1999 GBHC filed a motion with the New Jersey Bankruptcy Court
seeking to disallow NJMI's pre-petition claims (see Note 5). The motion to
disallow is currently scheduled to be heard by the New Jersey Bankruptcy Court
in September 1999.
28
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)
(Unaudited)
On October 8, 1998, GBCC and HCC filed a complaint in the District Court of
Dallas County, Texas against Arthur Andersen LLP, PCC's former independent
accountants, and selected partners alleging negligent advice and breach of
contract with respect to the tax consequences resulting from the spin-off of
GBCC's stock to HCC's shareholders on December 31, 1996. The lawsuit is
currently in the discovery stage.
29
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, results of operation, cash flows, financial condition and
prospects of PCC. 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 PCC in particular, and other risks indicated in PCC's filing with
the Securities and Exchange Commission. Such risks and uncertainties are beyond
management's ability to control and, in many cases, can not 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
PCC or its management are intended to identify forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1998, cash flow from management and consulting services,
specifically the PML limited partnership interest held by PCC, the Tunica
Consulting Contract and the Sands Management Contract, were sufficient to meet
debt service obligations on the PRT Funding Notes ($9.9 million annually) and,
when permitted by the PRT Funding Note indenture, on the Junior Subordinated
Notes.
As a consequence of the Chapter 11 filing by Holdings, GB Property Funding
and GBHC, PRT Funding is in default on the $85 million principal amount of PRT
Funding Notes which, together with accrued interest, accelerated and became
immediately due and payable. The bankruptcy filing of GBHC also permitted it to
reject the Sands Management Agreement, an important source of funds for debt
service on the PRT Funding Notes. Management of GBHC requested modification to
the fee arrangement under the Sands management agreement and reserved its right
to reject the agreement. A modified agreement was entered into effective May 1,
1998, and expired on September 28, 1998, which reduced the monthly fee to
$165,000 compared to an average monthly fee of $532,000 during the same period
in 1997. GBHC's motion to reject the management agreement was approved by the
New Jersey Bankruptcy Court on September 28, 1998. As a consequence of the
September 1998 settlement agreement (see Note 8 of Notes to Consolidated
Financial Statements of PCC), GBCC and GBHC may no longer assert claims against
each other with respect to the management agreement and, with the passage of
time, the cancellation thereof. PCC does not have the financial resources or the
capacity to borrow sufficient cash to satisfy the $85 million principal amount
of the PRT Funding Notes which have accelerated. PRT Funding deferred payment of
interest due on the April 15 and October 15, 1998 and April 15, 1999 interest
payment dates. On October 22, 1998, PRT Funding paid to the bondholders an
amount equal to a single semiannual interest payment ($4.9 million) while
negotiations to restructure the PRT Funding Notes continued. In connection with
the Restructuring, PRT Funding paid deferred interest amounting to $6.8 million
to the bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the Restructuring of the PRT Funding Notes. The agreement provides
for HCC to acquire the stock of PCC, the parent of PRT Funding, from GBCC for
nominal consideration. When acquired by HCC, PCC's assets will consist of its
limited partnership interest in a management contract for the Aurora Casino and
a consulting contract for the Tunica Casino and its liabilities will consist of
a newly issued promissory note in the principal amount of $40.3 million payable
to the Trustee for the PRT Funding noteholders. The voting agreement provides
for HCC to immediately discharge the promissory note.
30
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(Continued)
As part of the Restructuring, holders of the PRT Funding Notes will also
receive 100% of the remaining assets of PCC and its subsidiaries not acquired by
HCC. Such assets consist primarily of claims against Holdings, GB Property
Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring required that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
petitions for relief were filed on May 25, 1999 in the Delaware Bankruptcy Court
and the related plan of reorganization was filed on May 26, 1999. The plan will
require approval by the Delaware Bankruptcy Court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed. Accordingly, there is substantial
doubt about the ability of PCC to continue as a going concern.
GBHC owns and operates the Sands Hotel and Casino in Atlantic City. Prior
to 1996, the Sands' cash flow was sufficient to meet debt service obligations
and fund a substantial portion of annual capital expenditures. The Sands also
used short-term borrowings to fund seasonal cash needs for certain capital
projects. During 1996 and 1997, declines in operating cash flow at the Sands
resulted in the need for periodic financial assistance from PCC and GBCC in
order to meet debt service obligations. Substantial additional financial
assistance would have been required to make the January 15, 1998 principal and
interest payments due on the 10 7/8% First Mortgage Notes.
GBHC was unable to obtain additional borrowings from affiliates or other
sources and, accordingly, on January 5, 1998, Holdings, GB Property Funding and
GBHC filed petitions seeking protection under Chapter 11 of the Bankruptcy Code.
As a result of the filings, the Sands has sufficient cash flow to continue
normal operations while it seeks to develop a plan of reorganization for
submission to its creditors and the New Jersey Bankruptcy Court. Capital
expenditures, other than normal recurring capital expenditures in the ordinary
course of business, will require prior approval of the New Jersey Bankruptcy
Court. The New Jersey Bankruptcy Court has approved a $13.6 million, two-year
capital expenditure program including $7.1 million for rooms renovations and
$6.5 million for the replacement of slot machines. On January 11, 1999, the New
Jersey Bankruptcy Court terminated the debtor's exclusive right to file a plan
of reorganization. On June 1, 1999, a plan of reorganization was filed by the
debtors with the New Jersey Bankruptcy Court. The reorganization plan, as filed,
provides for the secured bondholders to receive new debt and equity ownership of
Holdings in exchange for their current claims and for unsecured creditors to
receive a partial cash settlement of their claims. The plan is presently under
review by the creditors and the New Jersey Bankruptcy Court. There can be no
assurance at this time that GBHC's plan of reorganization, as submitted, will be
accepted by its creditors or the New Jersey Bankruptcy Court. In any event, it
is not anticipated that PCC will retain a substantial equity position in
Holdings as a result of a reorganization and, accordingly, it is not anticipated
that the Holdings group will contribute significantly to the future cash flows
of PCC.
31
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(Continued)
RESULTS OF OPERATIONS
General
As a result of the filings by Holdings, GB Property Funding and GBHC, PCC's
control over the filing subsidiaries is subject to the supervision of the New
Jersey Bankruptcy Court. PCC does not expect to have ownership or operating
control of such subsidiaries after reorganization. Accordingly, the accompanying
consolidated statements of operations for the three and six month periods ended
June 30, 1998 reflect the operations of the filing subsidiaries under the equity
method of accounting and for the three and six month periods ended June 30, 1999
under the cost method of accounting.
Management and Consulting Fees
Management and consulting fees declined $744,000 (71.3%) and $1,910,000
(76.1%), respectively, for the three and six month periods ended June 30, 1999
compared to the 1998 periods. The 1999 decreases are due to the elimination of
management fees as a result of the termination of the NJMI management contract
with the Sands. A motion to reject the management contract was granted by the
New Jersey Bankruptcy Court on September 28, 1998.
General and Administrative Expenses
General and administrative expenses for PCC decreased $218,000 (68.3%) and
$535,000 (66.9%), respectively, for the three and six month periods ended June
30, 1999 compared to 1998. Declines in overhead costs associated with the
management of the Sands were partially offset by increases in administrative
costs which are no longer shared with GBHC.
Interest
The decreases in interest income for PCC were not significant from a
monetary standpoint during the three and six month periods ended June 30, 1999
compared with 1998 and result from reductions in cash available for investment
purposes. The three and six month period reductions in interest expense of $1.2
million (40%) and $1.2 million (20%), respectively, result from the suspension
of interest for periods subsequent to the Chapter 11 filings by PCC and its
subsidiaries. Contractual interest obligations remain unchanged from the prior
year periods.
Equity in Earnings of Limited Partnership
Effective February 17, 1994, PCC acquired the limited partnership interest
in PML, a limited partnership which earns management fees from the operation of
the Aurora Casino. The Agreement of Limited Partnership of PML provides for
distributions to PCC of 1% of the first $84,000 of net income earned by PML each
month and 99% of any net income earned above such amount, with all remaining
income distributed to the general partner. PCC's equity in the earnings of PML
increased by $356,000 (50%) and $458,000 (17.4%), respectively, during the three
and six month periods ended June 30, 1999 compared with the 1998 periods. The
1999 increases reflect improved management fees earned by PML which are based,
in part, on the operating results of the Aurora Casino.
32
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Equity in Earnings of GB Holdings, Inc.
PCC's equity in the earnings of Holdings for the three and six month
periods ended June 30, 1998 amounted to $619,000 and $3,254,000, respectively.
As a result of PCC no longer controlling the operations of the Sands, the
continued expectation that ownership control of Holdings will only be temporary
and the September 1998 settlement agreement which resolved certain significant
uncertainties, PCC's investment in Holdings and its subsidiaries was revalued to
a zero basis effective on July 1, 1998 and PCC is no longer recognizing equity
in the earnings of Holdings and its subsidiaries.
Restructuring Costs
Restructuring costs during the three and six month periods ended June 30,
1999 declined $721,000 (73.3%) and $699,000 (67%) compared with the same periods
of 1998. Professional fees and other corporate overhead costs incurred with
respect to the default of the PRT Funding Notes and negotiations to restructure
the obligations amounted to $984,000 during the second quarter of 1998. Such
costs declined to $82,000 in the corresponding three month period of 1999
reflecting the Restructuring as set forth in the voting agreement and plan of
reorganization.
Income Tax Provision
PCC's operations are included in GBCC's consolidated federal income tax
return. Pursuant to agreements between PCC and GBCC, PCC's provision for federal
income taxes is based on the amount of tax which would have been provided if a
separate return were filed.
Due to (i) the continued availability of NOL's originating in prior years
for federal and state tax purposes, (ii) the limited operations of PCC following
the December 31, 1998 deconsolidation for federal income tax purposes of
Holdings, PCC's most significant operating subsidiary, and (iii) questions
regarding PCC's ability to continue as a going concern, management is unable to
determine that the realization of deferred tax assets resulting from NOL's and
temporary differences is more likely than not. Accordingly, under the provisions
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes", PCC has provided valuation allowances for the entire deferred tax asset
at both June 30, 1999 and December 31, 1998.
Year 2000 Compliance
In the year 2000, computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 rather than 2000. Such an error
could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
Management has initiated a program to prepare the Company's computer
systems and applications for the year 2000. Such program includes the use of
both internal and external resources to test and, if necessary, modify or
replace software applications. The costs of acquiring, testing and converting
such systems are expected to be minimal. Management expects its Year 2000 date
conversion projects to be completed on a timely basis. The company has also
initiated formal communication with its suppliers to
33
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(Debtors-in-Possession, wholly owned by PPI Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
determine the extent to which its information systems are vulnerable to those
third parties' failure to resolve their Year 2000 issues. While there can be no
assurance that the Company will fully resolve the Year 2000 issues, neither the
estimated cost nor the outcome of the Year 2000 problem is expected to have a
material impact on the Company's operations, liquidity or financial position.
Seasonality and Other Fluctuations
The Aurora Casino experiences some seasonality due to severe winter
weather, and, as a result, management fees earned have fluctuated with such
seasonality. In addition, the Aurora Casino's operations may fluctuate
significantly due to a number of other factors, including chance. Such
seasonality and fluctuations may materially affect PCC's results of operations.
34
<PAGE>
PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief 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,
and each company's executive officers and directors remain in office, subject to
the jurisdiction of the New Jersey Bankruptcy Court. On January 11, 1999, the
New Jersey Bankruptcy Court terminated the debtors' exclusive right to file a
plan of reorganization. On June 1, 1999, a reorganization plan was filed by the
debtors with the New Jersey Bankruptcy Court. The reorganization plan, as filed,
provides for the secured bondholders to receive new debt and equity ownership of
Holdings in exchange for their current claims and for unsecured creditors to
receive a partial cash settlement of their claims. The plan is presently under
review by the creditors and the New Jersey Bankruptcy Court.
The default under the GB Property Funding Notes resulted in an automatic
acceleration under the indenture for the PRT Funding Notes; accordingly, the
holders of the PRT Funding Notes could have initiated judicial proceedings to
enforce their claims for payment. On April 28, 1999, PCC, PRT Funding, NJMI,
GBCC, HCC and the holders of substantially all of the PRT Funding Notes entered
into a voting agreement which provides for the Restructuring of the PRT Funding
Notes. The agreement provides for HCC to acquire the stock of PCC, the parent of
PRT Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for the Aurora Casino and a consulting contract for the Tunica Casino and its
liabilities will consist of a newly issued promissory note in the principal
amount of $40,329,000 payable to the Trustee for the PRT Funding noteholders.
The voting agreement provides for HCC to immediately discharge the promissory
note.
As part of the Restructuring, holders of the PRT Funding Notes will also
receive 100% of the remaining assets of PCC and its subsidiaries not acquired by
HCC. Such assets consist primarily of claims against Holdings, GB Property
Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring required that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
petitions for relief were filed on May 25, 1999 in the Delaware Bankruptcy Court
and the related plan of reorganization was filed on May 26, 1999. The plan will
require approval by the Delaware Bankruptcy Court as well as by various gaming
regulatory organizations. 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 remain in office, subject to jurisdiction of
the Delaware Bankruptcy Court.
On April 22, 1999, GBHC filed a motion with the New Jersey Bankruptcy Court
seeking to disallow NJMI's pre-petition claims. The motion to disallow is
currently scheduled to be heard by the New Jersey Bankruptcy Court in September.
Item 3. Defaults Upon Senior Securities
As a result of the filings discussed in Item 1. above, $182,500,000
principal amount of 10 7/8% First Mortgage Notes issued by GB Property Funding
are in default. Principal payments of $2,500,000 each due on January 15 and July
15, 1998 and on January 15 and July 15, 1999 were not made. Under an order of
the New Jersey 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
35
<PAGE>
of the security for the 10 7/8% First Mortgage Notes, must be remitted to the
Trustee for the 10 7/8% First Mortgage Notes as reductions to the outstanding
principal. As of August 12, 1999, $400,000 has been remitted to the Trustee from
the proceeds on the sale of equipment. The accrual of interest on the 10 7/8%
First Mortgage Notes for periods subsequent to the filings has been suspended;
such interest on a contractual basis amounts to approximately $41,400,000 as of
August 12, 1999.
The default on the 10 7/8% First Mortgage Notes also resulted in a default
under the indenture for the $85,000,000 11 5/8% Unsecured Senior Notes issued by
PRT Funding Corp. and guaranteed by Pratt Casino Corporation. Accordingly, the
maturity of the PRT Funding Notes has accelerated. On October 22, 1998, PRT
Funding paid the bondholders an amount equal to a single interest payment
($4,941,000) while negotiations to restructure the notes continued. In
connection with the Restructuring, PRT Funding paid deferred interest amounting
to $6,768,000 to the bondholders on April 30, 1999. On May 25, 1999, PCC, PRT
Funding and NJMI filed petitions for relief under Chapter 11 of the Bankruptcy
Code and the related plan of reorganization was filed on May 26, 1999. Interest
due on the Unsecured Senior Notes, exclusive of compound interest on amounts in
arrears, amounts to $6,378,000 as of August 12, 1999.
Item 6.(a) - Exhibits
99.1 Debtors' First Amended Joint Plan of Reorganization dated June 21, 1999,
as modified July 7, 1999, of PCC, PRT Funding and NJMI.
99.2 Debtors' First Amended Joint Disclosure Statement Under 11 U.S.C. (S)1125,
as modified July 7, 1999, in Support of the Debtors' First Amended Joint
Plan of Reorganization dated June 21, 1999. as modified July 7, 1999.
Item 6.(b) - Reports on Form 8-K
The Registrants filed a report on Form 8-K on June 2, 1999 to disclose the
filings by the Registrants on May 25, 1999 of petitions for relief under Chapter
11 of the United States Bankruptcy Code and the filings by the Registrants on
May 26, 1999 of a joint plan of reorganization.
36
<PAGE>
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.
PRT FUNDING CORP.
PRATT CASINO CORPORATION
-------------------------------------
Registrants
Date: August 12, 1999 By: /s/ John C. Hull
--------------- -------------------------------------
John C. Hull
President and Chief Executive Officer
37
<PAGE>
EXHIBIT 99.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: (S) Chapter 11
(S)
PRATT CASINO CORPORATION (S) Jointly Administered
PRT FUNDING CORP. (S) Under Case No. 99-1204
NEW JERSEY MANAGEMENT, INC. (S)
(S)
Debtors. (S)
____________________________________________
DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
DATED JUNE 21, 1999, AS MODIFIED JULY 7, 1999
_____________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
DEFINITIONS......................................................................... 2
Rules of Interpretation............................................................. 2
ARTICLE 2
DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
AND SPECIFICATION OF IMPAIRED OR UNIMPAIRED STATUS.................................. 16
2.1 Summary....................................................................... 16
A. Claims.................................................................... 17
B. Interests................................................................. 18
2.2 Impairment Controversies...................................................... 18
ARTICLE 3
TREATMENT OF UNCLASSIFIED CLAIMS.................................................... 18
3.1 Allowed Administrative Claims................................................. 18
A. General................................................................... 18
(1) Bar Date for Administrative Claims................................ 18
(a) General Provisions......................................... 18
(b) Professionals.............................................. 19
(c) Objections to Administrative Claims, Including
Those of Professionals..................................... 19
B. Payment of Statutory Fees................................................. 19
C. Ordinary Course Liabilities............................................... 19
3.2 Allowed Tax Claims............................................................ 19
ARTICLE 4
TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS........................................ 20
4.1 Class 1 - Claims of the PRT Noteholders...................................... 20
4.2 Class 2 - PRT's Claim against PCC arising pursuant to the
PCC $62.9 Million Note Payable to PRT........................................ 20
4.3 Class 3 - PRT's Claims against PCC arising pursuant to
(A) the PCC $1.117 Million Indebtedness to PRT and
(B) the PCC $5 Million Note Payable to PRT................................... 20
4.4 Class 4 - NJMI's Claim against PCC arising on account of
the PCC $5.050 Million Indebtedness to NJMI.................................. 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.5 Class 5 - GBCC's Claim against PRT arising pursuant to the
PRT $15 Million Note Payable to GBCC..................................... 21
4.6 Class 6 - PRT's Claim against NJMI arising pursuant to the
NJMI $22.1 Million Note Payable to PRT................................... 21
4.7 Class 7 - GBCC's Claim against NJMI arising pursuant to the
NJMI $277,576 Indebtedness to GBCC....................................... 21
4.8 Class 8 - Unsecured Claims against any of PCC, PRT or
NJMI not otherwise classified............................................ 21
4.9 Class 9 - Interests of PCC's Equity Security Holder (PPI)................ 21
4.10 Class 10 - Interests of PRT's Equity Security Holder (PCC).............. 21
4.11 Class 11 - Interests of NJMI's Equity Security Holder (PCC).............. 21
ARTICLE 5
ACCEPTANCE OR REJECTION OF THE PLAN............................................. 22
5.1 Voting Classes........................................................... 22
5.2 Presumed Acceptance of Plan.............................................. 22
ARTICLE 6
MEANS FOR EXECUTION AND IMPLEMENTATIONOF THE PLAN............................... 22
6.1 Pro Rata Payments in Respect of Management Contracts..................... 22
6.2 Plan Implementation Steps Occurring on and After the Effective Date...... 22
6.3 Merger/Liquidation of Corporate Entities................................. 25
6.4 Transfer of Assets to the Liquidating Trust.............................. 25
A. Initial Delivery of Assets to the Liquidating Trust............... 25
B. Chapter 11 Payables Reserve Conveyed to Newco..................... 26
C. Undertaking Regarding Chapter 11 Payables Reserve................. 26
6.5 Ratification of Liquidating Trust Agreement.............................. 26
A. Powers and Duties................................................. 26
B. Compensation of Liquidating Trustee............................... 26
C. Limitation of Liability........................................... 27
D. Right to Hire Professionals and Agents............................ 27
E. Tax Treatment of the Liquidating Trust............................ 27
F. Termination of Liquidating Trust.................................. 28
6.6 Cancellation of Old Securities........................................... 28
6.7 Registration Exemption for Newco Warrants, Beneficial Interests in
Liquidating Trust and Reorganized PCC Undertaking........................ 28
6.8 Charter and By-Laws...................................................... 28
6.9 Corporate Action......................................................... 28
6.10 Objections to Claims..................................................... 29
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.11 Retention Of Causes Of Action.................................................... 29
6.12 Limitation of Liability.......................................................... 30
6.13 Releases......................................................................... 31
ARTICLE 7
FUNDING AND METHODS OF DISTRIBUTION..................................................... 32
7.1 Distribution Procedures-Generally................................................ 32
7.2 Source of Cash to be Paid to Class 1 Holders..................................... 32
7.3 Distributions to Holders of Allowed Administrative Claims........................ 32
7.4 Distributions to Holders of Allowed Tax Claims................................... 33
7.5 Distributions to Holders of Allowed Class 1 Claims............................... 33
A. Provisions Concerning Disbursing Agent.................................... 33
B. Timing Of Distributions................................................... 33
ARTICLE 8
MANNER OF DISTRIBUTION OF PROPERTY UNDER THE PLAN....................................... 34
8.1 Cash Distributions on Effective Date............................................. 34
8.2 Distributions from Time to Time, after the Effective Date,
from the Liquidating Trust....................................................... 34
8.3 Certification of Claims by Existing Indenture Trustees........................... 34
8.4 Surrender and Cancellation of Existing PRT Notes................................. 34
8.5 Record Date-Distributions; Distribution Date..................................... 35
8.6 Existing Indenture Trustee Expenses.............................................. 35
8.7 Disputed Claims.................................................................. 35
8.8 Delivery of Distributions and Undeliverable or Unclaimed Distributions........... 35
A. Delivery of Distributions in General...................................... 35
B. Undeliverable Distributions............................................... 36
8.9 De Minimis Distributions......................................................... 36
8.10 Failure to Negotiate Checks...................................................... 36
8.11 Compliance with Tax Requirements................................................ 36
8.12 Setoffs.......................................................................... 36
ARTICLE 9
TREATMENT OF EXECUTORY CONTRACTS........................................................ 37
9.1 Assumption of Certain Executory Contracts........................................ 37
9.2 Rejection of All Executory Contracts and Leases Not Assumed...................... 37
9.3 Cure Payments.................................................................... 37
9.4 Bar Date for Filing of Rejection Claims.......................................... 38
</TABLE>
iii
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<TABLE>
<S> <C>
ARTICLE 10
CONDITIONS TO CONFIRMATION OF PLAN..................................................... 38
10.1 Conditions to Confirmation..................................................... 38
10.2 Waiver of Conditions........................................................... 39
ARTICLE 11
CONDITIONS TO EFFECTIVENESS OF THE PLAN................................................ 39
11.1 Conditions to Effectiveness.................................................... 39
11.2 Waiver of Conditions........................................................... 39
ARTICLE 12
EFFECTS OF PLAN CONFIRMATION........................................................... 40
12.1 Discharge of Debtors and Injunction............................................ 40
12.2 Revesting...................................................................... 41
12.3 No Liability for Solicitation or Participation................................. 41
12.4 Other Documents and Actions.................................................... 41
12.5 Post-Consummation Effect of Evidences of Claims or Interests................... 41
12.6 Term of Injunctions or Stays.................................................. 42
ARTICLE 13
CONFIRMABILITY OF PLAN AND CRAMDOWN.................................................... 42
ARTICLE 14
RETENTION OF JURISDICTION.............................................................. 42
ARTICLE 15
MISCELLANEOUS PROVISIONS............................................................... 44
15.1 Fractional Dollars............................................................. 44
15.2 Modification of Plan........................................................... 44
15.3 Governing Law.................................................................. 44
15.4 Payment Dates.................................................................. 44
15.5 Headings....................................................................... 44
15.6 Successors and Assigns......................................................... 44
15.7 Severability of Plan Provisions................................................ 44
15.8 No Admissions.................................................................. 45
15.9 Creditors Committee............................................................ 45
</TABLE>
iv
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: (S) Chapter 11
(S)
PRATT CASINO CORPORATION (S) Jointly Administered
PRT FUNDING CORP. (S) Under Case No. 99-1204
NEW JERSEY MANAGEMENT, INC. (S)
(S)
Debtors. (S)
(S)
DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
DATED JUNE 21, 1999, AS MODIFIED JULY 7, 1999
---------------------------------------------
Pratt Casino Corporation, PRT Funding Corp., and New Jersey Management,
Inc., as debtors and debtors-in-possession (collectively, the "Debtors"),
propose this First Amended Joint Plan of Reorganization Dated June 21, 1999, as
Modified July 7, 1999 (the "Plan") pursuant to section 1121(a) of Title 11 of
the United States Code for the resolution of the Debtors' outstanding creditor
claims and equity interests. Reference is made to the Debtors' First Amended
Joint Disclosure Statement, as Modified July 7, 1999 (the "Disclosure
Statement") for a discussion of the Debtors' history, business, properties and
results of operations, and for a summary of this Plan and certain related
matters.
All holders of Claims and Interests are encouraged to read the Plan and the
Disclosure Statement in their entirety before voting to accept or reject this
Plan. No materials, other than the Disclosure Statement and any exhibits and
appendices attached thereto or referenced therein, have been approved by the
Debtors for use in soliciting acceptances or rejections of this Plan.
Page 1
<PAGE>
ARTICLE 1
DEFINITIONS
Rules of Interpretation. As used herein, the following terms have the
-----------------------
respective meanings specified below, and such meanings shall be equally
applicable to both the singular and plural and masculine and feminine forms of
the terms defined. The words "herein," "hereof," "hereto," "hereunder" and
others of similar import, refer to the Plan as a whole and not to any particular
section, subsection or clause contained in the Plan. Captions and headings to
articles, sections and exhibits are inserted for convenience of reference only
and are not intended to be part of or to affect the interpretation of the Plan.
The rules of construction set forth in section 102 of the Bankruptcy Code shall
apply. In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply. Any capitalized term used
herein that is not defined herein but is defined in the Bankruptcy Code shall
have the meaning ascribed to such term in the Bankruptcy Code. In addition to
such other terms as are defined in other sections of the Plan, the following
terms (which appear in the Plan as capitalized terms) have the following
meanings as used in the Plan.
1.1 "Affiliate" means (A) an entity that directly or indirectly owns,
---------
controls or holds with power to vote, twenty percent or more of the outstanding
voting securities of a Debtor, other than an entity that holds such securities
(1) in a fiduciary or agency capacity without sole discretionary power to vote
such securities or (2) solely to secure a debt, if such entity has not in fact
exercised such power to vote, or (B) a corporation twenty percent or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by a Debtor, or by an entity that directly or
indirectly owns, controls or holds with power to vote, twenty percent or more of
the outstanding voting securities of a Debtor, other than an entity that holds
such securities (1) in a fiduciary or agency capacity without sole discretionary
power to vote such securities or (2) solely to secure a debt, if such entity has
not in fact exercised such power to vote.
1.2 "Agreement Termination Event" shall have the meaning ascribed to such
---------------------------
term in Section 8 of the Voting Agreement, attached to the Disclosure Statement
---------
as Appendix C. Without limiting the foregoing, it shall be an "Agreement
Termination Event" if an order confirming this Plan shall not have been entered
and the Effective Date shall not have occurred by January 31, 2000.
1.3 "Allowed Administrative Claim" means an allowed claim, or that portion
----------------------------
thereof, that is entitled to priority under sections 503(b) and 507(a)(1) of the
Bankruptcy Code, including, without limitation: (A) the actual and necessary
costs and expenses incurred after the Petition Date of preserving the Estates
and operating the business of the Debtors (such as wages, salaries or payments
for goods and services); (B) compensation for legal, financial advisory,
accounting and other services and reimbursement of expenses awarded or allowed
under sections 330(a) or 331 of
Page 2
<PAGE>
the Bankruptcy Code; and (C) all fees and charges assessed against the Estates
under 28 U.S.C. (S) 1930.
1.4 "Allowed Claim" means a Claim against any one of the Debtors to the
-------------
extent that:
(A) (1) the Claim was Filed prior to the date designated by the
Bankruptcy Court as the last date for filing that category
of proof of claim (or Filed after such date with leave of
Court) or the Claim was, or is hereafter, listed in the
Schedules and is not listed as disputed, contingent or
unliquidated as to amount; and
(2) the Debtors, or any other party in interest entitled to do
so, do not file an objection prior to the Effective Date or
such other date as may be established by the Plan or the
Bankruptcy Court (or if such an objection is so filed, the
objection is later withdrawn); or,
(B) the Claim is allowed by a Final Order of the Bankruptcy Court,
which Final Order is no longer subject to being modified or
reversed on reconsideration or appeal; or,
(C) the Claim is allowed by the Plan.
1.5 "Allowed Interest" means (A) an Interest as to which neither the
----------------
Debtors nor any other party in interest entitled to do so has filed an objection
prior to the Effective Date or such other date as may be established by the Plan
or the Bankruptcy Court (or if such an objection is so filed, the objection is
later withdrawn), or (B) an Interest allowed by a Final Order of the Bankruptcy
Court, which Final Order is no longer subject to being modified or reversed on
reconsideration or appeal, or (C) an Interest allowed by the Plan.
1.6 "Allowed Priority Claim" means an Allowed Claim, or that portion
----------------------
thereof, that is entitled to priority under section 507(a) of the Bankruptcy
Code, other than an Allowed Administrative Claim or an Allowed Tax Claim. There
are no Claims known to the Debtors that would be Allowed Priority Claims in this
Reorganization Case.
1.7 "Allowed Secured Claim" means an Allowed Claim, or that portion
---------------------
thereof, that is secured (directly or by enforceable subrogation) by an
Encumbrance on or interest in property of one or more of the Debtors or that is
subject to setoff under section 553 of the Code, but only to the extent of the
value of the creditor's interest (directly or by enforceable subrogation) in one
or more of the Debtors' interest in such property or to the extent of the amount
subject to setoff, which value shall be determined as provided in section 506(a)
of the Code. There are no Claims known to the Debtors that would be Allowed
Secured Claims in this Reorganization Case.
Page 3
<PAGE>
1.8 "Allowed Tax Claim" means an Allowed Claim, or that portion thereof,
-----------------
that is entitled to priority under Section 507(a)(8) of the Code.
1.9 "Allowed Unsecured Claim" means an Allowed Claim, or that portion
-----------------------
thereof, that is not entitled to priority or to secured status under the Code,
and includes, but is not limited to, the Claims of the PRT Noteholders, and any
other Claim arising as a result of one or more of the Debtors' execution of a
guaranty agreement, promissory note, negotiable instrument, or other similar
written instrument, whether as maker, endorser, guarantor, or otherwise.
1.10 "Amended By-Laws" means the by-laws of Reorganized PCC, as amended,
---------------
to be filed with the Secretary of State of Delaware, to be effective on the
Effective Date, substantially in the form included in the Plan Supplement.
1.11 "Amended Certificate of Incorporation" means the certificate of
------------------------------------
incorporation of Reorganized PCC, as amended and restated, to be filed with the
Secretary of State of Delaware, to be effective on the Effective Date,
substantially in the form included in the Plan Supplement.
1.12 "Aurora Casino" means the riverboat gaming and entertainment facility
-------------
located in Aurora, Illinois and owned by HCA, a wholly owned, direct subsidiary
of HCC.
1.13 "Aurora Management Contract" means that certain Management Services
--------------------------
Agreement, dated as of June 21, 1991, as amended by the First Amendment dated
May 14, 1992, with an initial term of 99 years, between PMLP and HCA, whereby
PMLP acts as the sole and exclusive agent in the supervision, direction and
control of the management of the Aurora Casino and any additions or expansions
thereto.
1.14 "Avoidance Action" means a cause of action assertable by any one of
----------------
the Debtors or their successors pursuant to sections 329, 542, 543, 544, 545,
547, 548, 549, 550, or 553 of the Bankruptcy Code.
1.15 "Ballots" means the written Ballots for acceptance or rejection of the
-------
Plan.
1.16 "Ballot Return Date" means 4:00 p.m. Eastern Daylight Time on August
------------------ ------
20, 1999, unless and to the extent such date is extended by the Debtors in
- --------
accordance with the Disclosure Statement.
1.17 "Bankruptcy Code" or "Code" means Title 11 of the United States Code
-------------------------
as now in effect or hereafter amended to the date of Confirmation of the Plan.
Page 4
<PAGE>
1.18 "Bankruptcy Court" means the United States Bankruptcy Court for the
----------------
District of Delaware, which presides over this Reorganization Case, or if
necessary, the United States District Court for said District having original
jurisdiction over this Reorganization Case.
1.19 "Bankruptcy Rules" means, collectively (A) the Federal Rules of
----------------
Bankruptcy Procedure, and (B) the local rules of the Bankruptcy Court, as
applicable from time to time in the Reorganization Case.
1.20 "Bar Date" means (A) with respect to all Persons except governmental
--------
entities, July 26, 1999, the date by which Claims must be Filed with the
Bankruptcy Court pursuant to that certain Order (1) Fixing Deadline for the
Filing of Proofs of Claim, and (2) Approving Form and Manner of Notice with
Respect Thereto, entered on May 26, 1999 by the Bankruptcy Court, and (B) with
respect to governmental entities, November 22, 1999, which is 180 days after the
Petition Date.
1.21 "Business Day" means any day, other than a Saturday, Sunday or "legal
------------
holiday" (as defined in Bankruptcy Rule 9006(a)) on which banks are open for
business in the city of New York, New York.
1.22 "Cash" means cash, wire transfer of immediately available funds,
----
certified check, and cash equivalents, including readily marketable direct
obligations of the United States of America, including interests accrued or
earned thereon, or a check from the Debtors, the Liquidating Trustee, or the
Existing Indenture Trustee.
1.23 "Chapter 11 Payables Reserve" means all of the Cash that remains in
---------------------------
the Reorganized PCC after the PRT-NJMI Merger and the NJMI Liquidation, which
will be irrevocably delivered on the Effective Date by the Reorganized PCC to
Newco, and which funds will be held for the benefit and payment of the holders
of Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 8
Claims, and of which funds $50,000 will be segregated by Newco and held in
reserve, exclusively for payment of NJMI's deductible amount under applicable
policies of insurance, and $250,000 will be segregated by Newco and held in
reserve, exclusively for payment of any Allowed Tax Claims, all as further
described in Section 6.2(O) hereinbelow; provided, that any residual amounts
--------------
shall be paid to the Disbursing Agent, for distribution to the PRT Noteholders,
pursuant to Section 6.4(C).
--------------
1.24 "Claim" means any right to payment from any one of the Debtors arising
-----
before the Confirmation Date, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, contested,
uncontested, legal, equitable, secured, or unsecured; or any right to an
equitable remedy for breach of performance if such breach gives rise to a right
of payment from the Debtors, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, contested,
uncontested, secured or unsecured.
Page 5
<PAGE>
1.25 "Class" means a class of Claims or Interests as provided for in the
-----
Plan.
1.26 "Committee" or "Creditors Committee" means the Official Committee of
-----------------------------------
Unsecured Creditors of PCC, PRT, and NJMI that was appointed by the Office of
the United States Trustee in this Reorganization Case, on June 4, 1999, as
modified by the addition, resignation, or removal of members from time to time.
1.27 "Confirmation" means the entry of a Confirmation Order confirming this
------------
Plan at or after a hearing pursuant to section 1129 of the Bankruptcy Code.
1.28 "Confirmation Date" means the date the Confirmation Order is entered
-----------------
on the docket by the Clerk of the Bankruptcy Court.
1.29 "Confirmation Order" means the order entered by the Bankruptcy Court
------------------
determining that this Plan meets the requirements of Chapter 11 of the
Bankruptcy Code and is entitled to Confirmation pursuant to section 1129 of the
Bankruptcy Code.
1.30 "Consenting Holders" means the PRT Noteholders who are parties to the
------------------
Voting Agreement.
1.31 "Creditor" means "creditor" as defined in section 101(10) of the Code.
--------
1.32 "Debtors" means Pratt Casino Corporation, PRT Funding Corp., and New
-------
Jersey Management, Inc. References herein to the Debtors shall be deemed to
refer to the Debtors in this Reorganization Case, to the extent the context of
such reference applies to a time period prior to the Effective Date, and shall
be deemed to refer to the Reorganized PCC, to the extent the context of such
reference applies to a time period on or after the Effective Date.
1.33 "Deferred Fee" means that certain obligation due and owing from GBHC
------------
to NJMI, in the approximate amount of $210,700, payable at the time of
confirmation of a plan of reorganization in the Sands Bankruptcy, which
obligation arises pursuant to the Interim Sands Agreement.
1.34 "Disbursing Agent" means State Street Bank and Trust Company, or such
----------------
other bank or corporate trust agent identified in the Plan Supplement.
1.35 "Disclosure Statement" means the First Amended Joint Disclosure
--------------------
Statement, as Modified July 7, 1999, Filed by the Debtors respecting the Plan,
as approved by the Bankruptcy Court for submission to the Creditors, Interest
holders, and parties-in-interest of the Debtors, and all amendments,
supplements, appendices, and exhibits thereto Filed by the Debtors.
Page 6
<PAGE>
1.36 "Disputed Claim" means a Claim against any one of the Debtors that is
--------------
not an Allowed Claim.
1.37 "Disputed Interest" means an Interest in any one of the Debtors that
-----------------
is not an Allowed Interest.
1.38 "Distribution Date" means the date the Disbursing Agent commences
-----------------
Distributions under the Plan to the PRT Noteholders, which date shall be
forthwith after the Effective Date.
1.39 "Distributions" means the properties or interests in property to be
-------------
paid or distributed hereunder to the holders of Allowed Claims.
1.40 "DTC" means the Depository Trust Company.
---
1.41 "Effective Date" means the first practicable Business Day after (A)
--------------
the Confirmation Order has become a Final Order, and (B) all of the conditions
required in Sections 10.1 and 11.1 of the Plan have either occurred or have been
----------------------
expressly waived pursuant to Sections 10.2 and 11.2 of the Plan.
----------------------
1.42 "Encumbrance" means, with respect to any interest in property, any
-----------
mortgage, lien, pledge, charge, security interest, easement, or encumbrance of
any kind whatsoever affecting such interest in property.
1.43 "Estates" means the estates created in the Reorganization Case under
-------
section 541 of the Bankruptcy Code.
1.44 "Estimated Chapter 11 Fees and Expenses" means those certain amounts
--------------------------------------
budgeted by the Debtors, and set forth on Exhibit B to the Voting Agreement (as
the same Exhibit may be hereafter amended).
1.45 "Estimated Claim" means a Claim, the allowed amount of which has been
---------------
or is to be estimated by the Court under section 502(c) of the Code.
1.46 "Exculpated Persons" shall have the meaning ascribed to such term in
------------------
Section 6.12 of the Plan.
- ------------
1.47 "Executory Contract" shall have the meaning set forth in section 365
------------------
of the Code.
1.48 " Existing Indenture" means that certain indenture, dated as of
------------------
February 15, 1994, by and among PRT, as issuer, PCC, as guarantor, and Shawmut
Bank National Association, as Trustee (succeeded by U.S. Bank National
Association), as supplemented by that certain First Supplemental
Page 7
<PAGE>
Indenture, dated as of April 20, 1998, by and among PRT, as issuer, PCC, as
guarantor, and U.S. Bank National Association, as Trustee, relating to the
issuance of the Existing PRT Senior Notes.
1.49 "Existing Indenture Trustee" means U.S. Bank N.A., successor to
--------------------------
Shawmut Bank National Association, the trustee under the Existing Indenture.
1.50 "Existing Indenture Trustee Expenses" means any reasonable, unpaid
-----------------------------------
out-of-pocket costs and expenses incurred or to be incurred by the Existing
Indenture Trustee, including, without limitation, reasonable out-of-pocket costs
and expenses and reasonable fees of legal counsel to the Existing Indenture
Trustee.
1.51 "Existing PRT Notes" means the outstanding $85 million principal
------------------
amount of 11 5/8% Senior Notes (and accrued interest thereon) issued under the
Existing Indenture by PRT and due April 15, 2004.
1.52 "File" or "Filed" means filed with the Bankruptcy Court in the
---- -----
Reorganization Case.
1.53 "Final Order" means, as to any court, an order or judgment of such
-----------
court, as entered on its docket, that is not interlocutory, and (A) as to which
the time to seek an initial appeal or petition for rehearing has expired; and
(B) with respect to which order or judgment there is no stay on its execution or
enforcement in effect. The pendency of an appeal, in the absence of a stay, will
not preclude an order or judgment from being deemed a Final Order hereunder.
1.54 "Financial Restructuring" means the financial restructuring of the
-----------------------
Existing PRT Notes on the terms and conditions set forth in this Plan.
1.55 "$5 Million GBHC Subordinated Note" means that certain subordinated
---------------------------------
promissory note dated January 14, 1997 from GBHC to PCC in the principal amount
of $5 million, together with accrued interest as of the January 5, 1998 petition
date in the Sands Bankruptcy, in the approximate amount of $728,000.
1.56 "GBCC" means Greate Bay Casino Corporation, a publicly held
----
corporation organized under the laws of Delaware, and the indirect, 100% parent
company of each of PCC, PRT, and NJMI and a party to the Voting Agreement.
1.57 "GBCC Group" means GBCC, PCC, PRT and NJMI.
----------
1.58 "GBH" means GB Holdings, Inc., a corporation organized under the laws
---
of Delaware, 79% of which is directly owned by PCC, and the 100% direct parent
of each of GBHC (which owns the Sands Hotel and Casino located in Atlantic City,
New Jersey) and GBPF, and that
Page 8
<PAGE>
is also a debtor-in-possession in an administratively consolidated case, No. 98-
10001 (JW), in the United States Bankruptcy Court for the District of New Jersey
(Camden Division).
1.59 "GBHC" means Greate Bay Hotel and Casino, Inc., a corporation
----
organized under the laws of New Jersey, that owns the Sands Hotel and Casino
located in Atlantic City, New Jersey, and that is a wholly owned, direct
subsidiary of GBH, and is also a debtor-in-possession in an administratively
consolidated case, No. 98-10001 (JW), in the United States Bankruptcy Court for
the District of New Jersey (Camden Division).
1.60 "GBPF" means GB Property Funding Corp., a corporation organized under
----
the laws of Delaware, and a wholly owned, direct subsidiary of GBH, and also a
debtor-in-possession in an administratively consolidated case, No. 98-10001
(JW), in the United States Bankruptcy Court for the District of New Jersey
(Camden Division).
1.61 "HCA" means Hollywood Casino-Aurora, Inc., a corporation organized
---
under the laws of Illinois, and a wholly owned, direct subsidiary of HCC, that
owns and operates a riverboat gaming and entertainment facility located in
Aurora, Illinois.
1.62 "HCC" means Hollywood Casino Corporation, a publicly held corporation
---
organized under the laws of Delaware, and a party to the Voting Agreement.
1.63 "HCC Notes" means those certain 12 3/4% Senior Secured Notes, due
---------
2003, on which HCC was the obligor, and having such other terms as were
described in that certain indenture for the HCC Notes, dated as of October 17,
1995, among HCC, HWCC-Tunica and Shawmut Bank, National Association (succeeded
by State Street Bank and Trust Company), as trustee.
1.64 "HWCC-Tunica" means HWCC-Tunica, Inc, a corporation organized under
-----------
the laws of Texas, and a wholly owned, direct subsidiary of HCC, that owns and
operates a gaming and lodging facility in Tunica County, Mississippi, and that
also has a consulting agreement with PCC.
1.65 "Impaired" means, with respect to a Class of Claims or Interests under
--------
the Plan, that the Plan alters the legal, equitable or contractual rights of the
holders of Claims or Interests within that Class, as further described at
section 1124 of the Bankruptcy Code.
1.66 "Interest" means all rights (including unpaid dividends) arising from
--------
any equity security (as defined in section 101(16) of the Code) of any one of
the Debtors, including, without limitation, the PCC Common Stock (owned by PPI),
the PRT Common Stock (owned by PCC), and the NJMI Common Stock (owned by PCC).
1.67 "Interim Sands Agreement" means that certain agreement dated June 27,
-----------------------
1998, among GBHC, GBH, GBPF, Advanced Casino Systems International, Inc., on the
one hand, and GBCC,
Page 9
<PAGE>
NJMI, PCC, PRT, PPI, Advanced Casino Systems Corporation and HCC, on the other,
and approved in the Sands Bankruptcy on July 7, 1998, and by the New Jersey
Casino Control Corporation on July 8, 1998, that settled certain issues that
arose in the Sands Bankruptcy with regard to a motion by GBHC to reject that
certain Management Services Agreement between GBHC and NJMI, dated as of August
19, 1987, as amended by the First Amendment dated February 17, 1994
(collectively, the "Management Contract"), pursuant to which Management Contract
NJMI acted as the sole and exclusive agent of GBHC in the supervision, direction
and control of the management of the Sands Hotel and Casino and any additions or
expansions thereto.
1.68 "Insurance Proceeds" means any and all proceeds in respect of third
------------------
party liability insurance policies, on which any one of the Debtors is an
insured party, which proceeds would arise as a result of an event triggering
insurance coverage to a third party.
1.69 "Insured Claim" means an Allowed Claim against any one of the Debtors
-------------
for which Insurance Proceeds would be available to pay such Allowed Claim.
1.70 "Liquidating Trust" means that certain trust, substantially as
-----------------
described in the form of Liquidating Trust Agreement included in the Plan
Supplement, which Liquidating Trust is being established on behalf of and for
the benefit of the PRT Noteholders, and the assets of which shall substantially
consist of, as of the Effective Date, the following: (A) the Deferred Payment;
(B) the Sands Confirmation Payment; (C) the $10 Million GBHC Subordinated Note;
(D) the $5 Million GBHC Subordinated Note; (E) the Newco Warrants; (F) $250,000
Cash; (G) any unearned premiums (and/or rights thereto) on insurance policies of
PCC, PRT or NJMI; (H) that certain $1,279.58 proof of claim filed by PCC in the
GBH bankruptcy case (and all rights associated therewith); and (I) that certain
$144,930.24 proof of claim filed by NJMI in the GBHC bankruptcy case (and all
rights associated therewith).
1.71 "Liquidating Trust Agreement" means that certain form of agreement,
---------------------------
substantially in the form included in the Plan Supplement, which gives rise to
and describes the Liquidating Trust.
1.72 "Liquidating Trustee" means that Person, or such Person's successor,
--------------------
selected in accordance with the Liquidating Trust Agreement, as trustee for the
Liquidating Trust.
1.73 "Newco" means a newly formed limited liability company, organized
-----
under the laws of Delaware, the 100% owner/member of which shall be PPI, after
the completion of the transaction contemplated in Section 6.2(N) of the Plan,
--------------
which shall own 79% of the common stock of GBH on and after the Effective Date,
which shall hold the Chapter 11 Payables Reserve and shall distribute the same
to holders of Allowed Administrative Claims, Allowed Tax Claims, and Allowed
Class 8
Page 10
<PAGE>
Claims, and which shall irrevocably deliver certain residual amounts of the
Chapter 11 Payables Reserve to the Disbursing Agent pursuant to Section
-------
6.4(C) of the Plan.
- ------
1.74 "Newco Membership Interests" means all memberships in Newco that
--------------------------
will be owned by PPI after the completion of the transactions contemplated to
occur on the Effective Date, pursuant to the Section 6.2 of the Plan. The
-----------
Newco Membership Interests will be subject to dilution by the Newco Warrants.
1.75 "Newco Warrant Agreement" means that certain agreement, substantially
-----------------------
in the form included in the Plan Supplement, that sets forth the terms and
conditions of the Newco Warrants.
1.76 "Newco Warrants" means those certain warrants, or similar interests in
--------------
a limited liability company, to acquire 62% of the Newco Membership Interests,
which warrants will be delivered to the Liquidating Trust, pursuant to the terms
of the Plan, and will have such other terms and conditions as are set forth in
the Newco Warrant Agreement, substantially in the form included in the Plan
Supplement.
1.77 "NJMI" means New Jersey Management, Inc., a corporation organized
----
under the laws of New Jersey, and one of the Debtors herein, and a wholly owned,
direct subsidiary of PCC, and also a party to the Voting Agreement.
1.78 "NJMI Common Stock" means all common stock in NJMI, no par value, that
------------------
has been issued and is outstanding immediately prior to and on the Effective
Date.
1.79 "NJMI Liquidation" shall have the meaning ascribed to such term in
----------------
Section 6.2(M) of the Plan.
- --------------
1.80 "NJMI $22.1 Million Note Payable to PRT" means that certain promissory
--------------------------------------
note dated February 17, 1994, from NJMI to PRT, in the principal amount of $21.5
million (of which $22.1 million was advanced), plus accrued interest thereon, in
the approximate amount of $1,289,710 million.
1.81 "NJMI $277,576 Indebtedness to GBCC" means that certain indebtedness
----------------------------------
owed by NJMI to GBCC as a result of certain tax obligations of NJMI that were
paid on its behalf by GBCC.
1.82 "Old Securities" means the Existing PRT Notes and the PCC Common
--------------
Stock, the PRT Common Stock, and the NJMI Common Stock.
1.83 "PCC" means Pratt Casino Corporation, a corporation organized under
---
the laws of Delaware, and one of the Debtors herein, and also the 100%, direct
parent of each of PRT and NJMI, and also the 79% direct owner of GBH, and also a
party to the Voting Agreement.
Page 11
<PAGE>
1.84 "PCC Common Stock" means all common stock in PCC, $1.00 per share par
----------------
value, that has been issued and is outstanding immediately prior to the
Effective Date, and which has been pledged by PPI to HCC to secure certain
indebtedness.
1.85 "PCC $5 Million Note Payable to PRT" means that certain promissory
----------------------------------
note dated February 17, 1994, from PCC to PRT, in the principal amount of $5
million, plus accrued interest thereon, in the approximate amount of $2,392,813
million.
1.86 "PCC $5.050 Million Indebtedness to NJMI" means those non-interest
---------------------------------------
bearing advances from NJMI to PCC in the aggregate, principal amount of $5.050
million.
1.87 "PCC Guarantee" means that certain guarantee of payment of the
-------------
Existing PRT Notes by PCC.
1.88 "PCC $1.117 Million Indebtedness to PRT" means those non-interest
--------------------------------------
bearing advances from PRT to PCC in the aggregate principal amount of $1.117
million.
1.89 "PCC $62.9 Million Note Payable to PRT" means that certain
-------------------------------------
intercompany note dated February 17, 1994, from PCC to PRT, in the original
principal amount of $63.5 million (of which $62.9 million was advanced), plus
accrued interest thereon.
1.90 "Person" means any individual, corporation, general partnership,
------
limited partnership, association, joint stock company, joint venture, estate,
trust, indenture trustee, government or any political subdivision, governmental
unit (as defined in the Bankruptcy Code), official committee appointed by the
Office of the United States Trustee, unofficial committee of creditors or equity
holders or other entity.
1.91 "Petition Date" means May 25, 1999, the date on which Debtors filed
-------------
their voluntary Chapter 11 petitions.
1.92 "PHC 1" and "PHC 2" means PHC Properties, Inc. and PHC Holdings, Inc.,
-----------------
both Delaware corporations, and both direct, wholly owned subsidiaries of GBCC,
and both former members of Lieber Check Cashing, LLC, and each of whom own a
one-half interest in the $500,000 Sands Confirmation Payment.
1.93 "Plan" means this First Amended Joint Plan of Reorganization Dated
----
June 21, 1999, as Modified July 7, 1999, in its present form, or as it may be
amended, modified, and/or supplemented from time to time in accordance with the
Bankruptcy Code, or by agreement of the Debtors and Consenting Holders, or by
order of the Bankruptcy Court, as the case may be.
Page 12
<PAGE>
1.94 "Plan Supplement" means the documents, including the forms of the
---------------
Amended By-Laws, Amended Certificate of Incorporation, the certificate of
formation and limited liability company agreement of Newco, the Liquidating
Trust Agreement, the Newco Warrant Agreement, the documents identified in
Section XI.B., D., and E. of the Disclosure Statement, and such other documents
- -------------- - -
as may be necessary or advisable to effectuate the Plan, which documents shall
be contained in a separate Plan Supplement filed with the Clerk of the
Bankruptcy Court at least fifteen (15) days prior to the date on which the
Confirmation Hearing shall first commence, or such other deadline as is ordered
by the Bankruptcy Court. The Plan Supplement may be inspected in the office of
the Clerk of the Bankruptcy Court during hours established therefor. Holders of
Claims against and Interests in the Debtors may obtain a copy of the Plan
Supplement upon written request to the Debtors. The Plan Supplement shall for
all purposes be deemed incorporated into and become a part of the Plan as if
fully set forth herein.
1.95 "PMLP" means Pratt Management, L.P., a Delaware limited partnership,
----
the 99% limited partner of which is PCC and the 1% general partner of which is
HWCC-Aurora Management, Inc., and which acts as the sole and exclusive agent in
the supervision, direction and control of the management of the Aurora Casino
pursuant to the Aurora Management Contract.
1.96 "PMLP Partnership Agreement" means that certain Agreement of Limited
--------------------------
Partnership of PMLP, dated as of February 17, 1994, between PPI and PCC,
together with that certain Assignment and Assumption Agreement, dated as of
February 17, 1994, between PPI and PCC, that certain Assignment and Assumption
Agreement, dated as of February 17, 1994, between PPI and PMLP, and that certain
Assignment and Assumption Agreement and Amendment to Agreement of Limited
Partnership of PMLP, dated as of April 1, 1997, among PPI, HWCC-Aurora
Management, Inc., and PCC.
1.97 "PPI" means PPI Corporation, a corporation organized under the laws
---
of New Jersey, and the direct, 100% parent of PCC, and also a wholly owned,
direct subsidiary of GBCC.
1.98 "PRT" means PRT Funding Corp., a corporation organized under the laws
---
of Delaware, and one of the Debtors herein, and also a wholly owned, direct
subsidiary of PCC, and also a party to the Voting Agreement.
1.99 "PRT Common Stock" means all common stock in PRT, $1.00 per share par
----------------
value, that has been issued and is outstanding immediately prior to the
Effective Date.
1.100 "PRT $15 Million Note Payable to GBCC" means that certain junior
------------------------------------
subordinated promissory note, dated February 17, 1994, from PRT to HCC in the
principal amount of $15 million, together with accrued interest in the
approximate amount of $8,275,312 million, the rights under which note were
subsequently assigned from HCC to GBCC by virtue of two different assignment
transactions, dated December 31, 1994 and December 31, 1996, respectively.
Page 13
<PAGE>
1.101 "PRT-NJMI Merger" shall have the meaning ascribed to such term in
---------------
Section 6.2(L) of the Plan.
- --------------
1.102 "PRT Noteholders" means all ultimate beneficial holders of the
---------------
Existing PRT Notes held by DTC, and any other holders of Existing PRT Notes
(except DTC).
1.103 "Pro Rata" means proportionately so that, with respect to an
--------
Allowed Claim or Allowed Interest, the ratio of (A) (1) the amount of payments
or other property distributed on account of a particular Allowed Claim or
Allowed Interest to (2) the amount of the Allowed Claim or Allowed Interest, is
the same as the ratio of (B)(1) the amount of payments or other property
distributed on account of all Allowed Claims or Allowed Interests which are
entitled to receive such payments or other property to (2) the amount of all
Allowed Claims or Allowed Interests which are entitled to receive such payments
or other property.
1.104 "Record Date-Balloting" means the date fixed by the Bankruptcy
----------------------
Court or designated by the Debtors, prior to distribution of ballots for voting
on the Plan, as the record date for determination of the PRT Noteholders and the
holders of other Claims that may vote on the Plan. The Record Date-Balloting
shall be July 7, 1999.
1.105 "Record Date-Distributions" means the date fixed by the Bankruptcy
--------------------------
Court or designated by the Debtors, prior to the entry of the Confirmation
Order, as the record date for determination of the PRT Noteholders and the
holders of other Claims that are entitled to receive Distributions in connection
with the Plan. Unless otherwise ordered by the Bankruptcy Court, the Record
Date-Distributions shall be the date the Bankruptcy Court enters the
Confirmation Order.
1.106 "Rejection Claim" means a Claim resulting from the rejection of a
---------------
lease or executory contract by a Debtor.
1.107 "Released Matters" shall have the meaning ascribed to such term
----------------
in Section 6.13 of the Plan.
------------
1.108 "Releasees" shall have the meaning ascribed to such term in
---------
Section 6.13 of the Plan.
- ------------
1.109 "Reorganization Case" means, collectively, the Debtors' cases
-------------------
under Chapter 11 of the Bankruptcy Code that were commenced on the Petition
Date.
1.110 "Reorganized PCC" means PCC, as it shall exist immediately after
---------------
implementation of Section 6.2(P) of the Plan as a wholly owned subsidiary of
--------------
HCC.
Page 14
<PAGE>
1.111 "Sands Bankruptcy" means, collectively, those certain Chapter 11
----------------
bankruptcy cases of GBH, GBHC and GBPF, pending in the United States Bankruptcy
Court for the District of New Jersey, Camden Division, and administratively
consolidated under Case No. 98-10001(JW).
1.112 "Sands Confirmation Payment" means that certain obligation due
--------------------------
and owing from GBHC to a designee of GBCC (which designees are PHC1 and PHC2),
in the amount of $500,000, payable at the time of confirmation of a plan of
reorganization in the Sands Bankruptcy, which obligation arises pursuant to the
September 1998 Settlement Agreement.
1.113 "Sands Hotel and Casino" means the hotel and casino facility
----------------------
located in Atlantic City, New Jersey and owned and operated by GBHC.
1.114 "Schedules" means the Schedules of Assets and Liabilities,
---------
Statement of Financial Affairs and Statement of Executory Contracts Filed by the
Debtors with the Bankruptcy Court, as amended or supplemented on or before the
Effective Date, listing the liabilities and assets of the Debtors.
1.115 "SEC" means the Securities and Exchange Commission.
---
1.116 "SEC Reports" means those quarterly and annual reports filed with
-----------
the Securities and Exchange Commission by PCC, PRT and NJMI.
1.117 "Securities Act" means the Securities Act of 1933, as amended.
--------------
1.118 "Security Agreement" means the documentation under which a lien
------------------
against property is reflected.
1.119 "September 1998 Settlement Agreement" means that certain
-----------------------------------
agreement dated September 2, 1998, among GBHC, GBH, GBPF, and their
subsidiaries, on the one hand, and GBCC, PHC Acquisition Corp., Lieber Check
Cashing, LLC, Jack E. Pratt, William D. Pratt, Edward T. Pratt, Jr., and HCC, on
the other, and approved in the Sands Bankruptcy on September 11, 1998, that
settled Adversary Proceeding No. 98-01220 in the Sands Bankruptcy.
1.120 "$10 Million GBHC Subordinated Note" means that certain
------------------------------------
subordinated promissory note dated February 17, 1994 from GBHC to PRT in the
principal amount of $10 million, together with accrued interest as of the
January 5, 1998 petition date in the Sands Bankruptcy, in the approximate amount
of $2,754,375.
1.121 "Tunica Casino" means that certain gaming and lodging facility in
-------------
Tunica County, Mississippi and owned by HWCC-Tunica, a wholly owned, direct
subsidiary of HCC.
Page 15
<PAGE>
1.122 "Tunica Consulting Agreement" means that certain consulting
---------------------------
agreement by and between HWCC- Tunica and PCC, dated as of January 1, 1994, with
a term of 10 years, which provides for, among other things, PCC to advise and
consult regarding the Tunica Casino.
1.123 "Voting Agreement" means that certain agreement entered into on
----------------
the 28/th/ day of April, 1999, by and among GBCC, PCC, PRT, NJMI, HCC, and the
Consenting Holders, a copy of which is attached to the Disclosure Statement as
Appendix C.
ARTICLE 2
DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
AND SPECIFICATION OF IMPAIRED OR UNIMPAIRED STATUS
2.1 Summary. The following is a designation of the Classes of Claims and
Interests under this Plan and a specification of which Classes are impaired or
not impaired. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Allowed Administrative Claims and Allowed Tax Claims described in Article 3 of
---------
this Plan have not been classified and are excluded from the following Classes.
A Claim or Interest is classified in a particular Class only to the extent that
the Claim or Interest is an Allowed Claim or Allowed Interest in that Class and
has not been paid, released or otherwise satisfied before the Effective Date; a
Claim or Interest which is not an Allowed Claim or Interest is not in any Class.
Notwithstanding anything to the contrary contained in this Plan, no distribution
shall be made on account of any Claim or Interest to which an objection has been
interposed or with regard to which the Debtors anticipate interposing a timely
objection unless and until the Claim or Interest becomes an Allowed Claim or
Allowed Interest.
Page 16
<PAGE>
<TABLE>
<CAPTION>
Class Status
----- ------
<S> <C>
A. CLAIMS
Class 1: All Claims of any kind of the Impaired - entitled to vote
PRT Noteholders (including Claims filed on
their behalf by the Existing Indenture Trustee)
Against any of PCC, PRT and
NJMI, including Claims Against PRT and PCC
(as guarantor) in respect of the Existing PRT
Notes and the PCC Guarantee
Class 2: PRT's Claim Against PCC arising Impaired - entitled to vote
pursuant to the PCC $62.9 Million Note Payable
to PRT
Class 3 : PRT's Claims against PCC arising Unimpaired - not entitled
pursuant to (A) the PCC $1.117 Million to vote (deemed to accept;
Indebtedness to PRT; and (B) the PCC 11 U.S.C. (S) 1126(f))
$5 Million Note Payable to PRT
Class 4: NJMI's Claim against PCC arising Unimpaired - not entitled
on account of the PCC $5.050 Million to vote (deemed to accept;
Indebtedness to NJMI 11 U.S.C. (S) 1126(f))
Class 5: GBCC's Claim against PRT arising Impaired - entitled to vote
pursuant to the PRT $15 Million Note Payable
to GBCC
Class 6: PRT's Claim Against NJMI arising Unimpaired - not entitled to
pursuant to the NJMI $22.1 Million Note vote (deemed to accept; 11
Payable to PRT U.S.C. (S) 1126(f))
Class 7: GBCC's Claim against NJMI Impaired - entitled to vote
arising pursuant to the NJMI
$277,576 Indebtedness to GBCC
Class 8: Unsecured Claims against any of Unimpaired - not entitled to
PCC, PRT and NJMI not otherwise classified vote (deemed to accept; 11
U.S.C. (S) 1126(f))
</TABLE>
Page 17
<PAGE>
<TABLE>
<S> <C>
B. Interests
Class 9: Interests of PCC's Unimpaired - not entitled to
Equity Security Holder vote (deemed to accept; 11
U.S.C. (S) 1126(f))
Class 10: Interests of PRT's Impaired - entitled to vote
Equity Security Holder
Class 11: Interests of NJMI's Impaired - entitled to vote
Equity Security Holder
</TABLE>
2.2 Impairment Controversies. If a controversy arises as to whether any
Class of Claims or Equity Interests is impaired under this Plan, the Bankruptcy
Court shall, after notice and a hearing, determine the controversy.
ARTICLE 3
TREATMENT OF UNCLASSIFIED CLAIMS
3.1 Allowed Administrative Claims.
A. General. Subject to the bar date provisions herein (to the extent
applicable), each holder of an Allowed Administrative Claim shall receive Cash
(from the Chapter 11 Payables Reserve) equal to the unpaid portion of such
Allowed Administrative Claim on the later of (1) the Effective Date or as soon
as practicable thereafter, (2) the date on which such Claim becomes an Allowed
Administrative Claim, and (3) such other date as is mutually agreed upon by (a)
the Debtors (and/or Newco) and (b) the holder of such Claim.
(1) Bar Date for Administrative Claims.
(a) General Provisions. Except as provided in Section 3.1(C)
--------------
hereinbelow, and except with regard to statutory fees pursuant to 28 U.S.C. (S)
1930, requests for payment of Administrative Claims must be Filed no later than
forty-five (45) days after the Effective Date. Holders of Administrative Claims
(including, without limitation, professionals requesting compensation or
reimbursement of expenses) that are required to File a request for payment of
such Claims and that do not File such requests by the applicable bar date shall
be forever barred from asserting such Claims against the Liquidating Trustee,
the Debtors, Reorganized PCC, Newco, or any of their affiliates or any of their
respective property.
Page 18
<PAGE>
(b) Professionals. All professionals or other entities
requesting compensation or reimbursement of expenses pursuant to sections 327,
328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered
before the Effective Date (including, without limitation, any compensation
requested by any professional or any other entity for making a substantial
contribution in the Reorganization Case) shall File and serve on the Debtors,
Newco, the Creditors Committee, and the Liquidating Trustee an application for
final allowance of compensation and expenses no later than forty-five (45) days
after the Effective Date. Any professional fees and reimbursements or expenses
incurred by Debtors relating solely to the closing of the Financial
Restructuring, objections to Claims and the prosecution of fee applications,
Newco, or the Creditors Committee (or any successor thereto), subsequent to the
Effective Date, shall be paid by Newco without application to the Bankruptcy
Court.
(c) Objections to Administrative Claims, Including Those of
Professionals. Objections to requests for payment of Administrative Claims
(including objections to applications of professionals for compensation or
reimbursement of expenses) must be Filed and served on the claimant and/or
professional to whom the objection is addressed, the Debtors, Newco, the
Creditors Committee, and the Liquidating Trustee, no later than seventy (70)
days after the Effective Date.
B. Payment of Statutory Fees. Notwithstanding any other provision of this
Plan, all fees payable pursuant to 28 U.S.C. (S) 1930 shall be paid in Cash when
due (by the Debtors, prior to the Effective Date, and by Newco, after the
Effective Date).
C. Ordinary Course Liabilities. Notwithstanding any other provision of
this Plan, holders of Administrative Claims based on liabilities incurred
postpetition in the ordinary course of the Debtors' business shall not be
required to File any request for payment of such Claims, and such obligations
shall be paid as they become due (by the Debtors, prior to the Effective Date,
and by Newco, after the Effective Date), unless (1) the Debtors and/or Newco and
(2) a holder of such a Claim otherwise mutually agree.
3.2 Allowed Tax Claims. The holders of Allowed Tax Claims shall be paid in
full in Cash (from the Chapter 11 Payables Reserve) on the later of (1) the
Effective Date or as soon as practicable thereafter, (2) the date on which such
Claim becomes an Allowed Tax Claim, and (3) such other date as is mutually
agreed upon by (a) the Debtors and/or Newco and (b) the holder of such Claim.
Page 19
<PAGE>
ARTICLE 4
TREATMENT OF
CLASSIFIED CLAIMS AND INTERESTS
4.1 Class 1 - Claims of the Prt Noteholders. The Allowed Class 1 Claims,
which shall be Allowed Unsecured Claims in the aggregate amount of $85 million
plus all accrued and unpaid interest (together with interest on unpaid interest)
as of the Petition Date, shall be discharged, extinguished, and satisfied in
full by the distribution of the following consideration:
A. On the day after the Effective Date, in respect of $62.9 million
principal amount of the Existing PRT Notes, and the interest arrearages
associated therewith, each holder of an Allowed Class 1 Claim shall receive a
Pro Rata share of Cash in the amount of $40,329,375, all as further described in
- --------
Sections 6.2(J) and 6.2(Q) hereinbelow.
- --------------- ------
B. On the Effective Date, in respect of $22.1 million principal amount of
the Existing PRT Notes, and the interest arrearages associated therewith, each
holder of an Allowed Class 1 Claim shall receive the right to receive a Pro Rata
--------
share of the Liquidating Trust.
C. Each holder of an Allowed Class 1 Claim shall also receive a Pro Rata
--------
share of the excess Cash (i.e., excess of Chapter 11 Payables Reserve) that is
available for distribution as of the Effective Date and on certain dates
thereafter, if any, as described in Section 6.4(C) hereinbelow.
------ --------------
4.2 Class 2 - PRT's Claim against PCC arising pursuant to the PCC $62.9
Million Note Payable to PRT. The Allowed Class 2 Claim shall be discharged,
extinguished, and satisfied in full, as of the Effective Date, in exchange for
PCC's having agreed, on the Effective Date, to satisfy PRT's primary obligation
on account of $62.9 million principal amount of the Existing PRT Notes (and the
interest arrearages associated therewith).
4.3 Class 3 - PRT's Claims against PCC arising pursuant to (A) the PCC
$1.117 Million Indebtedness to PRT and (B) the PCC $5 Million Note Payable to
PRT. The Allowed Class 3 Claims shall be discharged, extinguished, and deemed
satisfied in full, as of the Effective Date, by virtue of the PRT-NJMI Merger,
followed by the NJMI Liquidation (whereby PCC succeeds to the ownership of the
assets of NJMI).
4.4 Class 4 - NJMI's Claim against PCC arising on account of the PCC
$5.050 Million Indebtedness to NJMI. The Allowed Class 4 Claim shall be
discharged, extinguished, and deemed satisfied in full, as of the Effective
Date, by virtue of the PRT-NJMI Merger, followed by the NJMI Liquidation
(whereby PCC succeeds to the ownership of the assets of NJMI).
Page 20
<PAGE>
4.5 Class 5 - GBCC's Claim against PRT arising pursuant to the PRT $15
Million Note Payable to GBCC. The Allowed Class 5 Claim shall be paid $1000 and
the remainder of the Claim shall be discharged and extinguished, as of the
Effective Date.
4.6 Class 6 - PRT's Claim against NJMI arising pursuant to the NJMI $22.1
Million Note Payable to PRT. The Allowed Class 6 Claim shall be discharged,
extinguished, and deemed satisfied in full, as of the Effective Date, by virtue
of the PRT-NJMI Merger.
4.7 Class 7 - GBCC's Claim against NJMI arising pursuant to the NJMI
$277,576 Indebtedness to GBCC. The Allowed Class 7 Claim shall be paid $1000 and
the remainder of the Claim shall be discharged and extinguished, as of the
Effective Date.
4.8 Class 8 - Unsecured Claims against any of PCC, PRT Or NJMI not
otherwise classified. To the extent necessary for purposes of section 1122 of
the Code, the Allowed Unsecured Claims against each of PCC, PRT, and NJMI shall
be deemed classified in separate sub-Classes hereunder. The Allowed Class 8
Claims shall be discharged, extinguished, and satisfied in full, by the
distribution of Cash to each holder of an Allowed Class 8 Claim, in the full
amount of any such holder's Allowed Claim (from the Chapter 11 Payables Reserve
or, alternatively, from Insurance Proceeds if any such Claim is an Insured
Claim), on the later of (A) the Effective Date or as soon as practicable
thereafter; (B) the date on which any such Claim becomes an Allowed Claim; and
(C) such other date as is mutually agreed upon by the Debtors (and/or Newco) and
the holder of any such Claim. Notwithstanding the foregoing, any right of setoff
that the Debtors may have with regard to any of these Claims is preserved.
4.9 Class 9 - Interests of PCC's Equity Security Holder (PPI). The Allowed
Class 9 Interest Holder shall retain its stock under the Plan. The Plan leaves
unaltered the legal, equitable and contractual rights of such Interest holder.
On the Effective Date, as part of the Plan implementation, HCC shall purchase
the PCC stock from PPI for $1000.
4.10 Class 10 - Interests of PRT's Equity Security Holder (PCC). The
Allowed Class 10 Interests shall receive common stock of NJMI, as of the
Effective Date, pursuant to the PRT-NJMI Merger.
4.11 Class 11 - Interests of NJMI's Equity Security Holder (PCC). The
Allowed Class 11 Interests shall receive the assets of NJMI and PRT, as of the
Effective Date, as a result of the PRT-NJMI Merger followed by the NJMI
Liquidation.
Page 21
<PAGE>
ARTICLE 5
ACCEPTANCE OR REJECTION OF THE PLAN
5.1 Voting Classes. The holders of Claims and Interests in Classes 1, 2,
5, 7, 10 and 11 are impaired and shall be entitled to vote to accept or reject
the Plan.
5.2 Presumed Acceptance of Plan. Classes 3, 4, 6, 8 and 9 are unimpaired
under the Plan, and therefore, are conclusively presumed to accept the Plan.
ARTICLE 6
MEANS FOR EXECUTION AND IMPLEMENTATION
OF THE PLAN
6.1 Pro Rata Payments in Respect of Management Contracts. On the Effective
Date, and prior to the commencement of the events set forth in Section 6.2
-----------
hereinbelow, (A) HCA shall distribute to PMLP, which shall then distribute to
PCC, an amount of Cash equal to the Pro Rata portion of the net fees that have
--------
been earned and/or accrued in respect of the Aurora Management Contract, between
the end of the last calendar quarter and the Effective Date, notwithstanding the
fact that the net fees in respect of the Aurora Management Contract are not due
and payable to PMLP until the twenty-fifth day following the end of each
calendar quarter; and (B) HWCC-Tunica shall distribute to PCC an amount of Cash
equal to the Pro Rata portion of the net fees that have been earned and/or
--------
accrued in respect of the Tunica Consulting Agreement, between the end of the
last calendar month and the Effective Date, notwithstanding the fact that the
net fees in respect of the Tunica Consulting Agreement are not due and payable
to PCC until the first of each calendar month.
6.2 Plan Implementation Steps Occurring on and After the Effective Date.
On the Effective Date, or on the day after the Effective Date (as indicated
below) the following events shall occur in the following sequence:
A. On the Effective Date, GBCC shall forgive the PRT $15 Million Note
Payable to GBCC, in exchange for $1000 Cash consideration from PRT,
and such indebtedness shall be extinguished and discharged as of the
Effective Date.
B. On the Effective Date, GBCC shall forgive the NJMI $277,576
Indebtedness to GBCC, in exchange for $1000 Cash consideration from
NJMI, and such indebtedness shall be extinguished and discharged as of
the Effective Date.
Page 22
<PAGE>
C. On the Effective Date, NJMI shall effect a distribution of a dividend
to its sole shareholder, PCC, which dividend shall consist of the
following consideration: the Deferred Fee.
D. On the Effective Date, PHC 1 and PHC 2 shall each effect a
distribution of a dividend to their sole shareholder, GBCC, which
respective dividends shall consist of PHC 1's and PHC 2's respective
one-half interests in the Sands Confirmation Payment. Thereafter, GBCC
shall make a capital contribution to PPI of the entire Sands
Confirmation Payment. Thereafter, PPI shall make a capital
contribution to PCC of its rights to receive the Sands Confirmation
Payment. Thereafter, PCC shall make a capital contribution to PRT of
its rights to receive the Sands Confirmation Payment.
E. On the Effective Date, PCC shall make a capital contribution to Newco
of 79% of the common stock of GBH, and Newco shall issue to PCC: (1)
the Newco Membership Interests, and (2) the Newco Warrants.
F. On the Effective Date, PCC shall make a capital contribution to PRT of
the following: (1) the Newco Warrants, (2) the Deferred Fee, and (3)
the $5 Million GBHC Subordinated Note.
G. On the Effective Date, PRT shall form the Liquidating Trust and shall
irrevocably deliver and convey to it the following: (1) the Newco
Warrants, (2) the Deferred Fee, (3) the $5 Million GBHC Subordinated
Note, (4) the $10 Million GBHC Subordinated Note and (5) the Sands
Confirmation Payment.
H. On the Effective Date, PCC shall make a capital contribution to PRT of
$250,000 Cash. Thereafter, PRT shall irrevocably deliver and convey
$250,000 Cash to the Liquidating Trust.
I. On the Effective Date, PRT shall convey the rights to share in the
Liquidating Trust to the PRT Noteholders, Pro Rata, in exchange for
--------
$22.1 million principal amount of the Existing PRT Notes (and the
interest arrearages associated therewith).
J. On the Effective Date, PCC shall become obligated to pay the PRT
Noteholders $40,329,375, on the day after HCC purchases the stock of
PCC as set forth in Section 6.2(P) below, and shall receive, in
--------------
exchange for such obligation, $62.9 million principal amount of the
Existing PRT Notes (and the interest arrearages associated therewith).
Page 23
<PAGE>
K. On the Effective Date, PCC shall exchange the $62.9 million principal
amount of the Existing PRT Notes (and the interest arrearages
associated therewith) with PRT for the PCC $62.9 Million Note Payable
to PRT.
L. On the Effective Date, PRT shall merge with and into NJMI (the "PRT-
NJMI Merger") and the PRT Common Stock shall be canceled in exchange
for Common Stock in NJMI, as the surviving corporation.
M. On the Effective Date, NJMI shall, in a transaction constituting a
tax-free liquidation or corporate reorganization for federal income
tax purposes, be liquidated (the "NJMI Liquidation") or merged into
PCC, and PCC shall succeed to the ownership of NJMI's assets, and the
NJMI Common Stock shall be canceled.
N. On the Effective Date, PCC shall effect a distribution of a dividend
to PPI, its sole stockholder, which dividend shall consist of the
following consideration: the Newco Membership Interests.
O. On the Effective Date, the Reorganized PCC shall irrevocably deliver
and convey to Newco all of the Cash that remains in the Reorganized
PCC, after the PRT-NJMI Merger, followed by the NJMI Liquidation
(i.e., the Chapter 11 Payables Reserve). Newco shall hold such Cash
for the benefit and payment of the holders of Allowed Administrative
Claims, Allowed Tax Claims, and Allowed Class 8 Claims, and (i)
$50,000 of such Cash will be segregated by Newco and held in reserve,
exclusively for payment of NJMI's deductible amount under applicable
policies of insurance, and (ii) $250,000 of such Cash will be
segregated by Newco and held in reserve, exclusively for payment of
any potential Allowed Tax Claims. Newco shall as soon thereafter as
practicable make the Distributions required under the Plan to any
holder of an Allowed Administrative Claim, an Allowed Tax Claim, or an
Allowed Unsecured Claim in Class 8, unless the Debtors (and/or Newco)
and a holder of any such Claim shall have otherwise mutually agreed.
The Reorganized PCC shall irrevocably deliver and convey to the
Liquidating Trust (1) the rights to any unearned premiums on insurance
policies of PCC, PRT or NJMI; (2) that certain proof of claim filed by
PCC in the GBH bankruptcy case in the amount of $1,279.58 (and all
rights associated therewith); and (3) that certain proof of claim
filed by NJMI in the GBHC bankruptcy case in the amount of $144,930.24
(and all rights associated therewith), the latter of which Reorganized
PCC succeeded to by virtue of the NJMI Liquidation. Such unearned
premiums (and/or rights thereto) and such proofs of claim (and rights
associated therewith) delivered to the Liquidating Trust by the
Reorganized PCC, pursuant to this Section 6.2(O) shall, along with the
--------------
other consideration delivered to
Page 24
<PAGE>
the Liquidating Trust pursuant to Sections 6.2(G) and (H) hereinabove,
--------------- ---
and the proceeds thereof, be available for distribution to the PRT
Noteholders.
P. On the Effective Date, HCC shall purchase 100% of the PCC Common Stock
from PPI for $1000.
In the event that all of the events set forth in Sections 6.1 and
--- ----------------
6.2(A)-(P) hereinabove do not occur on the Effective Date (and do
----------
not occur in the sequence set forth above), unless otherwise
mutually agreed by the Debtors and the Creditors Committee, then
the Plan and the Confirmation Order (and any steps that occurred
in connection with the events set forth in Sections 6.1 and
------------
6.2(A)-(P) hereinabove) shall be void ab initio and of no further
----------
force and effect, notwithstanding the provisions of section 1144
of the Bankruptcy Code, and the Debtors, all Creditors, and all
other parties-in-interest shall be restored to their respective
rights and positions as if this Plan had never been confirmed.
To the extent any executory contracts or leases are to be assumed
or rejected pursuant to the Plan or the Confirmation Order and to
the extent that any Claim becomes an Allowed Claim or is
disallowed pursuant to the Plan, then if the Plan is withdrawn or
revoked, such assumption or rejection and such Claim allowance or
disallowance shall be of no further force or effect.
Q. On the day after the Effective Date, the Reorganized PCC shall pay in
Cash $40,329,375 to the Disbursing Agent in full discharge of the
obligation of PCC arising under Section 6.2(J) hereinabove. The
--------------
Disbursing Agent shall distribute such proceeds to the PRT
Noteholders.
6.3 Merger/Liquidation of Corporate Entities. In order to optimize the
benefits of the Financial Restructuring for the Debtors' Estates and their
Creditors, certain corporate consolidation (i.e., the PRT-NJMI Merger and the
NJMI Liquidation) and other transactions with or among related entities are
occurring as of the Effective Date. Notwithstanding the occurrence of any such
consolidation or other transactions as of the Effective Date, Persons holding
Claims against or Interests in any Debtor are receiving treatment under the Plan
that is at least as favorable as any treatment to which such Creditor or
Interest holder would have been entitled to receive if such consolidation or
transactions had not occurred.
6.4 Transfer of Assets to the Liquidating Trust.
A. Initial Delivery of Assets to the Liquidating Trust. On the Effective
Date, pursuant to Sections 6.2(D), (E), (F), (G), (H), and (O) hereinabove: (1)
--------------------------------------------
PRT shall deliver the Newco
Page 25
<PAGE>
Warrants, the Deferred Fee, the $5 Million GBHC Subordinated Note, the $10
Million GBHC Subordinated Note, the Sands Confirmation Payment, and $250,000
Cash; and (2) PCC shall deliver any unearned premiums (and/or rights thereto) on
insurance policies of PCC, PRT or NJMI, the $1,279.58 proof of claim filed by
PCC in the GBH bankruptcy case, and the $144,930.24 proof of claim filed by NJMI
in the GBHC bankruptcy case to the Liquidating Trust, all on behalf of and for
the benefit of the holders of Class 1 Claims. The holders of Class 1 Claims
shall collectively be the beneficial interest holders of the Liquidating Trust.
B. Chapter 11 Payables Reserve Conveyed to Newco. Additionally, on the
Effective Date, pursuant to Section 6.2(O) hereinabove, the Reorganized PCC
--------------
shall deliver the Chapter 11 Payables Reserve to Newco, on behalf of and for the
benefit of the holders of Allowed Administrative Claims, Allowed Tax Claims, and
Allowed Class 8 Claims.
C. Undertaking Regarding Chapter 11 Payables Reserve. To the extent that
the Chapter 11 Payables Reserve ultimately exceeds the Allowed Administrative
Claims, Allowed Tax Claims and Allowed Class 8 Claims, then such excess funds
shall be paid to the Disbursing Agent for distribution to the Class 1 holders.
Additionally, on the Effective Date, all Cash constituting the Chapter 11
Payables Reserve that is in excess of the maximum amount, based on reasonable
good faith estimates, that may be necessary to pay all Filed and not-yet-
disallowed Claims in Class 8, Tax Claims to be treated under Section 3.2, and
-----------
expected requests for payment of administrative expenses shall be promptly
transferred by Newco to the Disbursing Agent for distribution to the Class 1
holders. Additionally, on the seventy-fifth day after the Effective Date, all
Cash constituting the Chapter 11 Payables Reserve in excess of the maximum
amount, based on reasonable good faith estimates, that may be necessary to pay
all not-yet-disallowed Claims in Class 8, Tax Claims to be treated under Section
-------
3.2, and not-yet-disallowed requests for payment of administrative expenses
- ---
shall be transferred by Newco to the Disbursing Agent for distribution to the
Class 1 holders.
6.5 Ratification of Liquidating Trust Agreement. On the Effective Date,
each Creditor will be deemed to have ratified and become bound by the terms of
the Liquidating Trust Agreement. The Liquidating Trust Agreement shall become
effective upon its execution by the Debtors and acceptance by the Liquidating
Trustee.
A. Powers and Duties. The Liquidating Trustee shall have the powers,
duties and obligations specified in this Plan and the Liquidating Trust
Agreement.
B. Compensation of Liquidating Trustee. The Liquidating Trustee shall be
entitled to receive from the Trust Estate compensation for his services as
Liquidating Trustee substantially in accordance with the description in the
Liquidating Trust Agreement, which compensation shall be approved by the Court
at the Confirmation Hearing. The Liquidating Trustee shall also be
Page 26
<PAGE>
reimbursed by the Trust Estate for all reasonable out-of-pocket expenses
incurred by the Liquidating Trustee in the performance of his duties.
C. Limitation of Liability. The Liquidating Trustee shall use reasonable
discretion in exercising each of the powers herein granted. No Liquidating
Trustee or any attorney, agent, or servant of the Liquidating Trustee shall be
personally liable in any case whatsoever arising in connection with the
performance of obligations under this Plan, whether for their acts or their
failure to act unless they shall have been guilty of willful fraud or gross
negligence.
The Liquidating Trustee may consult with attorneys, accountants, and
agents, and the opinions of the same shall be full protection and justification
to the Liquidating Trustee and his employees for anything done or admitted or
omitted or suffered to be done in accordance with said opinions. The Liquidating
Trustee shall not be required to give any bond for the faithful performance of
his duties hereunder or under the Liquidating Trust Agreement.
D. Right to Hire Professionals and Agents. The Liquidating Trustee shall
have the right to reasonably utilize the services of attorneys or any other
professionals which, in the discretion of the Liquidating Trustee, are necessary
to perform the duties of the Liquidating Trustee. Reasonable fees and expenses
incurred by the attorneys, accountants or other agents of the Liquidating
Trustee shall be paid by the Liquidating Trust. The Liquidating Trustee may hire
agents to effect distributions from the Liquidating Trust, and may pay the
reasonable fees and expenses of such agents.
E. Tax Treatment of the Liquidating Trust. It is intended that the
Liquidating Trust will be treated as a "liquidating trust" within the meaning of
Treasury Regulations Section 301.7701-4(d). Accordingly, for federal income tax
purposes, the transfer and assignment of the assets, as described in Section
-------
6.2(D), (G), (H), and (I) hereinabove shall be treated as a deemed transfer and
- ---------------- ---
assignment of such assets to the holders of Claims who are beneficiaries of the
Trust, followed by a deemed transfer and assignment by such holders to the
Liquidating Trust. The Liquidating Trust shall be treated as a grantor trust
owned by such holders. Each owner of an interest in the Liquidating Trust shall
be considered for tax purposes to own an undivided interest in the assets of the
Liquidating Trust. The Liquidating Trustee shall provide the PRT Noteholders
with a valuation of the assets transferred to the Liquidating Trust and such
valuation shall be used consistently by the Debtors, the Liquidating Trust and
all PRT Noteholders for all federal income tax purposes. All items of income,
deduction, credit or loss of the Liquidating Trust shall be allocated for
federal, state and local income tax purposes on a current basis among the PRT
Noteholders, as set forth in the Liquidating Trust Agreement; provided, however,
that to the extent that any item of income cannot be allocated to a particular
PRT Noteholder in the taxable year in which it arises, the Liquidating Trust
shall pay the federal, state, and local taxes attributable to such income (net
of related deductions) at the highest rate applicable to trusts; (for federal
tax purposes, 39.6% currently). The
Page 27
<PAGE>
Liquidating Trust shall file annual information returns as a grantor trust
pursuant to Treasury Regulations Section 1.671-4(a) that will include
information concerning the allocation of items of income, gain or loss,
deduction or credit to the PRT Noteholders. Each PRT Noteholder will receive a
copy of such information return.
F. Termination of Liquidating Trust. The duties, powers and
responsibilities of the Liquidating Trustee shall terminate four years after the
Effective Date or, if earlier, upon the liquidation and distribution to the
holders of beneficial interests in the Liquidating Trust of all proceeds in the
Liquidating Trust estate in accordance with this Plan. If all proceeds in the
Liquidating Trust have not been distributed to holders of beneficial interests
in the Liquidating Trust, the term of the Liquidating Trust may be extended from
time to time by order of the Bankruptcy Court for such period or periods as it
determines are reasonable, such determination to be made within six months of
the beginning of the extended period.
6.6 Cancellation of Old Securities. As of the Effective Date, all Old
Securities (except for the PCC Common Stock) shall be terminated and canceled,
and the Existing Indenture, statements of resolution, and any other
documentation governing such Old Securities (except for the PCC Common Stock)
shall be rendered void. Notwithstanding the foregoing, such termination will
not impair the rights and duties under the Existing Indenture as between the
Existing Indenture Trustee and the beneficiaries of the trust created thereby
including, but not limited to, the rights of the Existing Indenture Trustee to
receive payment of its fees and expenses, to the extent not paid by the Debtors
(See Section 8.6 infra), from amounts distributable to holders of Existing PRT
-----------
Notes.
6.7 Registration Exemption for Newco Warrants, Beneficial Interests in
Liquidating Trust and Reorganized PCC Undertaking. The Confirmation Order shall
provide that the distribution of the Newco Warrants, the beneficial interests in
the Liquidating Trust, and the undertaking of Reorganized PCC pursuant to
Section 6.2(J) (to the extent that any of these could be deemed to be
- --------------
securities), to or for the benefit of holders of Allowed Claims (or the
beneficial holders thereof), pursuant to the Plan and the related documentation
in the Plan Supplement, shall be exempt from any and all federal, state and
local laws requiring the registration of such security, to the extent provided
by section 1145 of the Bankruptcy Code.
6.8 Charter and By-Laws. The certificate of incorporation of the
Reorganized PCC shall read substantially as set forth in the Amended Certificate
of Incorporation in the Plan Supplement. The by-laws of the Reorganized PCC
shall read substantially as set forth in the Amended By-Laws in the Plan
Supplement. The certificate of formation and limited liability company
agreement of Newco shall read substantially as set forth in the Plan Supplement.
6.9 Corporate Action. Upon entry of the Confirmation Order, the events
and/or transactions set forth in Section 6.1 and 6.2 hereinabove shall be and be
----------- ---
deemed authorized and
Page 28
<PAGE>
approved in all respects. On the Effective Date, or as soon thereafter as is
practicable, the Reorganized PCC shall file with the Secretary of State of the
State of Delaware, in accordance with applicable state law, the Amended
Certificate of Incorporation which shall conform to the provisions of the Plan
and prohibit the issuance of non-voting equity securities. On the Effective
Date, subject to the provisions of the paragraph following Section 6.2(P), the
--------------
matters provided under the Plan involving the capital and corporate structures
and governance of the respective Debtors, including the PRT-NJMI Merger and the
NJMI Liquidation, shall be deemed to have occurred and shall be in effect from
and after the Effective Date pursuant to applicable state laws without any
requirement of further action by the stockholders or directors of the Debtors or
the Reorganized PCC. On the Effective Date, the Reorganized PCC shall be
authorized and directed to take all necessary and appropriate actions to
effectuate the transactions contemplated by the Plan in the name of and on
behalf of the Reorganized PCC.
6.10 Objections to Claims. Except as otherwise provided for with
respect to Administrative Claims and applications of professionals for
compensation and reimbursement of expenses, as provided in Section 3.1(A)
--------------
hereof, or as otherwise ordered by the Bankruptcy Court after notice and a
hearing, objections to Claims, shall be Filed and served upon the holder of such
Claim not later than the later of (A) forty-five (45) days after the Effective
Date, and (B) forty-five (45) days after a proof of claim is Filed, unless this
period is extended by the Court on request of a party seeking to object. After
the Effective Date, the Liquidating Trustee and Newco shall be the sole entities
with standing to object to Claims (other than Claims of professionals for
compensation and reimbursement of expenses). Any party-in-interest may object
to Claims prior to the Effective Date.
6.11 Retention Of Causes Of Action.
A. Pursuant to Section 1123(b)(3)(B) of the Code, except as provided in
Section 6.11(B) hereinbelow, and in the other releases expressly set forth in
- ---------------
the Plan, the Debtors and Reorganized PCC, on behalf of themselves and holders
of Allowed Claims and Allowed Interests, shall retain all Causes of Action which
the Debtors had or had power to assert immediately prior to Confirmation of the
Plan, including, without limitation, Avoidance Actions, and may commence or
continue, in any appropriate court or tribunal, any suit or other proceeding for
the enforcement of such Causes of Action. All Causes of Action shall remain the
property of the Debtors and Reorganized PCC. Except as provided in Section
-------
6.11(B) and (C), nothing contained in the Plan shall constitute a waiver of the
- ------- ---
rights, if any, of the Debtors or Reorganized PCC to a jury trial with respect
to any Cause of Action or objection to any Claim.
B. If Class 1 accepts the Plan in accordance with Section 1126(c) of the
Code, then, upon the day after the Effective Date, Class 1 and the holders of
Claims in Class 1, the Existing Indenture Trustee, and their respective
officers, directors, employees, members and agents and any attorneys and
accountants employed by any of them or acting on their behalves shall be
released from any and
Page 29
<PAGE>
all claims, obligations, suits, judgments, damages, rights, causes of action and
liabilities whatsoever (including, without limitation, those arising under the
Code), whether known or unknown, foreseen or unforeseen, existing or hereafter
arising, in law, equity or otherwise, based in whole or in part on any act,
omission, transaction, event or other occurrence taking place before, on or
after the Petition Date up to and including the day after the Effective Date, in
any way relating to their Claims and their activities in the Reorganization
Case, including any and all Causes of Action that the Debtors retained pursuant
to Section 6.11(A); provided, however, that the foregoing release shall not
--------------- -------- -------
apply to any agreement by such holder to be entered into pursuant to or in
connection with this Plan intended to be in force on or after the day after the
Effective Date.
C. Upon the Effective Date, the Debtors shall be deemed to have released
all causes of action under section 550 of the Bankruptcy Code to avoid and
recover the transfer of funds to GBHC that occurred on or about April 27, 1999,
pursuant to Section 19 of the Voting Agreement, or any subsequent transfer
thereof. Upon the day after the Effective Date, the Debtors shall be deemed to
have released all causes of action under section 550 of the Bankruptcy Code to
avoid and recover prepetition transfers to any of the Existing Indenture
Trustee, the PRT Noteholders, the Consenting Holders, and any of their attorneys
and respective transferees.
6.12 Limitation of Liability. Upon the day after the Effective Date,
none of the Debtors, Reorganized PCC, HCC, GBCC, PPI, Newco, any official
committee appointed in the cases and the members thereof, nor any of their
respective officers, directors, employees, agents, nor any professional persons
employed by any of them (collectively the "Exculpated Persons"), shall have or
incur any liability to any Person for any act taken or omission made in good
faith in connection with or related to formulating, implementing, confirming or
consummating the Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection with the Plan.
Upon the day after the Effective Date, the Exculpated Persons shall have no
liability to any Creditors or other parties in interest for actions taken under
the Plan, in connection therewith or with respect thereto in good faith,
including, without limitation, failure to satisfy any condition or conditions,
or refusal to waive any condition or conditions, precedent to Confirmation or to
the occurrence of the Effective Date. Further, upon the day after the Effective
Date, the Exculpated Persons will not have or incur any liability to any holder
of a Claim, holder of an Interest, other party-in-interest herein or any other
Person for any act or omission in connection with or arising out of their
administration of the Plan or the property to be distributed under the Plan,
except for breach of the terms of the Plan or documents and agreements pursuant
thereto, gross negligence or willful misconduct, and with respect to liability
for gross negligence or willful misconduct such persons will
Page 30
<PAGE>
be entitled to rely upon the advice of counsel with respect to their duties and
responsibilities under the Plan.
6.13 Releases.
A. On the day after the Effective Date, Reorganized PCC, on its own
behalf and as representative of the Debtors' Estates, in consideration of
services rendered in the Reorganization Case and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
releases unconditionally, and is hereby deemed to release unconditionally, each
of the Debtors' and the Consenting Holders' present and former officers,
directors, as well as PPI, GBCC and HCC and their officers and directors, and
any of their respective professional advisers (collectively, the "Releasees")
from any and all claims, obligations, suits, judgments, damages, rights, Causes
of Action and liabilities whatsoever (including, without limitation, those
arising under the Code), whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based in whole or in
part on any act, omission, transaction, event or other occurrence taking place
before, on or after the Petition Date up to and including the day after the
Effective Date, in any way relating to the Debtors (before, on or after the
Petition Date), the Reorganization Case, or the Plan (collectively, the
"Released Matters").
B. On the day after the Effective Date, each holder of a Claim or
Interest that is entitled to vote on the Plan shall be deemed to have
unconditionally released the Releasees from the Released Matters; provided,
--------
however, that a holder may elect, by checking the box provided on the Ballot,
- -------
not to grant such release.
C. The Confirmation Order shall contain a permanent injunction to
effectuate the releases granted in Sections 6.11(B), 6.12 and 6.13 of the Plan.
---------------- ---- ----
D. Nothing in Sections 6.11, 6.12 or 6.13 of the Plan or in any other
------------------- ----
part of the Plan shall be deemed to effect a release of the Deferred Fee, the $5
Million GBHC Subordinated Note, the $10 Million GBHC Subordinated Note, the
Sands Confirmation Payment or any other Claims or Interests that the Debtors,
Reorganized PCC, the Liquidating Trust, HCC, GBCC, PPI, Advanced Casino Systems
Corporation, or Hollywood Management, Inc. might have against GBHC, GBH or GBPF
(except that causes of action of the Debtors on account of the transfer of funds
to GBHC that occurred on or about April 27, 1999, pursuant to Section 19 of the
Voting Agreement, or any subsequent transfer thereof, are in all events released
under this Plan as of the Effective Date). Furthermore, nothing in Sections
--------
6.11, 6.12 or 6.13 of the Plan or in any other part of the Plan is meant to
- ---------- ----
modify or amend either the Interim Sands Agreement or the September 1998
Settlement Agreement.
Page 31
<PAGE>
6.14 Exemption from Stamp and Similar Taxes. The issuance and transfer of
the Newco Membership Interests, the Newco Warrants, the obligation of
Reorganized PCC pursuant to Section 6.2(J) herein, and the beneficial interests
--------------
in the Liquidating Trust, as provided in this Plan, shall not be taxed under any
law imposing a stamp tax or similar tax in accordance with 11 U.S.C. (S)
1146(c).
ARTICLE 7
FUNDING AND METHODS OF DISTRIBUTION
7.1 Distribution Procedures-Generally. Newco shall make all Distributions
under the Plan to holders of Allowed Administrative Claims, Allowed Tax Claims,
and Allowed Class 8 Claims. Distributions in respect of the Allowed Class 1
Claims shall be made (i) on the day after the Effective Date by the Reorganized
PCC to the Disbursing Agent, and (ii) on the Effective Date or other days as
provided by Section 6.4(C) by Newco to the Disbursing Agent, who, in each case,
--------------
shall then make the Distributions to the PRT Noteholders as soon thereafter as
practicable. The date on which the Disbursing Agent makes the first
Distributions to the PRT Noteholders shall be known as the Distribution Date.
Except as otherwise provided in the Plan, all Distributions of Cash and other
property shall be made on the later of the Effective Date (and/or Distribution
Date) or the date on which a particular Claim becomes Allowed, or as soon
thereafter as practicable. Distributions required to be made on a particular
date shall be deemed to have been made on such date if actually made on such
date or as soon thereafter as practicable. No payments or other Distributions
of property shall be made on account of any Claim or portion thereof unless and
until such Claim or portion thereof is Allowed.
7.2 Source of Cash to be Paid to Class 1 Holders. The source of the
$40,329,375 Cash that is to be paid to the holders of Class 1 Claims pursuant to
Sections 4.1(A) and 6.2(Q) hereinabove shall be certain Cash realized by HCC
- --------------- ------
from the refinancing of the HCC Notes, which Cash has been escrowed in an
account at State Street Bank and Trust Company, a Massachusetts chartered trust
company, Account No. 102449-020, and which Cash is being paid to PCC in
connection with HCA's termination of the Aurora Management Contract and HWCC-
Tunica's termination of the Tunica Consulting Agreement as of the day after the
Effective Date (and after HCC has purchased the stock of PCC, as described in
Section 6.2(P) of the Plan). The Reorganized PCC shall pay the $40,329,375 to
- --------------
the Disbursing Agent on the day after the Effective Date as payment in full on
the obligation of PCC under Section 6.2(J), and the Disbursing Agent shall pay
--------------
such amounts to the holders of the Existing PRT Notes.
7.3 Distributions to Holders of Allowed Administrative Claims. Commencing
on the Effective Date, Newco shall, in accordance with Article 3 of the Plan,
---------
distribute to each holder of a then unpaid Administrative Claim, Cash in the
Allowed amount of such holder's Claim.
Page 32
<PAGE>
7.4 Distributions to Holders of Allowed Tax Claims and Allowed Class 8
Claims. Commencing on the Effective Date, Newco shall, in accordance with
Article 3 of the Plan, distribute to each holder of a then unpaid Allowed Tax
- ---------
Claim, Cash in the Allowed amount of such holder's Claim. Commencing on the
Effective Date, Newco shall, in accordance with Section 4.8 of the Plan,
-----------
distribute to each holder of a then unpaid Allowed Class 8 Claim, Cash in the
Allowed amount of such holder's Claim.
7.5 Distributions to Holders of Allowed Class 1 Claims. Distributions on
the Allowed Class 1 Claims shall be made in accordance with Sections 4.1, 7.1
-----------------
and 7.2 of the Plan.
---
A. Provisions Concerning Disbursing Agent. The Disbursing Agent shall
have the powers and duties specified in the Plan. The Disbursing Agent shall be
entitled to reasonable compensation for services rendered, and reasonable
reimbursement of expenses incurred in connection therewith (including payment of
reasonable fees of counsel), payable from amounts held by Disbursing Agent, from
the Liquidating Trust or from Newco. The Disbursing Agent shall use reasonable
discretion in exercising its duties hereunder, and neither the Disbursing Agent
nor any attorney, agent or servant thereof shall be personally liable in any
case whatsoever arising in connection with the performance of obligations under
this Plan, whether for their acts or omissions, unless they shall have been
guilty of wilful fraud or gross negligence. The Disbursing Agent may consult
with attorneys, accountants and agents, and the opinions of the same shall be
full protection and justification to the Disbursing Agent and its employees.
The Disbursing Agent shall not be required to post any bond for the faithful
performance of its duties. The duties of the Disbursing Agent shall be
terminated upon (i) the written certification of Newco that no funds remain to
be delivered to the Disbursing Agent (the "Final Distribution Notice") and (ii)
the delivery of funds held by the Disbursing Agent in accordance with this
Plan..
B. Timing Of Distributions. The Disbursing Agent shall distribute all
available cash forthwith after the Effective Date and forthwith after the
receipt of the payment required by Section 6.2(Q). Such payments may be made
--------------
together if they are to occur not later than two business days after the
Effective Date. Thereafter, the Disbursing Agent shall make quarterly
distributions of all cash received from Newco or any other source. Such
quarterly distributions shall be made within three business days of the end of
the prior calendar quarter. Following the Final Distribution Notice, the
Disbursing Agent may distribute all available Cash at any time not later than
the third business day after the end of the current calendar quarter.
Page 33
<PAGE>
ARTICLE 8
MANNER OF DISTRIBUTION OF PROPERTY UNDER THE PLAN
8.1 Cash Distributions on Effective Date. All Cash Distributions made to
holders of Allowed Administrative Claims, Allowed Tax Claims, or Allowed Class 8
Claims, pursuant to the Plan, shall be made by Newco from the Chapter 11
Payables Reserve. All Cash Distributions to the holders of the Class 1 Claims,
pursuant to the Plan, shall be made by the Disbursing Agent, from the Cash
delivered to it by Reorganized PCC and/or Newco. Such Distributions shall be
made on the Effective Date (or, in the case of the Distribution of Cash to the
Class 1 holders, on the Distribution Date) or as soon thereafter as practicable.
Any such Cash Distributions shall be in U.S. dollars, by checks drawn on a
domestic bank selected by Newco and/or the Disbursing Agent, or by wire transfer
from a domestic bank, at the option of the payer.
8.2 Distributions from Time to Time, after the Effective Date, from the
Liquidating Trust. From time to time after the Effective Date, the Liquidating
Trustee shall make Distributions to the holders of record of Class 1 Claims,
from the Liquidating Trust, as the assets in the Liquidating Trust are converted
to Cash and as further defined in the Liquidating Trust Agreement.
8.3 Certification of Claims by Existing Indenture Trustees. The Existing
Indenture Trustee shall certify to the Debtors, Liquidating Trustee, and
Disbursing Agent a list of the registered holders of the Existing PRT Notes as
of the Record Date-Balloting and Record Date-Distributions, designating the
name, address, taxpayer identification number (if known), certificate number,
and the amount of unpaid principal and accrued interest owed to each holder on
their respective securities.
8.4 Surrender and Cancellation of Existing PRT Notes. As a condition to
receiving the Cash and other consideration distributable under the Plan, the
holders of the Existing PRT Notes shall surrender their Existing PRT Notes to
the Existing Indenture Trustee. When a holder surrenders its Existing PRT Notes
to the Existing Indenture Trustee, the Existing Indenture Trustee shall hold the
instrument in "book entry only" until such instruments are canceled. Any holder
of Existing PRT Notes whose instrument has been lost, stolen, mutilated or
destroyed shall, in lieu of surrendering such instrument, deliver to the
Existing Indenture Trustee: (A) evidence satisfactory to the Existing Indenture
Trustee of the loss, theft, mutilation or destruction of such instrument, and
(B) such security or indemnity that may be reasonably required by the Existing
Indenture Trustee to hold the Existing Indenture Trustee harmless with respect
to any such representation of the holder. Upon compliance with the preceding
sentence, such holder shall, for all purposes under the Plan, be deemed to have
surrendered such instrument. Any holder of Existing PRT Notes which has not
surrendered or been deemed to have surrendered its Existing PRT Notes within
two years after the Effective Date, shall have its Claim as a holder of
Existing PRT Notes disallowed, shall receive no distribution on account of its
Claim as a holder of Existing PRT Notes, and shall be forever barred
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<PAGE>
from asserting any Claim on account of its Existing PRT Notes. Any Cash or other
consideration issued and/or held for distribution on account of such disallowed
claims of holders of Existing PRT Notes shall be returned to and revest in the
Liquidating Trust or the Disbursing Agent, as appropriate, for distribution to
the remaining holders of Class 1 Claims.
8.5 Record Date-Distributions; Distribution Date. The Disbursing Agent
shall distribute all Distributions of property to be made pursuant to the Plan
to the record holders of Existing PRT Notes (including those Persons entitled to
be treated as such pursuant to Bankruptcy Rule 3003(d)), as of the Record Date-
Distributions, unless, prior to the Effective Date, the holder of any such Claim
furnishes (or causes its transferee to furnish) the Disbursing Agent, or its
agent, with sufficient evidence (in the Disbursing Agent's or its agent's sole
and absolute discretion) of the transfer of such Claim, in which event the
Disbursing Agent shall distribute, or cause to be distributed, all Distributions
of property to the transferee-holder of such Claim as of the day immediately
prior to the Effective Date. As of the close of business on the day prior to
the Effective Date, the transfer ledgers with respect to the Existing PRT Notes
shall be closed and the Debtors, the Reorganized PCC, the Liquidating Trustee,
and the Disbursing Agent shall have no obligation to recognize any transfer of
the Existing PRT Notes occurring thereafter (except the transfers pursuant to
Section 6.2(J)).
- --------------
8.6 Existing Indenture Trustee Expenses. Any prepetition Existing
Indenture Trustee Expenses shall be regarded as Class 8 Claims under the Plan
(and unimpaired) and shall be paid by Newco from the Chapter 11 Payables
Reserve. Any postpetition Existing Indenture Trustee Expenses shall be treated
under section 503(b)(5) of the Bankruptcy Code and, if allowed, shall also be
paid by Newco from the Chapter 11 Payables Reserve.
8.7 Disputed Claims. Notwithstanding any other provisions of the Plan, no
payments or Distributions shall be made on account of any Disputed Claim until
such Claim becomes an Allowed Claim, and then only to the extent that it becomes
an Allowed Claim.
8.8 Delivery of Distributions and Undeliverable or Unclaimed
Distributions.
A. Delivery of Distributions in General. Except as provided below in
Section 8.8(B), Distributions to holders of Allowed Claims shall be distributed
- ---------------
by mail as follows: (1) for all holders except Class 1 holders (addressed in
clause (2) of this Section 8.8(A)), at the addresses set forth in (a) the
--------------
respective proofs of claim filed by such holders; (b) any written notices of
address changes delivered to the Debtors after the date of any related proof of
claim; or (c) the Schedules of Assets and Liabilities Filed by the Debtors if no
proof of claim or proof of interest is Filed and the Debtors have not received a
written notice of a change of address; and (2) in the case of the Class 1
holders, by the Disbursing Agent (and/or Liquidating Trustee) to the latest
mailing address maintained of record by the Disbursing Agent (and/or Liquidating
Trustee).
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B. Undeliverable Distributions.
If the Distribution to the holder of any Claim is returned to the
Disbursing Agent, the Liquidating Trustee, or Newco, as the case may be, as
undeliverable, no further Distribution shall be made to such holder unless and
until the Disbursing Agent, the Liquidating Trustee, or Newco, as the case may
be, is notified in writing of such holder's then current address. Undeliverable
Distributions shall remain in the possession of the Disbursing Agent, the
Liquidating Trustee, or Newco, as the case may be, until such time as a
Distribution becomes deliverable. Undeliverable Distributions shall be held for
the benefit of such holders, and shall be accounted for separately. Any funds
shall be held in interest-bearing accounts, to the extent practicable, and the
parties entitled to such funds shall be entitled to any earned interest on such
funds. Any holder of an Allowed Claim who does not assert a claim for an
undeliverable Distribution within one (1) year after the Effective Date shall no
longer have any claim to or interest in such undeliverable Distribution, shall
be forever barred from receiving any Distributions under this Plan, and such
unclaimed Distributions shall become the property of the Liquidating Trust (for
distribution to the holders of Class 1 Claims).
8.9 De Minimis Distributions. No Cash payment of less than five dollars
($5.00) shall be made to any holder on account of an Allowed Claim.
8.10 Failure to Negotiate Checks. Checks issued in respect of
Distributions under the Plan shall be null and void if not negotiated within 60
days after the date of issuance. Requests for reissuance of any such check may
be made directly to the Disbursing Agent, the Liquidating Trustee, or Newco, as
the case may be, by the holder of the Allowed Claim with respect to which such
check originally was issued. Any claim in respect of such voided check is
required to be made before the first anniversary of the Effective Date.
Thereafter, all amounts represented by any voided check shall become the
property of the Liquidating Trust, the Disbursing Agent (for the benefit of
Class 1 claimants), or Newco, as the case may be. All Claims in respect of void
checks and the underlying Distributions shall be discharged and forever barred
from assertion against the Reorganized PCC, the Disbursing Agent, the
Liquidating Trustee, Newco, and their property.
8.11 Compliance with Tax Requirements. In connection with the Plan,
to the extent applicable, Reorganized PCC, the Liquidating Trustee and Newco
shall comply with all withholding and reporting requirements imposed on it by
any governmental unit, and all distributions pursuant to the Plan shall be
subject to such withholding and reporting requirements. HCC shall report the
income from the termination of the Aurora Management Contract and the Tunica
Consulting Agreement on its first consolidated return after the Effective Date,
including Reorganized PCC as a member of HCC's consolidated group.
8.12 Setoffs. Unless otherwise provided in a Final Order or in this
Plan, the Debtors and/or Liquidating Trustee and/or Newco may, but shall not be
required to, setoff against any Claim and the payments to be made pursuant to
the Plan in respect of such Claim, any claims of any nature
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<PAGE>
whatsoever the Debtors may have under the Plan or arising out of the
Reorganization Case against the holder thereof or its predecessor, but neither
the failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Debtor and/or Liquidating Trustee and/or Newco of any
such Claims the Debtors may have against such holder or its predecessor.
ARTICLE 9
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
9.1 Assumption of Certain Executory Contracts. The Plan, and specifically
this Section 9.1, constitutes a motion to assume and assign to the Reorganized
-----------
PCC, pursuant to section 365 of the Bankruptcy Code, the following contracts to
which one or more of the Debtors is a party and which the Debtors believe may be
"executory" pursuant to section 365: (A) the Voting Agreement, (B) the PMLP
Partnership Agreement, (C) the Tunica Consulting Agreement, (D) the Interim
Sands Agreement, and, to the extent it could be construed to be an executory
contract to which any one or more of the Debtors is a party, (E) the September
1998 Settlement Agreement. With respect to the Interim Sands Agreement and the
September 1998 Settlement Agreement, GBHC, GBH, and GBPF contend that they are
not executory. Further, with respect to the September 1998 Settlement
Agreement, none of PCC, PRT and NJMI is an actual party to the September 1998
Settlement Agreement, but there are certain provisions in the September 1998
Settlement Agreement that relate to or affect PCC, PRT and/or NJMI. In any
event, consummation of the Plan shall constitute the ratification by each of the
Debtors of the Interim Sands Agreement and the September 1998 Settlement
Agreement (together, the "Sands Related Agreements"). As such, each of the
Debtors will continue to be entitled to all rights and benefits accruing under
the Sands Related Agreements and will continue to be bound by the obligations
contained therein.
9.2 Rejection of All Executory Contracts and Leases Not Assumed. The Plan
constitutes and incorporates a motion by the Debtors to reject, as of the
Effective Date, all pre-petition executory contracts and unexpired leases to
which the Debtors are a party, except for any executory contract or unexpired
lease that (A) is referenced in Section 9.1 hereinabove, (B) has already been
-----------
assumed or rejected pursuant to a Final Order, or (C) is the subject of a
pending motion for authority to assume the contract or lease Filed by the
Debtors prior to the Confirmation Date.
9.3 Cure Payments. Any monetary defaults of any of the Debtors under each
executory contract and unexpired lease to be assumed and/or assigned to the
Reorganized PCC shall be satisfied, pursuant to section 365(b)(1) of the
Bankruptcy Code, either: (A) by payment by the Reorganized PCC of the default
amount in Cash on the Effective Date, or (B) on such other terms as agreed to by
the Debtors and/or the Reorganized PCC and the non-debtor parties to such
executory contract or unexpired lease. Any Claims, including Claims for actual
pecuniary loss
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<PAGE>
arising from a default in an executory contract or unexpired
lease assumed by the Debtors must be evidenced by a proof of Claim filed by the
Bar Date. In the event of a dispute regarding (1) the amount of any cure
payments, (2) the ability of the Reorganized PCC to provide adequate assurance
of future performance under the contract or lease to be assumed and/or assigned,
or (3) any other matter pertaining to assumption (or assumption and assignment),
the cure payments required by section 365(b)(1) of the Bankruptcy Code shall be
made by the Reorganized PCC following the entry of a Final Order resolving the
dispute and approving assumption and/or assignment to Reorganized PCC.
9.4 Bar Date for Filing of Rejection Claims. Any Claim for damages
arising from the rejection under this Plan of an executory contract or unexpired
lease must be Filed within thirty (30) days after the earlier of (A) the mailing
-------
by Debtors to the contract party of notice of Debtors' intention to reject the
executory contract or lease, and (B) the mailing of notice of Confirmation or
such Claim will be forever barred and unenforceable against the Liquidating
Trustee, the Debtors, the Estates, Reorganized PCC, Newco, or any of their
affiliates and their properties and barred from receiving any distribution under
this Plan.
ARTICLE 10
CONDITIONS TO CONFIRMATION OF PLAN
10.1 Conditions to Confirmation. Except as expressly waived by the
Debtors and the Creditors Committee, the following conditions must occur and/or
be satisfied prior to Confirmation of the Plan:
A. The Debtors must request and obtain from the Bankruptcy Court a Claims
Bar Date for the Claims against the Debtors (excluding Claims of governmental
entities), and such Claims Bar Date shall have passed.
B. There shall be no Claims for cure of executory contracts or unexpired
leases.
C. The Debtors shall have set aside $250,000 in reserve for any potential
Allowed Tax Claims (to be transferred to Newco pursuant to Section 6.2 of the
-----------
Plan to hold in reserve).
D. All Class 8 Unsecured Claims, other than the Claims in respect of the
Existing Indenture Trustee Expenses and/or Insured Claims, are disallowed by a
----------
Final Order of the Bankruptcy Court or other Court of competent jurisdiction,
which Final Order is no longer subject to being modified or reversed on
reconsideration or appeal, or are otherwise resolved in a manner mutually
acceptable to the Debtors and the Creditors Committee.
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<PAGE>
E. All Claims of the PRT Noteholders and the Existing Indenture Trustee
(on behalf of the PRT Noteholders and excluding any Existing Indenture Trustee
Expenses) shall be allowed under the Confirmation Order.
F. The Confirmation Order (and related findings of fact and conclusions
of law) shall be in form and substance reasonably satisfactory to the Debtors
and the Creditors Committee.
G. The documentation in the Plan Supplement shall be in form and
substance reasonably satisfactory to the Debtors and the Creditors Committee.
H. No Agreement Termination Event, as such term is used in the Voting
Agreement, shall have occurred.
10.2 Waiver of Conditions. The Debtors and the Creditors Committee
may waive any condition set forth in this Article 10 at any time, without
----------
notice, without leave of or order of the Court, and without any formal action
other than proceeding to confirm the Plan.
ARTICLE 11
CONDITIONS TO EFFECTIVENESS OF THE PLAN
11.1 Conditions to Effectiveness. Except as expressly waived by the
Debtors and the Creditors Committee, the following conditions must occur and
be satisfied on or before the Effective Date:
A. The Confirmation Order (and related findings of fact and conclusions
of law) shall have been signed by the Court and duly entered on the docket for
the Reorganization Case by the clerk of the Court in form and substance
reasonably acceptable to the Debtors and the Creditors Committee.
B. The Confirmation Order shall have become a Final Order.
C. No Agreement Termination Event under the Voting Agreement shall have
occurred.
D. The Conditions to Consummation of the Financial Restructuring set
forth in Section 2 of the Voting Agreement shall have been met.
11.2 Waiver of Conditions. The Debtors and the Creditors Committee
may waive any condition set forth in this Article 11 (except for Section 11.(B))
---------- --------------
at any time, without notice, without
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<PAGE>
leave of or order of the Court, and without any formal action other than
proceeding to consummate the Plan.
ARTICLE 12
EFFECTS OF PLAN CONFIRMATION
12.1 Discharge of Debtors and Injunction. The rights afforded in
the Plan and the treatment of all Claims and Interests herein, shall be in
exchange for and in reliance on the complete satisfaction, discharge, and
release of all Claims and Interests of any nature whatsoever, including any
interest accrued on such Claims from and after the Petition Date, against the
Debtors, the Debtors-In-Possession, or any of their assets or properties.
Except as otherwise provided in the Plan or the Confirmation Order: (A) on the
Effective Date, the Debtors shall be deemed discharged and released to the
fullest extent permitted by section 1141 of the Bankruptcy Code from all Claims
and Interests, including, but not limited to, demands, liabilities, Claims and
Interests that arose before the Effective Date and all debts of the kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not: (1) a proof of claim or proof of interest based on such debt or Interest
is Filed or deemed Filed pursuant to section 501 of the Bankruptcy Code, (2) a
Claim or Interest based on such debt or Interest is allowed pursuant to section
502 of the Bankruptcy Code, or (3) the holder of a Claim or Interest based on
such debt or Interest has accepted the Plan; and (B) all Persons shall be
precluded from asserting against Reorganized PCC and its successors, and the
Liquidating Trust, Newco, or any of their assets or properties, any other or
further Claims or Interests based upon any act or omission, transaction, or
other activity of any kind or nature that occurred prior to the Effective Date.
Except as otherwise provided in the Plan or the Confirmation Order, as of the
Effective Date, the Confirmation Order shall act as a discharge of any and all
Claims against and all debts and liabilities of the Debtors, as provided in
sections 524 and 1141 of the Bankruptcy Code, and such discharge shall void any
judgment against any of the Debtors or Reorganized PCC at any time obtained to
the extent that it relates to a Claim discharged. The discharge of the Debtors
provided in the Plan shall not affect the obligations of the Debtors under any
executory contract assumed under Section 9.1 hereinabove, nor under any
-----------
agreement pursuant to or in connection with this Plan intended to be in force on
or after the Effective Date.
Except as otherwise provided in the Plan, the Confirmation Order, the
Interim Sands Agreement (where applicable), or September 1998 Settlement
Agreement (where applicable), on and after the Effective Date, all persons who
have held, currently hold or may hold a debt, Claim or Interest discharged
pursuant to the terms of this Plan are permanently enjoined from taking any of
the following actions on account of any such discharged debt, Claim or Interest:
(1) commencing or continuing in any manner any action or other proceeding
against the Debtors, Reorganized PCC, the Liquidating Trust, Newco, any of their
successors or their respective property; (2) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order against the
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<PAGE>
Debtors, Reorganized PCC, the Liquidating Trust, Newco, any of their successors
or their respective property; (3) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, Reorganized PCC, the Liquidating Trust, Newco,
any of their successors or their respective property; (4) asserting any setoff,
right of subrogation or recoupment of any kind against any obligation due to the
Debtors, Reorganized PCC, the Liquidating Trust, Newco, any of their successors
or their respective property (except for rights of setoff provided for and/or
preserved in the September 1998 Settlement Agreement); and (5) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of this Plan or the Confirmation Order. Any
Person injured by any willful violation of such injunction shall recover actual
damages, including costs and attorneys' fees, and, in appropriate circumstances,
may recover punitive damages, from the willful violator. Nothing in this
Section 12.1 or in any other part of the Plan is meant to modify or amend either
- ------------
the Interim Sands Agreement or the September 1998 Settlement Agreement, which
contracts are being assumed pursuant to Section 9.1.
-----------
12.2 Revesting. On the Effective Date, the Reorganized PCC will be
vested with all the property of the respective Estates of the Debtors that is
not otherwise transferred to the Liquidating Trust or Newco under the Plan free
and clear of all Claims and other interests of Creditors and equity holders,
except as provided herein; provided, however, that the Debtors shall continue as
debtors in possession under the Bankruptcy Code until the Effective Date, and,
thereafter, the Reorganized PCC may wind up the business free of any
restrictions imposed by the Bankruptcy Code or the Court.
12.3 No Liability for Solicitation or Participation. As specified in
section 1125(e) of the Bankruptcy Code, Persons that solicit acceptances or
rejections of the Plan and/or that participate in the offer, issuance, sale, or
purchase of securities offered or sold under the Plan, in good faith and in
compliance with the applicable provisions of the Bankruptcy Code, are not
liable, on account of such solicitation or participation, for violation of any
applicable law, rule, or regulation governing the solicitation of acceptances or
rejections of the Plan or the offer, issuance, sale, or purchase of securities.
12.4 Other Documents and Actions. The Debtors, the Debtors-In-
Possession, the Reorganized PCC, the Disbursing Agent, the Existing Indenture
Trustee, the Liquidating Trustee, and Newco may execute such documents and take
such other action as is necessary to effectuate the transactions provided for in
the Plan.
12.5 Post-Consummation Effect of Evidences of Claims or Interests.
Existing PRT Notes and other evidences of Claims against or Interests in the
Debtors shall, effective upon the Effective Date, represent only the right to
participate in the Distributions contemplated by the Plan.
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<PAGE>
12.6 Term of Injunctions or Stays. Unless otherwise provided, all
injunctions or stays provided for in the Reorganization Case pursuant to
sections 105 or 362 of the Bankruptcy Code or otherwise and in effect on the
Confirmation Date shall remain in full force and effect until the Effective
Date.
ARTICLE 13
CONFIRMABILITY OF PLAN AND CRAMDOWN
The Debtors may request Confirmation under section 1129(b) of the
Bankruptcy Code if any impaired Class does not accept the Plan pursuant to
section 1126 of the Bankruptcy Code. In that event, the Debtors reserve the
right to modify the Plan to the extent, if any, that Confirmation of the Plan
under section 1129(b) of the Bankruptcy Code requires modification.
ARTICLE 14
RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order or the occurrence of
the Effective Date, the Bankruptcy Court shall retain such jurisdiction over the
Reorganization Case after the Effective Date as is legally permissible,
including, without limitation, jurisdiction to:
1. Allow, disallow, determine, liquidate, classify or establish the
priority or secured or unsecured status of or estimate any Claim or Interest,
including, without limitation, the resolution of any request for payment of any
Administrative Claim or Existing Indenture Trustee Expenses and the resolution
of any and all objections to the allowance or priority of Claims or Interests;
2. Grant or deny any and all applications for allowance of
compensation or reimbursement of expenses authorized pursuant to the Bankruptcy
Code or the Plan, for periods ending on or before the Effective Date;
3. Resolve any motions pending on the Effective Date to assume,
assume and assign or reject any executory contract or unexpired lease to which
the Debtors are parties or with respect to which the Debtors may be liable and
to hear, determine and, if necessary, liquidate, any and all Claims arising
therefrom;
4. Ensure that Distributions to holders of Allowed Claims and
Allowed Interests are accomplished pursuant to the provisions of the Plan;
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<PAGE>
5. Decide or resolve any and all applications, motions, adversary
proceedings, contested or litigated matters and any other matters or grant or
deny any applications involving the Debtors that may be pending on the Effective
Date;
6. Enter such Orders as may be necessary or appropriate to implement
or consummate the provisions of the Plan and all contracts, instruments,
releases, and other agreements or documents created in connection with the Plan
or the Disclosure Statement, including Orders to extend the term of the
Liquidating Trust;
7. Resolve any and all controversies, suits or issues that may arise
in connection with the consummation, interpretation or enforcement of the Plan
or any entity's obligations incurred in connection with the Plan;
8. Modify the Plan before or after the Effective Date pursuant to
section 1127 of the Bankruptcy Code, or to modify the Disclosure Statement or
any contract, instrument, release, or other agreement or document created in
connection with the Plan or the Disclosure Statement; or remedy any defect or
omission or reconcile any inconsistency in any Bankruptcy Court Order, the Plan,
the Disclosure Statement or any contract, instrument, release, or other
agreement or document created in connection with the Plan or the Disclosure
Statement, in such manner as may be necessary or appropriate to consummate the
Plan, to the extent authorized by the Bankruptcy Code;
9. Issue injunctions, enter and implement other orders or take such
other actions as may be necessary or appropriate to restrain interference by any
entity with consummation or enforcement of the Plan;
10. Enter and implement such orders as are necessary or appropriate
if the Confirmation Order is for any reason modified, stayed, reversed, revoked
or vacated;
11. Determine any other matters that may arise in connection with or
related to the Plan, the Disclosure Statement, the Confirmation Order or any
contract, instrument, release, or other agreement or document created in
connection with the Plan or the Disclosure Statement; and
12. Enter a final decree closing the Reorganization Case.
If the Bankruptcy Court abstains from exercising jurisdiction or is otherwise
without jurisdiction over any matter arising out of the Reorganization Case,
including, without limitation, the matters set forth in this Article, this
Article shall have no effect upon and shall not control, prohibit, or limit the
exercise of jurisdiction by any other court having competent jurisdiction with
respect to such matter.
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<PAGE>
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Fractional Dollars. Any other provision of the Plan
notwithstanding, no payments of fractions of dollars will be made to any holder
of an Allowed Claim. Whenever any payment of a fraction of a dollar to any
holder of an Allowed Claim would otherwise be called for, the actual payment
made will reflect a rounding of such fraction to the nearest whole dollar (up or
down).
15.2 Modification of Plan. The Debtors reserve the right, in
accordance with the Bankruptcy Code, and with the consent of the Creditors
Committee, to amend or modify the Plan prior to the entry of the Confirmation
Order. After the entry of the Confirmation Order, the Debtors or the
Reorganized PCC, as the case may be, may, upon order of the Bankruptcy Court,
and with the consent of the Creditors Committee, amend or modify the Plan in
accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or
omission or reconcile any inconsistency in the Plan in such manner as may be
necessary to carry out the purpose and intent of the Plan.
15.3 Governing Law. Except to the extent the Bankruptcy Code or the
Bankruptcy Rules are applicable, the rights and obligations arising under the
Plan shall be governed by, and construed and enforced in accordance with the
laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof.
15.4 Payment Dates. Whenever any payment to be made under the Plan is
due on a day other than a Business Day, such payment will instead be made,
without interest, on the next Business Day.
15.5 Headings. The headings used in this Plan are inserted for
convenience only and neither constitute a portion of the Plan nor in any manner
affect the provisions of the Plan.
15.6 Successors and Assigns. The rights, benefits and obligations of
any entity named or referred to in the Plan shall be binding on, and shall inure
to the benefit of, any heir, executor, administrator, successor or assign of
such entity.
15.7 Severability of Plan Provisions. If prior to Confirmation any
term or provision of the Plan, which does not govern the treatment of Claims or
Interests or the conditions of the Effective Date or which is not governed by
the terms of the Voting Agreement or documents related thereto, is held by the
Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court
shall have the power to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void, or
unenforceable, and such term or provision shall then be applicable as altered
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<PAGE>
or interpreted. Notwithstanding any such holding, alteration or interpretation,
the remainder of the terms and provisions of the Plan will remain in full force
and effect and will in no way be affected, impaired, or invalidated by such
holding, alteration, or interpretation. The Confirmation Order shall constitute
a judicial determination and shall provide that each term and provision of the
Plan, as it may have been altered or interpreted in accordance with the
foregoing, is valid and enforceable pursuant to its terms.
15.8 No Admissions. Notwithstanding anything herein to the contrary,
nothing contained in the Plan shall be deemed as an admission by the Debtors
with respect to any matter set forth herein, including, without limitation,
liability on any Claim or the propriety of any Claims classification.
15.9 Creditors Committee. The Creditors Committee shall generally
continue after the Confirmation Date for the sole purposes of (A) prosecuting
and defending fee applications, and (B) monitoring the completion of the acts
scheduled to occur in connection with the implementation and consummation of the
Plan, and shall generally continue after the Effective Date for the sole purpose
of prosecuting and defending fee applications. The Liquidating Trustee and/or
Newco shall pay the reasonable fees and expenses of the Creditors Committee,
incurred after the Effective Date, without further order of the Court. The
appointment of the Creditors Committee and its professionals shall terminate
after (A) the resolution of all fee applications and (B) the completion of the
acts scheduled to occur in connection with the implementation and consummation
of the Plan. After such date, all obligations and responsibilities of the
members and professionals for the Creditors Committee shall terminate.
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Dated: July 7, 1999
------
PRATT CASINO CORPORATION
Debtor and Debtor-In-Possession
/s/ John C. Hull
---------------------------------------
By:
Its: Chief Executive Officer
PRT FUNDING CORP.
Debtor and Debtor-In-Possession
/s/ John C. Hull
---------------------------------------
By:
Its: Chief Executive Officer
NEW JERSEY MANAGEMENT, INC.
Debtor and Debtor-In-Possession
/s/ John C. Hull
---------------------------------------
By:
Its: Chief Executive Officer
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<PAGE>
Counsel to the Debtors:
- -----------------------
Robert D. Albergotti, Esquire
Stacey Jernigan, Esquire
HAYNES AND BOONE, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75201-3714
Telephone: (214) 651-5000
Steven K. Kortanek, Esquire
KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP
919 Market Street, Suite 1000
Wilmington, Delaware 19801-3062
Telephone: (302) 426-1189
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EXHIBIT 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: (S) Chapter 11
(S)
PRATT CASINO CORPORATION (S) Jointly Administered
PRT FUNDING CORP. (S) Under Case No. 99-1204
NEW JERSEY MANAGEMENT, INC. (S)
(S)
Debtors. (S)
(S)
- --------------------------------------------------------------------------------
DEBTORS' FIRST AMENDED JOINT DISCLOSURE STATEMENT
UNDER 11 U.S.C. (S) 1125, AS MODIFIED JULY 7, 1999, IN SUPPORT OF THE
DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
DATED JUNE 21, 1999, AS MODIFIED JULY 7, 1999
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THIS DISCLOSURE STATEMENT (HEREIN SO CALLED) HAS BEEN PREPARED BY PRATT CASINO
CORPORATION ("PCC"), PRT FUNDING CORP. ("PRT"), AND NEW JERSEY MANAGEMENT, INC.
("NJMI") (COLLECTIVELY, THE "DEBTORS") AND DESCRIBES THE TERMS AND PROVISIONS OF
THE DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION DATED JUNE 21, 1999, AS
MODIFIED JULY 7, 1999 (THE "PLAN"). ANY TERM USED IN THIS DISCLOSURE STATEMENT
THAT IS NOT DEFINED HEREIN HAS THE MEANING ASCRIBED TO THAT TERM IN THE PLAN.
THE DEBTORS URGE YOU TO ACCEPT THE PLAN. IN THE EVENT THE PLAN IS NOT
CONFIRMED, IT IS LIKELY THAT THE DEBTORS WILL BE FORCED TO LIQUIDATE THEIR
ASSETS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE. IN A CHAPTER 7 LIQUIDATION, THE
DEBTORS BELIEVE UNSECURED CREDITORS WOULD RECEIVE FAR LESS THAN IS CONTEMPLATED
BY THE PLAN.
HAYNES AND BOONE, L.L.P.
Robert D. Albergotti, Esquire
Stacey Jernigan, Esquire
901 Main Street, Suite 3100
Dallas, Texas 75201-3714
Telephone: (214) 651-5000
Telecopy: (214) 651-5940
KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP
Steven K. Kortanek, Esquire
Jeffrey Kurtzman, Esquire
Carolyn Hochstadter Dicker, Esquire
919 Market Street, Suite 1000
Wilmington, Delaware 19801-3062
Telephone: (302) 426-1189
CO-COUNSEL TO THE DEBTORS
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TABLE OF CONTENTS
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SUMMARY OF THE PLAN.................................................................... 1
I. INTRODUCTION.................................................................... 2
A. Filing of the Debtors' Chapter 11 Reorganization Cases..................... 2
B. Purpose of Disclosure Statement............................................ 3
C. Hearing on Confirmation of the Plan........................................ 5
D. Sources of Information..................................................... 5
II. EXPLANATION OF CHAPTER 11....................................................... 6
A. Overview of Chapter 11..................................................... 6
B. Plan of Reorganization..................................................... 6
III. VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION............................. 8
A. "Voting Claims" -- Parties Entitled to Vote................................ 8
B. Return of Ballots.......................................................... 9
1. Voting Record Date.................................................... 9
2. Special Procedures for Ballots of Holders of Debt Securities
(i.e., the Existing PRT Notes)........................................ 9
----
3. Deadline for Submission of Ballots.................................... 10
C. Confirmation of Plan....................................................... 11
1. Solicitation of Acceptances........................................... 11
2. Requirements for Confirmation of the Plan............................. 12
3. Acceptances Necessary to Confirm the Plan............................. 13
4. Cramdown.............................................................. 14
IV. BACKGROUND OF THE DEBTORS....................................................... 15
A. Nature of the Debtors' Business: Overview of Assets and Liabilities........ 15
1. PRT: The Primary Obligor on the Existing PRT Notes.................... 15
2. PCC: The Guarantor of the Existing PRT Notes and also
"Holding" Company for Certain Other Entities.......................... 15
3. NJMI: Former Manager of Sands Now Defunct............................. 16
B. Information on Related Entities............................................ 16
1. Sands Debtors......................................................... 16
2. Ultimate Corporate Parent............................................. 17
C. Recap: Assets and Liabilities of the Three Debtors as of Petition Date..... 18
1. PCC................................................................... 18
2. PRT................................................................... 19
3. NJMI.................................................................. 19
D. Existing and Potential Litigation/Proceedings.............................. 20
E. Preference and Other Avoidance Litigation.................................. 24
1. Generally............................................................. 24
2. Certain Released Avoidance Actions.................................... 24
V. EVENTS LEADING TO BANKRUPTCY.................................................... 25
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VI. POST-BANKRUPTCY OPERATIONS AND SIGNIFICANT EVENTS.............................. 26
A. Post-Bankruptcy Operations................................................ 26
B. Significant Orders Entered During the Case................................ 26
1. First Day Orders.................................................... 26
2. Official Unsecured Creditors Committee.............................. 26
C. Professionals' Fees and Expenses.......................................... 27
1. Professionals employed by the Debtors............................... 27
2. Professionals employed by the Creditors Committee................... 27
VII. DESCRIPTION OF THE PLAN........................................................ 28
A. Introduction.............................................................. 28
B. Designation of Claims and Interests....................................... 28
C. Treatment of Claims and Interests......................................... 30
1. Treatment of Unclassified Claims.................................... 30
2. Classification and Treatment of Classified Claims and Interests..... 31
VIII. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN............................. 33
A. Pro Rata Payments in Respect of Management Contracts...................... 33
B. Plan Implementation Steps Occurring on and After the Effective Date....... 33
C. Merger/Liquidation of Corporate Entities.................................. 36
D. Transfer of Assets to the Liquidating Trust............................... 36
1. Initial Delivery of Assets to the Liquidating Trust................. 36
2. Chapter 11 Payables Reserve Conveyed to Newco....................... 37
3. Undertaking Regarding Chapter 11 Payables Reserve................... 37
E. Ratification of Liquidating Trust Agreement............................... 37
1. Powers and Duties................................................... 37
2. Compensation of Liquidating Trustee................................. 37
3. Limitation of Liability............................................. 38
4. Right to Hire Professionals and Agents.............................. 38
5. Tax Treatment of the Liquidating Trust.............................. 38
6. Termination of Liquidating Trust.................................... 39
F. Cancellation of Old Securities............................................ 39
G. Registration Exemption for Newco Warrants, Beneficial Interests
in Liquidating Trust and Reorganized PCC Undertaking...................... 39
H. Objections to Claims...................................................... 39
IX. CONDITIONS TO CONFIRMATION OF PLAN............................................. 40
A. Conditions to Confirmation................................................ 40
B. Waiver of Conditions...................................................... 40
C. Regulatory Conditions Not Waivable........................................ 40
X. CONDITIONS TO EFFECTIVENESS OF THE PLAN........................................ 41
A. Conditions to Effectiveness............................................... 41
B. Waiver of Conditions...................................................... 41
XI. FUTURE BUSINESS OF REORGANIZED PCC AND NEWCO................................... 41
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A. Ownership and Future Business of Reorganized PCC................. 41
B. Composition of Management and Directors of Reorganized PCC....... 41
C. Ownership and Future Business of Newco........................... 42
D. Composition of Management and Directors of Newco................. 42
E. Liquidating Trust..................................................... 42
XII. RISKS AND FEASIBILITY................................................. 42
A. Risks Relative to the PRT Noteholders............................ 42
B. Risks Relative to Claims Other than PRT Noteholder Claims........ 45
XIII. ALTERNATIVES TO PLAN AND LIQUIDATION ANALYSIS......................... 45
A. Dismissal........................................................ 45
B. Chapter 7 Liquidation............................................ 45
XIV. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..... 47
A. Treatment of the Debtors......................................... 48
1. Transaction Steps.......................................... 48
2. Cancellation of Debt....................................... 48
B. Consequences to PRT Noteholders.................................. 49
1. Generally.................................................. 49
2. Receipt of Interest........................................ 49
3. Backup Withholding......................................... 49
4. Tax Treatment of Liquidating Trust......................... 50
XV. MISCELLANEOUS PROVISIONS.............................................. 51
A. Issuance of "Securities" under the Plan.......................... 51
1. Potential Post-Confirmation Transfers of the Newco
Warrants and/or Beneficial Interests in Liquidating
Trust and/or the undertaking of the Reorganized PCC
pursuant to Section 6.2(J) of the Plan..................... 52
2. Certain Transactions by Stockbrokers....................... 54
B. No Liability for Solicitation or Participation................... 54
XVI. CONCLUSION............................................................ 54
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EXHIBITS
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Exhibit A: The Debtors' First Amended Joint Plan of Reorganization Dated
June 21, 1999, as Modified July 7, 1999
APPENDICES
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A. Corporate Organizational Chart
B. 1997 and 1998 10Ks and 1999 (first quarter)10Q
C. Voting Agreement Dated as of April 28, 1999
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: (S) Chapter 11
(S)
PRATT CASINO CORPORATION (S) Jointly Administered
PRT FUNDING CORP. (S) Under Case No. 99-1204
NEW JERSEY MANAGEMENT, INC. (S)
(S)
Debtors. (S)
(S)
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DEBTORS' FIRST AMENDED JOINT DISCLOSURE STATEMENT
UNDER 11 U.S.C. (S) 1125, AS MODIFIED JULY 7, 1999, IN SUPPORT OF THE
DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
DATED JUNE 21, 1999, AS MODIFIED JULY 7, 1999
- --------------------------------------------------------------------------------
SUMMARY OF THE PLAN
Claims Other than PRT Noteholder Claims. This case is essentially about
restructuring or otherwise satisfying the indebtedness associated with those
certain outstanding $85 million principal amount of 11 5/8% Senior Notes, issued
by PRT, and due April 15, 2004, under that certain indenture, dated as of
February 15, 1994, by and among PRT, as issuer, PCC, as guarantor, and Shawmut
Bank National Association, as Trustee (succeeded by U.S. Bank National
Association), as supplemented by that certain First Supplemental Indenture,
dated as of April 20, 1998, by and among PRT, as issuer, PCC, as guarantor, and
U.S. Bank National Association, as Trustee (such Notes are defined in the Plan
as the "Existing PRT Notes"). All other Claims of Creditors of the Debtors (of
which there are very few) will be unimpaired under the Plan, in that they will
be paid in cash in full on the Effective Date or as soon as they become Allowed
Claims (except for certain intercompany and/or insider Claims). It is
anticipated that the only significant "other" Claims against the Debtors will be
Administrative Claims.
"Cash Take-Out." The Plan contemplates, in principal part, in accordance
with detailed steps that are set forth in Sections 6.1 and 6.2 of the Plan, a
------------ ---
$40,329,375 cash "take-out" of the Existing PRT Notes.
Liquidating Trust. In addition to the $40,329,375 cash consideration that
the Plan contemplates will ultimately be distributed Pro Rata to the holders of
--- ----
Existing PRT Notes, the Plan also contemplates that a Liquidating Trust will be
established, the beneficial interests of which shall be distributed to the
holders of Existing PRT Notes. With the exception of the Tunica Consulting
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Agreement and PCC's partnership interest in PMLP (which are discussed below)
substantially all remaining assets of PCC, PRT and NJMI shall be irrevocably
delivered and conveyed to the Liquidating Trust (or, in the case of cash, to the
Disbursing Agent), for the benefit of the PRT Noteholders. It is anticipated
that the assets of the Liquidating Trust shall consist substantially of the
following: (1) various claims that the Debtors have in those certain
administratively consolidated Chapter 11 bankruptcy cases of Greate Bay Hotel
and Casino, Inc. ("GBHC"), GB Holdings, Inc. ("GBH") and GB Property Funding
Corp. ("GBPF"), pending in the United States Bankruptcy Court for the District
of New Jersey, Camden Division, Case No. 98-10001(JW); and (2) certain warrants
in a newly formed company ("Newco"), which company will be the 79% owner of GBH
(and will also be a 100% direct subsidiary of PPI Corporation ("PPI"), the
current parent company of PCC), and which warrants will only be distributable to
the beneficial interest holders of the Liquidating Trust and will only be
exercisable upon the obtaining of requisite regulatory approvals from the New
Jersey Casino Control Commission. Except for the Newco Warrants (which are
subject to the regulatory approvals just described), the Liquidating Trustee
will liquidate the assets of the Liquidating Trust and will make distributions
to the beneficial interest holders from time to time.
The various detailed steps that will be necessary to implement the Plan are
set forth in Sections 6.1 and 6.2 of the Plan. The objective of the Plan is to
------------ ---
provide the PRT Noteholders with as much as possible of the value that was
originally bargained for in connection with the issuance of the Existing PRT
Notes. The only assets of the Debtors that are not being distributed to the PRT
Noteholders under the Plan are: (1) the cash required to pay the handful of
"other" Claims against the Debtors; and (2) the rights of PCC in the Tunica
Consulting Agreement; and (3) the rights of PCC in regard to the PMLP
Partnership Agreement and, specifically, the Aurora Management Contract. As
explained in further detail hereinbelow, the $40,329,375 proposed to be paid to
the PRT Noteholders is an attempt to provide the PRT Noteholders with the
Debtors' best estimate of the cash value of the Tunica Consulting Agreement and
the Aurora Management Agreement. The Debtors, in fact, believe that the
$40,329,375 cash payment generously values the Tunica Consulting Agreement and
the Aurora Management Agreement, considering all of the risk factors and
variables associated with the cash flows underlying those agreements. The
interests in the Liquidating Trust is intended as consideration for the $22.1
million of Existing PRT Notes that had been supported by cash flow from NJMI
(and the Sands Management Contract).
I.
INTRODUCTION
A. Filing of the Debtors' Chapter 11 Reorganization Cases
The Debtors filed their petitions for relief under Chapter 11 of the
Bankruptcy Code on May 25, 1999 (the "Petition Date"), in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Pursuant to an Order entered by the Bankruptcy Court on the Petition Date, the
Debtors' bankruptcy cases were procedurally consolidated and have been jointly
administered under Case No. 99-1204. Since the Petition Date, the Debtors have
continued to
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operate their businesses and manage their properties and assets as debtors-in-
possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
B. Purpose of Disclosure Statement
This Disclosure Statement is submitted in accordance with section 1125 of
the Bankruptcy Code for the purpose of soliciting acceptances of the Plan from
holders of certain Classes of Claims. The only Creditors whose acceptances of
the Plan are sought are those whose Claims are "impaired" by the Plan, as that
term is defined in section 1124 of the Bankruptcy Code and who are receiving
distributions under the Plan. Holders of Claims that are not "impaired" are
deemed to have accepted the Plan. Holders of Claims or Interests that are not
receiving or retaining any property under the Plan are deemed to have rejected
the Plan.
The Debtors have prepared this Disclosure Statement pursuant to the
provisions of section 1125 of the Bankruptcy Code, which requires that a copy of
the Plan, or a summary thereof, be submitted to all holders of Claims against,
and Interests in, the Debtors, along with a written Disclosure Statement
containing adequate information about the Debtors of a kind, and in sufficient
detail, as far as is reasonably practicable, that would enable a hypothetical,
reasonable investor typical of Creditors and holders of Interests to make an
informed judgment in exercising their right to vote on the Plan. A copy of the
Plan is attached hereto as Exhibit "A" and incorporated herein by reference.
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Section 1125 of the Bankruptcy Code provides, in pertinent part:
(b) An acceptance or rejection of a plan may not be solicited
after the commencement of the case under this title from a holder
of a claim or interest with respect to such claim or interest, unless,
at the time of or before such solicitation, there is transmitted
to such holder the plan or a summary of the plan, and a written
disclosure statement approved, after notice and a hearing, by the
court as containing adequate information. The court may approve a
disclosure statement without a valuation of the debtor or an appraisal
of the debtor's assets.
* * *
(d) Whether a disclosure statement required under subsection
(b) of this section contains adequate information is not governed
by any otherwise applicable nonbankruptcy law, rule, or regulation,
but an agency or official whose duty is to administer or enforce such
a law, rule, or regulation may be heard on the issue of whether a
disclosure statement contains adequate information. Such an agency
or official may not appeal from, or otherwise seek review of, an order
approving a disclosure statement.
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(e) A person that solicits acceptance or rejection of a plan,
in good faith and in compliance with the applicable provisions of
this title, or that participates, in good faith and in compliance
with the applicable provisions of this title, in the offer, issuance,
sale, or purchase of a security, offered or sold under the plan, of
the debtor, of an affiliate participating in a joint plan with the
debtor, or of a newly organized successor to the debtor under the
plan, is not liable, on account of such solicitation or participation,
for violation of any applicable law, rule, or regulation governing
solicitation of acceptance or rejection of a plan or the offer,
issuance, sale, or purchase of securities.
This Disclosure Statement was approved by the Bankruptcy Court on July 7,
1999. Such approval is required by the Bankruptcy Code and does not constitute
a judgment by the Bankruptcy Court as to the desirability of the Plan, or as to
the value or suitability of any consideration offered thereunder. Such approval
does indicate, however, that the Bankruptcy Court has determined that the
Disclosure Statement meets the requirements of section 1125 of the Bankruptcy
Code and contains adequate information to permit the holders of Allowed Claims,
whose acceptance of the Plan is solicited, to make an informed judgment
regarding acceptance or rejection of the Plan.
THE APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE STATEMENT
DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE
PLAN OR A GUARANTEE OF THE ACCURACY OR COMPLETENESS OF THE
INFORMATION CONTAINED HEREIN. THE MATERIAL HEREIN CONTAINED IS
INTENDED SOLELY FOR THE USE OF CREDITORS AND HOLDERS OF INTERESTS
OF THE DEBTORS IN EVALUATING THE PLAN AND VOTING TO ACCEPT OR
REJECT THE PLAN AND, ACCORDINGLY, MAY NOT BE RELIED UPON FOR ANY
PURPOSE OTHER THAN THE DETERMINATION OF HOW TO VOTE ON, OR
WHETHER TO OBJECT TO, THE PLAN. THE DEBTORS' REORGANIZATION
PURSUANT TO THE PLAN IS SUBJECT TO NUMEROUS CONDITIONS AND
VARIABLES AND THERE CAN BE NO ABSOLUTE ASSURANCE THAT THE PLAN,
AS CONTEMPLATED, WILL BE EFFECTUATED.
THE DEBTORS BELIEVE THAT THE PLAN AND THE TREATMENT OF CLAIMS
THEREUNDER IS IN THE BEST INTERESTS OF CREDITORS, AND URGE THAT
YOU VOTE TO ACCEPT THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. A COPY OF THE PLAN IS ATTACHED
HERETO AS EXHIBIT "A" AND SHOULD BE REVIEWED CAREFULLY.
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C. Hearing on Confirmation of the Plan
The Bankruptcy Court has set August 26, 1999, at 2:00 o'clock, p.m. Eastern
Daylight Time, as the time and date for the hearing (the "Confirmation Hearing")
to determine whether the Plan has been accepted by the requisite number of
Creditors and holders of Interests and whether the other requirements for
Confirmation of the Plan have been satisfied. Holders of Claims against or
Interests in the Debtors may vote on the Plan by completing and delivering the
enclosed ballot to Haynes and Boone, L.L.P., 901 Main Street, Suite 3100,
Dallas, Texas 75201-3714 (Attn: Stacey Jernigan), on or before 4:00 p.m. Eastern
Daylight Time on August 20, 1999. If the Plan is rejected by one or more
impaired Classes of creditors or holders of Interests, the Plan, or a
modification thereof, may still be confirmed by the Bankruptcy Court under
section 1129(b) of the Bankruptcy Code (commonly referred to as a "cramdown") if
the Bankruptcy Court determines, among other things, that the Plan does not
discriminate unfairly and is fair and equitable with respect to the rejecting
Class or Classes of creditors or holders of Interests impaired by the Plan. The
procedures and requirements for voting on the Plan are described in more detail
below.
D. Sources of Information
Except as otherwise expressly indicated, the portions of this Disclosure
Statement describing the Debtors, their businesses, properties and management,
and the Plan have been prepared from information furnished by the Debtors.
Certain of the materials contained in this Disclosure Statement are taken
directly from other readily accessible documents or are digests of other
documents. While the Debtors have made every effort to retain the meaning of
such other documents or portions that have been summarized, the Debtors urge
that any reliance on the contents of such other documents should depend on a
thorough review of the documents themselves. In the event of a discrepancy
between this Disclosure Statement and the actual terms of a document, the actual
terms of such document shall apply.
The statements contained in this Disclosure Statement are made as of the
date hereof unless another time is specified, and neither the delivery of this
Disclosure Statement nor any exchange of rights made in connection with it
shall, under any circumstances, create an implication that there has been no
change in the facts set forth herein since the date hereof.
No statements concerning the Debtors, the value of their property, or the
value of any benefit offered to the holder of a Claim or Interest in connection
with the Plan should be relied upon other than as set forth in this Disclosure
Statement. In arriving at your decision, you should not rely on any
representation or inducement made to secure your acceptance or rejection that is
contrary to information contained in this Disclosure Statement, and any such
additional representations or inducements should be reported to counsel for the
Debtors, Robert D. Albergotti, Esq., Haynes and Boone, L.L.P., 901 Main Street,
Suite 3100, Dallas, Texas 75202, (214) 651-5000.
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II.
EXPLANATION OF CHAPTER 11
A. Overview of Chapter 11
Chapter 11 is the principal reorganization chapter of the Bankruptcy Code.
Pursuant to Chapter 11, a debtor-in-possession attempts to reorganize its
business and financial affairs for the benefit of the debtor, its creditors, and
other parties-in-interest.
The commencement of a Chapter 11 case creates an estate comprising all the
legal and equitable interests of the debtor in property as of the date the
petition is filed. Unless the Bankruptcy Court orders the appointment of a
trustee, sections 1101, 1107 and 1108 of the Bankruptcy Code provide that a
Chapter 11 debtor may continue to operate its business and control the assets of
its estate as a "debtor-in-possession," as have the Debtors since the Petition
Date.
The filing of a Chapter 11 petition also triggers the automatic stay, which
is set forth in section 362 of the Bankruptcy Code. The automatic stay
essentially halts all attempts to collect prepetition claims from the debtor or
to otherwise interfere with the debtor's business or its estate.
Formulation of a plan of reorganization is the principal purpose of a
Chapter 11 case. The plan sets forth the means for satisfying the claims of
creditors against and interests of equity security holders in the debtor.
Unless a trustee is appointed, only the debtor may file a plan during the first
120 days of a Chapter 11 case (the "Exclusive Period"). After the Exclusive
Period has expired, a creditor or any other party-in-interest may file a plan,
unless the debtor files a plan within the Exclusive Period. If a debtor does
file a plan within the Exclusive Period, the debtor is given sixty (60)
additional days (the "Solicitation Period") to solicit acceptances of its plan.
Section 1121(d) of the Bankruptcy Code permits the Bankruptcy Court to extend or
reduce the Exclusive Period and the Solicitation Period upon a showing of
adequate "cause."
B. Plan of Reorganization
Although referred to as a plan of reorganization, a plan may provide simply
for an orderly liquidation of a debtor's assets. The Plan does, in fact,
essentially provide for an orderly liquidation of these Debtors' assets, except
for the Tunica Consulting Agreement and PCC's partnership interest in PMLP,
which will revert to the Reorganized PCC on the Effective Date. PRT and NJMI
will no longer exist as of the Effective Date.
After the plan of reorganization has been filed, the holders of claims
against or interests in a debtor are permitted to vote on whether to accept or
reject the plan. Chapter 11 does not require that each holder of a claim
against or interest in a debtor vote in favor of a plan of reorganization in
order for the plan to be confirmed. At a minimum, however, a plan of
reorganization must be accepted by a majority in number and two-thirds in amount
of those claims actually voting from at
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least one class of claims impaired under the plan. The Bankruptcy Code also
defines acceptance of a plan of reorganization by a class of interests (equity
securities) as acceptance by holders of two-thirds of the number of shares
actually voted.
Classes of claims or interests that are not "impaired" under a plan of
reorganization are conclusively presumed to have accepted the plan and, thus,
are not entitled to vote. A class is "impaired" if the legal, equitable, or
contractual rights attaching to the claims or interests of that class are
modified. Modification does not include curing defaults and reinstating
maturity or payment in full in cash. Conversely, classes of claims or interests
that receive or retain no property under a plan of reorganization are
conclusively presumed to have rejected the plan and, thus, are not entitled to
vote. Thus, acceptances of the Plan in this case are being solicited only from
those persons who hold Claims in Classes 1, 2, 5, 7, 10, and 11. Acceptances of
the Plan are not being solicited from those persons who hold Claims in Classes
3, 4, 6, and 8 because such Classes are not impaired and, therefore, persons in
Classes 3, 4, 6, and 8 are deemed to have accepted the Plan. Similarly,
acceptances of the Plan are not being solicited from the holder of Interests in
Class 9 because such Class is not impaired and, therefore, the holder in Class 9
is deemed to have accepted the Plan.
Even if all classes of claims and interests accept a plan of
reorganization, the Bankruptcy Court may nonetheless still deny confirmation.
Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation
and, among other things, the Bankruptcy Code requires that a plan of
reorganization be in the "best interests" of impaired and dissenting creditors
and shareholders and that the plan of reorganization be feasible. The "best
interests" test generally requires that the value of the consideration to be
distributed to impaired and dissenting claimants and interest holders under a
plan may not be less than those parties would receive if that debtor were
liquidated under a hypothetical liquidation occurring under Chapter 7 of the
Bankruptcy Code. A plan of reorganization must also be determined to be
"feasible," which generally requires a finding that there is a reasonable
probability that the debtor will be able to perform the obligations incurred
under the plan of reorganization, and that the debtor will be able to continue
operations without the need for further financial reorganization.
The Bankruptcy Court may confirm a plan of reorganization even though fewer
than all of the classes of impaired claims and interests accept it. In order
for a plan of reorganization to be confirmed despite the rejection of a class of
impaired claims or interests, the proponent of the plan must show, among other
things, that the plan of reorganization does not discriminate unfairly and that
the plan is fair and equitable with respect to each impaired class of claims or
interests that has not accepted the plan of reorganization.
Under section 1129(b) of the Bankruptcy Code, a plan is "fair and
equitable" as to a class if, among other things, the plan provides: (a) that
each holder of a claim included in the rejecting class will receive or retain on
account of its claim property that has a value, as of the effective date of the
plan, equal to the allowed amount of such claim; or (b) that the holder of any
claim or interest that is junior to the claims of such class will not receive or
retain on account of such junior claim or interest any property at all.
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The Bankruptcy Court must further find that the economic terms of the plan
of reorganization meet the specific requirements of section 1129(b) of the
Bankruptcy Code with respect to the particular objecting class. The proponent
of the plan of reorganization must also meet all applicable requirements of
section 1129(a) of the Bankruptcy Code (except section 1129(a)(8) if the
proponent proposes to seek confirmation of the plan under the provisions of
section 1129(b)). These requirements include the requirement that the plan
comply with applicable provisions of the Bankruptcy Code and other applicable
law, that the plan be proposed in good faith, and that at least one impaired
class of creditors has voted to accepted the plan.
III.
VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION
If you are in one of the Classes of Claims whose rights are affected by the
Plan (see "Description of the Plan" in Section VII below), it is important that
-----------
you vote. If you fail to vote, your rights may be jeopardized.
A. "Voting Claims" -- Parties Entitled to Vote
Pursuant to the provisions of section 1126 of the Bankruptcy Code, holders
of Claims or Interests that are (i) allowed, (ii) impaired, and (iii) that are
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receiving or retaining property on account of such Claims or Interests pursuant
- ----------------------------------------------------------------------
to the Plan, are entitled to vote either for or against the Plan (hereinafter,
"Voting Claims" or "Voting Interests"). Accordingly, in this Reorganization
Case, any holder of a Claim or Interest classified in Classes 1, 2, 5, 7, 10 and
11 of this Plan may have a Voting Claim or Interest and should have received a
ballot for voting (with return envelope) in these Disclosure Statement and Plan
materials (hereinafter, "Solicitation Package") since these are the only Classes
consisting of impaired Claims or Interests that are receiving property.
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As referenced in the preceding paragraph, a Claim or Interest must be
allowed to be a Voting Claim or Interest. The Debtors filed schedules in this
- -------
Reorganization Case listing Claims against the Debtors. To the extent a
creditor's Claim was listed in the Debtors' schedules, and was not listed as
disputed, contingent, or unliquidated, it is deemed "allowed." Any creditor
whose Claim was not scheduled, or was listed as disputed, contingent or
unliquidated, must have timely filed a proof of Claim in order to have an
"allowed" Claim. The last day for filing Claims for amounts owed pre-petition
is July 26, 1999 for all Persons other than governmental entities and November
22, 1999 for governmental entities. Absent an objection to that proof of Claim,
it is deemed "allowed." In the event that any proof of Claim is subject to an
objection by the Debtors as of or during the Plan voting period ("Objected-to
Claim"), then, by definition, it is not "allowed," for purposes of section 1126
of the Bankruptcy Code, and is not to be considered a Voting Claim entitled to
cast a ballot. Nevertheless, pursuant to Bankruptcy Rule 3018(a), the holder of
an Objected-to Claim may petition the Bankruptcy Court, after notice and
hearing, to allow the Claim temporarily for voting purposes in an amount which
the Bankruptcy Court deems proper. Allowance of a Claim for voting purposes,
Page 8
<PAGE>
and disallowance for voting purposes, does not necessarily mean that all or a
portion of the Claim will be allowed or disallowed for distribution purposes.
BY ENCLOSING A BALLOT, THE DEBTORS ARE NOT REPRESENTING THAT YOU ARE
ENTITLED TO VOTE ON THE PLAN. BY INCLUDING A CLAIM AMOUNT ON THE BALLOT (IF
APPLICABLE), THE DEBTORS ARE NEITHER ACKNOWLEDGING THAT YOU HAVE AN ALLOWED
CLAIM IN THAT AMOUNT NOR WAIVING ANY RIGHTS THE DEBTORS MAY HAVE TO OBJECT TO
YOUR VOTE OR CLAIM.
If you believe you are a holder of a Claim in an impaired Class under the
Plan and entitled to vote to accept or reject the Plan, but did not receive a
ballot with these materials, please contact Stacey Jernigan, Haynes and Boone,
L.L.P., 901 Main Street, Suite 3100, Dallas, Texas 75202, Telephone (214) 651-
5000, Telecopy (214) 651-5940.
B. Return of Ballots
If you are a holder of a Voting Claim, your vote on the Plan is important.
Except with regard to beneficial holders of debt securities that may be voting
- ------------------------------------------------------------------------------
through a record or nominal holder (see discussion below), completed ballots
- ---------------------------------------------------------
should either be returned in the enclosed envelope or sent to:
Stacey Jernigan, Esq.
Haynes and Boone, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75202-3714
Telephone: (214) 651-5000
Telecopy: (214) 651-5940
1. Voting Record Date (a.k.a. "Record Date--Balloting")
Pursuant to Bankruptcy Rule 3017(d), July 7, 1999, is the "Voting Record
Date" (a.k.a. the "Record Date--Balloting") for determining which creditors of
the Debtors may be entitled to vote to accept or reject the Plan. Only holders
of record of Claims against the Debtors on that date are entitled to cast
ballots.
2. Special Procedures for Ballots of Holders of Debt Securities (i.e.,
----
the Existing PRT Notes)
With regard to debt securities (more specifically, the Existing PRT Notes),
------------------------------
any person who is a "record holder" of a debt security (a person shown as the
registered holder of a security in the registry maintained by a trustee or
registrar of a debt security) on the Voting Record Date --including any bank,
agent, broker or other nominee who holds a debt security of the Debtors in its
name (the "Nominal Holder" or "Nominee") for a beneficial holder or holders --
should receive Solicitation Packages for distribution to the appropriate
beneficial holders. A Nominee shall, upon
Page 9
<PAGE>
receipt of the Solicitation Packages, forward the Solicitation Packages to the
beneficial owners so that such beneficial security holders may vote on the Plan
pursuant to Code section 1126. The Debtors shall provide for reimbursement, as
an administrative expense, of all the reasonable expenses of Nominal Holders in
distributing the Solicitation Packages to said beneficial security holders.
Nominal Holders will have two options for obtaining the votes of beneficial
owners of securities, consistent with usual customary practices for obtaining
the votes of securities held in street name: (i) the Nominal Holder may
prevalidate the individual ballot contained in the Solicitation Package (by
indicating that the record holders of the securities voted, and the appropriate
account numbers through which the beneficial owner's holdings are derived) and
then forward the Solicitation Package to the beneficial owner of the securities,
which beneficial owner will then indicate its acceptance or rejection of the
Plan and otherwise indicate his choices to the extent requested to do so on the
ballot, and then return the individual ballot directly to counsel for the
Debtors, c/o/ Stacey Jernigan, Haynes and Boone, L.L.P., 901 Main Street, Suite
3100, Dallas, Texas 75202-3714, in the return envelope to be provided in the
Solicitation Package, or (ii) the Nominal Holder may forward the Solicitation
Package to the beneficial owner of the securities for voting along with a return
envelope provided by and addressed to the Nominal Holder, with the beneficial
--------------
owner then returning the individual ballot to the Nominal Holder, the Nominal
Holder will subsequently summarize the votes, including, at a minimum, the
number of beneficial holders voting to accept and to reject the Plan who
submitted ballots to the Nominal Holder and the amount of such securities so
voted and shall also disclose any other individual choices made in response to
requests in the ballot, in an affidavit (the "Affidavit of Voting Results"), and
then return the Affidavit of Voting Results to counsel for the Debtors, c/o/
Stacey Jernigan, Haynes and Boone, L.L.P., 901 Main Street, Suite 3100, Dallas,
Texas 75202-3714. By submitting an Affidavit of Voting Results, each such
Nominal Holder certifies that the Affidavit of Voting Results accurately
reflects votes and choices reflected on the ballots received from beneficial
owners holding such securities as of the Voting Record Date.
Pursuant to 28 U.S.C. (S)(S) 157 and 1334, 11 U.S.C. (S) 105, and
Bankruptcy Rule 1007(i) and (j), the Nominees shall maintain the individual
ballots of its beneficial owners and evidence of authority to vote on behalf of
such beneficial owners. No such ballots shall be destroyed or otherwise
disposed of or made unavailable without such action first being approved by
prior order of the Bankruptcy Court.
3. Deadline for Submission of Ballots
BALLOTS MUST BE SUBMITTED TO (a) COUNSEL FOR THE DEBTORS, C/O STACEY
JERNIGAN, HAYNES AND BOONE, L.L.P., 901 MAIN STREET, SUITE 3100,
DALLAS, TEXAS 75202-3714, OR (b) ALTERNATIVELY, IN THE CASE OF DEBT
SECURITIES, TO THE NOMINAL HOLDERS, AND MUST ACTUALLY BE RECEIVED BY
EITHER OF THOSE PERSONS, WHETHER BY MAIL, DELIVERY, OR FACSIMILE, BY
AUGUST 20, 1999, AT 4:00 P.M. EASTERN DAYLIGHT TIME (THE "BALLOT
----------------------------------------------------------------
RETURN DATE"). ANY BALLOTS RECEIVED AFTER THAT TIME WILL NOT BE
-------------
COUNTED. ANY
Page 10
<PAGE>
BALLOT WHICH IS NOT EXECUTED BY A PERSON AUTHORIZED TO SIGN SUCH
BALLOT WILL NOT BE COUNTED. IN THE EVENT THAT BALLOTS ARE SUBMITTED TO
THE NOMINEES, AFFIDAVITS OF VOTING RESULTS REQUIRED OF THE NOMINEES
MUST ACTUALLY BE RECEIVED BY COUNSEL FOR THE DEBTORS, C/O/ STACEY
JERNIGAN, HAYNES AND BOONE, L.L.P., 901 MAIN STREET, SUITE 3100,
DALLAS, TEXAS 75202-3714 WITHIN TWO (2) BUSINESS DAYS AFTER THE BALLOT
RETURN DATE.
IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON THE
PLAN, CONTACT STACEY JERNIGAN, HAYNES AND BOONE, L.L.P., 901 MAIN
STREET, SUITE 3100, DALLAS, TEXAS 75202, TELEPHONE (214) 651-5000,
TELECOPY (214) 651-5940.
THE DEBTORS URGE ALL HOLDERS OF VOTING CLAIMS AND INTERESTS TO VOTE IN
FAVOR OF THE PLAN.
C. Confirmation of Plan
1. Solicitation of Acceptances
The Debtors are soliciting your vote. The cost of any solicitation by the
Debtors will be borne by the Debtors. No other additional compensation shall be
received by any party for any solicitation other than as disclosed to the
Bankruptcy Court.
NO REPRESENTATIONS OR ASSURANCES, IF ANY, CONCERNING THE
--------------------------------------------------------
DEBTORS OR THE PLAN ARE AUTHORIZED BY THE DEBTORS OTHER THAN
------------------------------------------------------------
AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY
----------------------------------------------
REPRESENTATIONS OR INDUCEMENTS MADE BY ANY PERSON TO SECURE
-----------------------------------------------------------
YOUR VOTE THAT ARE OTHER THAN HEREIN CONTAINED SHOULD NOT BE
------------------------------------------------------------
RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH
---------------------------------------------------------
ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED
------------------------------------------------------------
TO COUNSEL FOR THE DEBTORS FOR SUCH ACTION AS MAY BE DEEMED
-----------------------------------------------------------
APPROPRIATE.
-----------
THIS IS A SOLICITATION SOLELY BY THE DEBTORS AND IS NOT A
---------------------------------------------------------
SOLICITATION BY ANY SHAREHOLDER, ATTORNEY, OR ACCOUNTANT FOR
------------------------------------------------------------
THE DEBTORS. THE REPRESENTATIONS, IF ANY, MADE HEREIN ARE
---------------------------------------------------------
THOSE OF THE DEBTORS AND NOT OF SUCH SHAREHOLDERS,
--------------------------------------------------
ATTORNEYS, OR ACCOUNTANTS, EXCEPT AS MAY BE OTHERWISE
-----------------------------------------------------
SPECIFICALLY AND EXPRESSLY INDICATED.
------------------------------------
Page 11
<PAGE>
Under the Bankruptcy Code, a vote for acceptance or rejection of a plan may
not be solicited unless the claimant has received a copy of a disclosure
statement approved by the Bankruptcy Court prior to, or concurrently with, such
solicitation. This solicitation of votes on the Plan is governed by section
1125(b) of the Bankruptcy Code. Violation of section 1125(b) of the Bankruptcy
Code may result in sanctions by the Bankruptcy Court, including disallowance of
any improperly solicited vote.
2. Requirements for Confirmation of the Plan
At the Confirmation Hearing, the Bankruptcy Court shall determine whether
the requirements of section 1129 of the Bankruptcy Code have been satisfied, in
which event the Bankruptcy Court shall enter an Order confirming the Plan. For
the Plan to be confirmed, section 1129 requires that:
(a) The Plan comply with the applicable provisions of the Bankruptcy
Code;
(b) The Debtors have complied with the applicable provisions of the
Bankruptcy Code;
(c) The Plan has been proposed in good faith and not by any means
forbidden by law;
(d) Any payment or distribution made or promised by the Debtors or by
a person issuing securities or acquiring property under the Plan
for services or for costs and expense in connection with the Plan
has been disclosed to the Bankruptcy Court, and any such payment
made before the confirmation of the Plan is reasonable, or if
such payment is to be fixed after confirmation of the Plan, such
payment is subject to the approval of the Bankruptcy Court as
reasonable;
(e) The Debtors have disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as
a director, officer or voting trustee of the Debtors, an
affiliate of the Debtors participating in a joint plan with the
Debtors, or a successor to the Debtors under the Plan; the
appointment to, or continuance in, such office of such individual
is consistent with the interests of Creditors and holders of
Interests and with public policy; and the Debtors have disclosed
the identity of any insider that will be employed or retained by
the Reorganized Debtor and the nature of any compensation for
such insider;
(f) Any government regulatory commission with jurisdiction, after
confirmation of the Plan, over the rates of the Debtors have
approved any rate change provided for in the Plan, or such rate
change is expressly conditioned on such approval;
Page 12
<PAGE>
(g) With respect to each impaired Class of Claims or Interests,
either each holder of a Claim or Interest of the Class has
accepted the Plan or will receive or retain under the Plan on
account of that Claim or Interest property of a value, as of the
Effective Date of the Plan, that is not less than the amount that
such holder would so receive or retain if the Debtors were
liquidated on such date under Chapter 7 of the Bankruptcy Code.
If section 1111(b)(2) of the Bankruptcy Code applies to the
Claims of a Class, each holder of a Claim of that Class will
receive or retain under the Plan on account of that Claim
property of a value, as of the Effective Date, that is not less
than the value of that holder's interest in the Debtor's interest
in the property that secures that Claim;
(h) Each Class of Claims or Interests has either accepted the Plan or
is not impaired under the Plan;
(i) Except to the extent that the holder of a particular
Administrative Claim or Priority Claim has agreed to a different
treatment of its Claim, the Plan provides that Administrative
Claims and Priority Claims shall be paid in full on the Effective
Date or the date on which it is Allowed;
(j) If a Class of Claims or Interests is impaired under the Plan, at
least one Class of Claims or Interests that is impaired under the
Plan has accepted the Plan, determined without including any
acceptance of the Plan by any insider holding a Claim or Interest
of that Class; and
(k) Confirmation of the Plan is not likely to be followed by the
liquidation or the need for further financial reorganization of
the Debtors or any successor to the Debtors under the Plan,
unless such liquidation or reorganization is proposed in the
Plan.
The Debtors believe that the Plan satisfies all of the statutory
requirements of the Bankruptcy Code and that the Plan was proposed in good
faith. The Debtors believe they have complied or will have complied with all
the requirements of the Bankruptcy Code.
3. Acceptances Necessary to Confirm the Plan
Voting on the Plan by each holder of a Claim or Interest is important.
Chapter 11 of the Bankruptcy Code does not require that each holder of a Claim
or Interest vote in favor of the Plan in order for the Court to confirm the
Plan. Generally, to be confirmed under the acceptance provisions of Section
1126(a) of the Bankruptcy Code, the Plan must be accepted by each Class of
Claims that is impaired under the Plan by Class members holding at least two-
thirds (2/3) in dollar amount and more than one-half (1/2) in number of the
Allowed Claims of such Class actually voting in connection with the Plan; in
connection with a Class of Interests, more than two-thirds (2/3) of
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<PAGE>
the shares actually voted must accept to bind that Class. Even if all Classes of
Claims and Interests accept the Plan, the Bankruptcy Court may refuse to confirm
the Plan.
4. Cramdown
In the event that any impaired Class of Claims or Interests does not accept
the Plan, the Bankruptcy Court may still confirm the Plan at the request of the
Debtors if, as to each impaired Class that has not accepted the Plan, the Plan
"does not discriminate unfairly" and is "fair and equitable." A plan of
reorganization does not discriminate unfairly within the meaning of the
Bankruptcy Code if no class receives more than it is legally entitled to receive
for its claims or equity interests. "Fair and equitable" has different meanings
for holders of secured and unsecured claims and equity interests.
With respect to a secured claim, "fair and equitable" means either (i) the
impaired secured creditor retains its liens to the extent of its allowed claim
and receives deferred cash payments at least equal to the allowed amount of its
claims with a present value as of the effective date of the plan at least equal
to the value of such creditor's interest in the property securing its liens,
(ii) property subject to the lien of the impaired secured creditor is sold free
and clear of that lien, with that lien attaching to the proceeds of sale, and
such lien proceeds must be treated in accordance with clauses (i) and (iii)
hereof, or (iii) the impaired secured creditor realizes the "indubitable
equivalent" of its claim under the plan.
With respect to an unsecured claim, "fair and equitable" means either (i)
each impaired creditor receives or retains property of a value equal to the
amount of its allowed claim or (ii) the holders of claims and equity interests
that are junior to the claims of the dissenting class will not receive any
property under the plan.
With respect to equity interests, "fair and equitable" means either (i)
each impaired equity interest receives or retains, on account of that equity
interest, property of a value equal to the greater of the allowed amount of any
fixed liquidation preference to which the holder is entitled, any fixed
redemption price to which the holder is entitled, or the value of the equity
interest; or (ii) the holder of any equity interest that is junior to the equity
interest of that class will not receive or retain under the plan, on account of
that junior equity interest, any property.
In the event one or more Classes of impaired Claims or Interests rejects or
is deemed to have rejected the Plan, the Bankruptcy Court will determine at the
Confirmation Hearing whether the Plan is fair and equitable and does not
discriminate unfairly against any rejecting impaired Class of Claims or
Interests.
The Debtors believe that the Plan does not discriminate unfairly and is
fair and equitable with respect to each Class of Claims and Interests that is
impaired.
Page 14
<PAGE>
IV.
BACKGROUND OF THE DEBTORS
A. Nature of the Debtors' Business: Overview of Assets and Liabilities
The three Debtors PCC, PRT, and NJMI are each indirect, wholly owned
subsidiaries of Greate Bay Casino Corporation ("GBCC"), a publicly held
corporation. Additionally, PCC is the 100% direct parent of each of PRT and
NJMI. A chart reflecting the corporate organizational structure of the Debtors
and certain related companies (which related companies are not debtors in these
Chapter 11 proceedings) is attached hereto at Appendix A.
----------
1. PRT: The Primary Obligor on the Existing PRT Notes. PRT is not an
operating company. PRT is a corporation that was organized under the laws of
Delaware, in September of 1993, as a special purpose subsidiary of PCC. PRT was
formed for the purpose of borrowing funds through the issuance of the 11 5/8%
Senior Notes (the "Existing PRT Notes") in the principal amount of $85,000,000
for the benefit of PCC and certain of its subsidiaries. PRT's obligations under
the Existing PRT Notes are unconditionally guaranteed as to the timely payment
of principal, premium, if any, and interest by PCC. PRT has only one other
known liability (other than the liabilities associated with the Existing PRT
Notes): a $15 million principal amount intercompany note payable to its
ultimate parent GBCC (which GBCC has agreed to forgive pursuant to the Plan for
$1000 cash consideration). PRT has no assets other than (a) certain
intercompany receivables owed to it by PCC (a $62.9 million principal amount
note, a $5 million principal amount note, and $1.117 million principal amount
advance), NJMI (a $22.1 million principal amount note), and GBHC (a $10 million
principal amount note); and (b) a negligible amount of cash.
2. PCC: The Guarantor of the Existing PRT Notes and also "Holding"
Company for Certain Other Entities. PCC is a corporation that was organized
under the laws of Delaware and is, for the most part, a "holding company." In
other words, PCC's primary assets are its stock ownership or other ownership
interests in various entities. For example, PCC is the 100% stock owner of each
of PRT and NJMI. PCC is also the 79% stock owner of GBH, which is the 100%
owner of GBHC, which owns and operates the Sands Hotel and Casino located in
Atlantic City, New Jersey (the "Sands"). The Sands was formerly managed by
NJMI, which, as previously indicated, is a wholly owned subsidiary of PCC. In
addition, PCC is also the sole 99% limited partner of PMLP, a limited
partnership which manages, pursuant to what is referred to as the "Aurora
Management Contract," a river boat gaming and entertainment facility located in
Aurora, Illinois (the "Aurora Casino") owned by Hollywood Casino-Aurora, Inc.
("HCA"), a wholly owned direct subsidiary of Hollywood Casino Corporation
("HCC"). PCC is also party to a consulting agreement with HWCC-Tunica, Inc.
("HWCC-Tunica"), a wholly owned subsidiary of HCC, which owns and operates a
gaming and lodging facility in Tunica County, Mississippi ( the "Tunica
Casino"). In addition, PCC owns the following assets: (a) $834,223.67 of cash
(as of the Petition Date); (b) a $5 million principal amount note receivable on
which GBHC is the obligor; and (c) a $1,279.58 receivable on which GBH is the
obligor.
Page 15
<PAGE>
PCC's liabilities, in addition to its guarantee indebtedness associated
with the Existing PRT Notes, consist of the following: (a) a $62.9 million
principal amount note payable to PRT, (b) a $5 million principal amount note
payable to PRT, (c) a $1.117 million principal amount advance payable to PRT,
and (d) a $5.050 million principal amount payable to NJMI. All of this inter-
company indebtedness on which PCC is obligated is being settled pursuant to the
Plan (by virtue of the PRT-NJMI Merger, followed by the NJMI Liquidation),
except that the $62.9 Million Note Payable to PRT, which is being discharged, as
of the Effective Date, by virtue of PCC's obligation to pay to the Disbursing
Agent (for the benefit of the PRT Noteholders), on the day after the Effective
Date, the $40,329,375 cash consideration, in full satisfaction of PRT's primary
obligation on account of $62.9 million principal amount of the Existing PRT
Notes (and the interest arrearages associated therewith).
3. NJMI: Former Manager of Sands now Defunct. NJMI is a corporation that
was organized under the laws of New Jersey and is now no longer operating in any
manner. NJMI is licensed by the New Jersey Casino Control Commission to operate
a casino and previously managed the Sands, pursuant to that certain management
services agreement between GBHC and NJMI, dated as of August 19, 1987, as
amended by the First Amendment dated February 7, 1994, with an initial term of
99 years ("Sands Management Contract"). The Sands Management Contract was
"rejected," pursuant to section 365 of the Bankruptcy Code, in the GBHC
bankruptcy case, pursuant to that certain Order Approving Rejection of Debtor's
Executory Management Services Agreement with NJMI and Fixing Claims Bar Date in
Connection Therewith, dated September 28, 1998. NJMI's only assets are certain
cash on hand in the approximate amount of $30,165.05, a note receivable from PCC
in the principal amount of $5.050 Million, a $210,700 receivable from GBHC (on
account of unpaid, postpetition, interim management fees earned by NJMI in
1998), and a $144,930.24 account receivable from GBHC (amount is gross) on
account of unpaid and accrued prepetition management fees under the Sands
Management Contract. NJMI's liabilities consist of a $22.1 Million principal
amount note payable to PRT and a $277,576 indebtedness to GBCC.
Note that debt service on the Existing PRT Notes was historically funded
primarily (a) from management fees earned through NJMI from the Sands Management
Contract, (b) from distributions made to PCC by PMLP (resulting from fees
generated under the Aurora Management Contract), and (c) from consulting fees
earned in respect of the Tunica Consulting Agreement.
PCC, PRT and NJMI each have corporate offices at Two Galleria Tower, Suite
2200, 13455 Noel Rd., LB 48, Dallas, Texas 75240.
B. Information on Related Entities
1. Sands Debtors. On January 5, 1998, GBHC, GBH and GBPF, a wholly owned
subsidiary of GBH, each filed petitions for relief under Chapter 11 in the
United States Bankruptcy Court for the District of New Jersey, Camden Division
(the "New Jersey Bankruptcy Court"). The cases are jointly administered under
Case No. 98-10001(JW). Each company continues to operate
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<PAGE>
as a debtor in possession. A joint plan of reorganization was filed June 1, 1999
in those cases (and other plans or modifications may be filed). A disclosure
statement hearing is set for August 2, 1999. GBHC has approximately $200 million
of secured indebtedness, which may be under-secured (hereinafter, the "$185
Million Senior Secured Notes" or the "Sands Debt"), has significant unsecured
indebtedness, has significant operations and assets, and has many complex issues
with which to deal before reorganizing. Although PCC is the 79% equity owner of
GBH, PCC no longer has any meaningful control over GBH, GBHC, and GBPF, by
virtue of: (a) that certain agreement dated June 27, 1998, among GBHC, GBH,
GBPF, Advanced Casino Systems International, Inc., on the one hand, and GBCC,
NJMI, PCC, PRT, PPI, Advanced Casino Systems Corporation and HCC, on the other,
and approved in the Sands Bankruptcy on July 7, 1998, and by the New Jersey
Casino Control Corporation on July 8, 1998, that settled certain issues that
arose in the Sands Bankruptcy with regard to a motion by GBHC to reject the
Sands Management Contract (the "Interim Sands Agreement"); and (b) that certain
agreement dated September 2, 1998, among GBHC, GBH, GBPF, and their
subsidiaries, on the one hand, and GBCC, PHC Acquisition Corp., Lieber Check
Cashing, LLC, Jack E. Pratt, William D. Pratt, Edward T. Pratt, Jr., and HCC, on
the other, and approved in the Sands Bankruptcy on September 11, 1998, that
settled Adversary Proceeding No. 98-01220 in the Sands Bankruptcy (the
"September 1998 Settlement Agreement"). Note that before the September 1998
Settlement Agreement was entered into, PCC was the 100% owner of GBH. By virtue
of the September 1998 Settlement Agreement, an entity known as PBV, Inc. (which
is 33 1/3% owned by each of Jack E. Pratt, Edward T. Pratt, Jr., and William D.
Pratt) now owns 21% of GBH.
Because PCC no longer has any meaningful control over GBH, GBHC and GBPF,
and because of the speculative value of PCC's 79% equity ownership interest in
GBH, and because of the unique issues confronting GBHC, GBH and GBPF in their
reorganization cases that are wholly unrelated to PCC, PRT and NJMI, PCC, PRT
and NJMI did not believe it would be either necessary or appropriate to file
their Chapter 11 cases in the New Jersey Bankruptcy Court or ask that their
cases be administered jointly with the GBHC, GBH and GBPF cases. Neither PRT,
as primary obligor on the Existing PRT Notes, PCC, as guarantor of the Existing
PRT Notes, nor NJMI, as former holder of the Sands Management Contract, is
obligated on the Sands Debt. Similarly, neither GBHC (owner of the Sands), GBPF
(obligor on the Sands Debt), nor GBH (owner of 100% of the GBHC common stock) is
an obligor on the Existing PRT Notes. Fundamentally, the holders of the Sands
Debt look to revenues from operations at the Sands for repayment of the Sands
Debt; and the holders of the Existing PRT Notes look to revenues from the Aurora
Management Contract and the Tunica Consulting Agreement (and, formerly -- but no
longer, the Sands Management Contract) for payment of the Existing PRT Notes.
2. Ultimate Corporate Parent. At the time that the Existing PRT
Notes and the Sands Debt originated, HCC was the parent corporation and GBCC
(then known as Pratt Hotel Corporation) was HCC's direct 80%-owned subsidiary.
GBCC owned (indirectly) the primary obligors on both the Sands Debt (GBPF) and
the Existing PRT Notes (PRT). In late 1996, HCC spun off its 80% interest in
GBCC to the HCC shareholders and Pratt Hotel Corporation changed its name to
GBCC.
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<PAGE>
For several years prior to the spin-off, the HCC group of companies
had engaged in a variety of hotel and gaming acquisitions, developments and, in
some cases, divestitures. As a result of these activities, the corporate
structure of, and the intercorporate finances among, the HCC group of companies
became somewhat complex. None of HCC's entities with business activities
outside of Atlantic City, however, were ever obligated on either the Existing
PRT Notes or the Sands Debt.
Over the past several years, GBCC has divested all of its hotel
properties except for the Sands and currently conducts or has interests in two
remaining operations: (i) Advanced Casino Systems Company (an indirect, wholly-
owned subsidiary of GBCC, not liable for either the Existing PRT Notes or the
Sands Debt), which is engaged in the gaming software business, and (ii) the
Sands operations (which, at this point, only involves GBCC as indirect 79% owner
of the Sands and no involvement with management or operations). There are,
however, quite a number of intercorporate obligations among and between GBCC and
its subsidiaries.
C. Recap: Assets and Liabilities of the Three Debtors as of Petition Date.
1. PCC
---
Assets:
-------
. Cash - $ 834,223.67.
----
. Note(s)/Account(s) Receivable -- $5M (principal amount) due from GBHC;
-----------------------------
$1,279.58 receivable due from GBH. Value: Unknown.
. PMLP Limited Partnership Interest -- 99% limited partnership interest
---------------------------------
in PMLP, which is the owner of the Aurora Management Contract which
yielded $6.9M in management fees in 1997 and $8.9M in management fees
in 1998. Value: $ 16.2M.
. Tunica Consulting Agreement -- which yielded $1.2M in management fees
---------------------------
in each of 1997 and 1998. Terminates December 31, 2003. Value: $2.85M.
. GBH Stock -- 79% of the stock of GBH, which is the parent company of
---------
GBHC and GBPF; GBHC owns the Sands Casino. Value: Unknown.
. PRT Stock -- 100% of the stock of PRT. Value: $0.
---------
. NJMI Stock -- 100% of the stock of NJMI, which was the owner of the
-----------
Sands Management Contract, which yielded $4.6M and $5.4M in management
fees in 1996 and 1997, respectively, but has been rejected in the GBHC
bankruptcy proceedings. Value: $0.
Page 18
<PAGE>
Liabilities:
------------
. Guarantee Indebtedness on Existing PRT Notes -- $85M principal amount.
. Note(s)/Other Payables to PRT -- $62.9 million principal amount; $5
million principal amount; $1.117 million principal amount.
. Payable to NJMI -- $5.050 million principal amount.
2. PRT
---
Assets:
-------
. Cash -- $ 1000.
----
. Note(s) Receivable -- $10M (principal amount) due from GBHC; $22.1M
------------------
(principal amount) due from NJMI; $62.9 million (principal amount) due
from PCC; $5M (principal amount) due from PCC; $1.117M (principal
amount) due from PCC. Value: Unknown.
Liabilities:
------------
. Existing PRT Notes -- $85M principal amount.
. Note(s) Payable to GBCC - $15M principal amount.
3. NJMI
----
Assets:
-------
. Cash -- $30,165.05.
----
. Note(s)/Account(s) Receivable -- $5.050M (principal amount) due from
-----------------------------
PCC; $210,700 due from GBHC on account of postpetition interim
management fees; $144,930.24 due from GBHC. Value: Unknown.
Liabilities:
------------
. Note Payable to PRT - $22.1M principal amount.
. Payable to GBCC -- $277,576.
Page 19
<PAGE>
Attached at Appendix B are (A) the audited balance sheets and statements of
----------
operations, changes in stockholders' equity, and cash flow as of and for the
fiscal years ended December 31, 1998 and December 31, 1997 contained in Forms
10-K filed by PCC and PRT with the Securities and Exchange Commission (the
"SEC"), which have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby (except as noted therein), and are consistent in all material
respects with the books and records of PCC, PRT and NJMI, and (B) the audited
balance sheet, statement of operations and cash flow as of and for the fiscal
quarter ended March 31, 1999 contained in Form 10-Q filed by PCC with the SEC,
on a consolidated basis, which have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period covered thereby (except as noted therein), and are consistent in all
material respects with the books and records of PCC. The auditors for the
Debtors are Deloitte & Touche.
D. Existing and Potential Litigation/Proceedings
The only existing and/or potential litigation/proceedings (in a non-
bankruptcy context) of which the Debtors are aware, that would involve any of
the three Debtors are as follows:
1. Estate of Ramon Ortiz v. Greate Bay Hotel and Casino, Inc., et al. and
New Jersey Management, Inc., Docket No. ATL-L-3428-98 (Superior Court of New
Jersey, Atlantic City). This is a wrongful death suit involving a minor who was
allegedly served alcohol at the Sands Casino, who allegedly became visibly
intoxicated, and who subsequently was killed in an automobile accident. The
minor's estate has sued both GBHC and NJMI (NJMI has apparently been named as a
defendant because, at the time of the incident, the Sands Management Contract
was still in effect). NJMI has an agreement in principal with the plaintiff to
settle any potential claims the plaintiff has against NJMI for $5,000 cash (and
a motion for approval of this compromise agreement is pending in the Bankruptcy
Court). Thus, NJMI believes this litigation could be formally settled and
dismissed imminently. In any event, NJMI has liability insurance coverage that
it expects will extend to any claim allowed to the plaintiff, with regard to
which coverage a $50,000 deductible applies. Note also that this litigation is
now automatically stayed pursuant to section 362(a) of the Bankruptcy Code.
2. In the Matter of the Petition of New Jersey Management, Inc. and
Greate Bay Casino Corporation for Approval of Divestiture of Casino License and
Relief from Operating Conditions, (State of New Jersey Casino Control
Commission, Petition Reference No. 1209905). Regulatory proceedings involving
NJMI pursuant to which the petitioners are requesting to be relieved of certain
reporting conditions and restrictions that seem no longer necessary in light of
the termination of the Sands Management Contract as to NJMI. No claims are
implicated by this proceeding. Additionally, the automatic stay of section 362
does not apply.
3. In the Matter of the Petition of Greate Bay Holdings, LLC For Approval
as a Holding Company of GB Holdings, Inc., State of New Jersey Casino Control
Commission, Petition Reference
Page 20
<PAGE>
No. 1659904. Regulatory proceedings in which regulatory approval is sought for
qualification of Newco to be an indirect holder of 79% of the Sands.
4. In the Matter of the Petition of the Official Committee of Unsecured
Creditors of Pratt Casino Corporation for a Waiver of the Qualification
Requirement for Certain Security Holders of a Holding Company Pursuant to
N.J.S.A. 5:12-85 (d) and Certain Other Relief, (State of New Jersey Casino
Control Commission, Petition Reference No. 1659906). Regulatory proceedings in
which the Creditors Committee requests regulatory approval of aspects of the
Financial Restructuring (embodied in the Plan) that may require New Jersey
Casino Control Commission regulatory approval. No claims are implicated by
this proceeding. Additionally, the automatic stay of section 362 does not
apply.
GBHC, the holder of the New Jersey casino license that is implicated in
items 3 and 4 above, has advised the Debtors that it intends to oppose certain
of the relief requested from the New Jersey Casino Control Commission in items 3
and 4 above. GBHC contends as follows (and has requested that the following
language be added to this Disclosure Statement, which language is neither that
of the Debtors' nor necessarily agreed with by the Debtors):
. With respect to the NJMI management claim, njmi was permitted to
receive a share of casino revenue by N.J.S.A. 5:12-104(a)(4).
However, the agreement to transfer that claim for casino revenue
from NJMI and the PRT Noteholders falls within the general
prohibition against agreements sharing casino revenue of N.J.S.A.
5:12-104(a)(1).
. With respect to the request to transfer the Subordinated Notes
issued by the Sands, the PRT Noteholders only address the
qualification requirement for financial sources at N.J.S.A. 5:12-
84(b) and do not address the qualification requirement as
qualifiers at N.J.S.A. 5:12-85(c). The Subordinated Notes fit the
definition of securities at N.J.S.A. 5:12-44. If the Subordinated
Notes were transferred to the PRT Noteholders, the PRT
Noteholders would be security holders of a casino licensee and
would be required to qualify as qualifiers of a casino licensee
by N.J.S.A. 5:12-85(c). The provision for waiver of
qualifications of security holders lacking control under N.J.S.A.
5:12-85(d) only applies to publicly traded holding companies.
Since the Subordinated Notes are securities of the Sands, the
foregoing waiver provisions do not apply. This issue did not
arise when the Subordinated Notes were issued as each holder was
qualified.
. With respect to qualification requirement as financial sources,
which the PRT Noteholders discuss, N.J.S.A. 5:12-84(b) provides
for a waiver of qualification as financial sources for a bank or
licensed lending institution that is exempt from qualification
under N.J.S.A. 5:12-85(c), or N.J.S.A. 5:12-85(d), or as an
institutional investor under N.J.S.A. 5:12-85(f). N.J.S.A. 5:12-
85(c) provides for qualification of a person with control in
Page 21
<PAGE>
a provision separate from the provision requiring qualification
as a qualifier for a security holder of a casino licensee. The
qualification requirement for a person with control is then
subject to an exception that exempts a bank or licensed lending
institution that makes a loan, holds a mortgage, or acquires a
lien in the ordinary course of business. this is the exception in
N.J.S.A. 5:12-85(c) that N.J.S.A. 5:12-84(b) incorporates to
except a bank or licensed lending institution from qualification
as a financial source. The only thing added by N.J.S.A. 5:12-
85(c) to qualify for the exception that one would not find in the
text of N.J.S.A. 5:12-84(b) is the ordinary course of business
requirement for the loan, mortgage or other lien. The PRT
Noteholders do not qualify for that exception because the PRT
Noteholders Petition does not present any evidence that they are
banks or other licensed lending institutions and because they
could not satisfy the ordinary course requirement. They are
seeking to purchase claims so that they can engage in litigation
with GBHC.
. Further, given the fact that they are purchasing claims and not
making loans in the ordinary course, there is reason to believe
that the financial source requirement for qualification of
N.J.S.A. 5:12-84(b) does not even apply. In either event, that
still leaves the obligation to qualify as qualifiers of a casino
licensee in N.J.S.A. 5:12-85(c).
. Lastly, the waiver of qualification as financial sources provided
by N.J.S.A. 5:12-85(d) and (f), the latter for institutional
investors, does not apply because each of those sections deals
with publicly traded holding companies. Here, we are dealing with
debt securities of the casino licensee.
. With respect to the warrants to acquire 62% of the membership
interests in GBHLLC, GBHLLC is a holding company and N.J.S.A.
5:12-84(d) and 85(f) would provide a basis for waiver but the PRT
Noteholders Petition states that the warrants will not be
registered and, therefore, there is no basis to claim that GBHLLC
will be a publicly traded holding company. Because the waiver
provisions of those sections apply only to publicly traded
holding companies, there is no basis for a waiver of
qualifications.
As a result, the PRT Noteholders request that the Commission
defer a ruling with respect to their obligation to qualify as the
beneficial holders of the warrants and argue lack of control as a
predicate. However, the lack of control is a requirement in
addition to publicly traded securities for a waiver under either
of the foregoing sections. In substance, the request to defer a
ruling on qualifications is really a request for waiver with the
publicly traded condition absent.
Page 22
<PAGE>
There is no reason for the Commission to rule on the warrants
issue and create the precedent sought by the PRT Noteholders
because the PRT Noteholders say in their petition that it is
unlikely that the warrants will ever be exercised because the
equity will probably not get a distribution. That concession
makes the whole issue not ripe for decision by the COMMISSION.
. All of the qualification requirements for the PRT Noteholders
apply equally to the Trustee of the LIquidating Trust.
5. Sands Bankruptcy. GBHC has filed that certain Notice of Debtor's
First Omnibus Objection to Claims Pursuant to 11 U.S.C. (S) 502(a) and Rules
3007 and 9014 of the Rules of Bankruptcy Procedure, in which it has objected to,
among other claims, the NJMI $144,930.24 proof of claim (on account of unpaid,
prepetition management fees for the 12/1/97 -- 1/4/98 time period - amount is
gross). A trial is set on the matter for September 28, 1999. The grounds for
the objection are unclear at this time. GBHC has merely alleged in pleadings
that the amounts sought by NJMI "were not earned by the creditor" or GBHC "has
multiple defenses and setoffs." GBHC has also filed that certain Notice of
Debtor's Third Omnibus Objection to Claims Pursuant to 11 U.S.C. (S) 502(a) and
Rules 3007 and 9014 of the Rules of Bankruptcy Procedure, in which it has
objected to, among other claims, the PCC $1,279.58 proof of claim (on account of
routine corporate expenses paid prepetition on behalf of GBH). The Debtors
cannot at this point in time make any predictions about the likely outcome of
this litigation. The Debtors, because of certain mutual releases that were
executed by GBHC, GBH and GBPF in connection with the Interim Sands Agreement
and the September 1998 Settlement Agreement, do not anticipate any further
litigation in the Sands Bankruptcy, other than possibly other proof of claim
----------------------------------------
objections with respect to the other proofs of claim that the Debtors have filed
- --------------------------------------------------------------------------------
in the Sands Bankruptcy. The other proofs of claim that the Debtors have
- -----------------------
pending in the Sands Bankruptcy are as follows:
PCC $ 5,728,000.00 Based upon the $5 Million GBHC
Subordinated Note
PCC N/A Proof of interest to reflect PCC's 100%
(now 79%) ownership interest in GBH
PRT $12,754,375.00 Based upon the $10 Million GBHC
Subordinated Note
Note that GBHC/GBH have preserved in the September 1998 Settlement
Agreement any "ordinary course of business" type defenses, setoffs or
counterclaims that they might have with regard to the above proofs of claim.
GBHC has specifically conveyed that it may allege that it has offsets against
the PCC and PRT notes receivable on account of a claim in the approximate amount
of $10 million that GBHC allegedly holds against PCPI Funding Corp., a defunct
subsidiary of GBCC, in respect of that certain advance from GBHC to PCPI Funding
Corp., on or about September 27, 1990 in the amount of $6.6 million, plus
accrued interest.
Page 23
<PAGE>
NJMI also asserts a $210,700 administrative claim (the "Deferred Fee") in
the Sands Bankruptcy.
E. Preference and Other Avoidance Litigation.
1. Generally. During the ninety (90) days prior to the Petition Date,
the Debtors made various payments and other transfers to creditors on account of
antecedent debts. In addition, during the one-year period prior to the filing
date, the Debtors made certain transfers to, or for the benefit of, certain
"insider" creditors. While most of those payments were made in the ordinary
course of the Debtors' business, some of those payments may be subject to
avoidance and recovery by the Debtors' estates as preferential and/or fraudulent
transfers pursuant to sections 329, 544, 547, 548 and 550 of the Bankruptcy
Code. Pursuant to Section 1123(b)(3)(B) of the Code, except as described in
Section IV.E.2. below, and in the other releases expressly set forth in the
- ---------------
Plan, the Debtors and Reorganized PCC, on behalf of themselves and holders of
Allowed Claims and Allowed Interests, shall retain all Causes of Action which
the Debtors had or had power to assert immediately prior to Confirmation of the
Plan, including, without limitation, actions for the avoidance and recovery
pursuant to Section 329 of the Code or Section 550 of the Code of transfers
avoidable by reason of Sections 544, 545, 547, 548, 549 or 553(b) of the Code,
and may commence or continue, in any appropriate court or tribunal, any suit or
other proceeding for the enforcement of such Causes of Action. All Causes of
Action shall remain the property of the Debtors and Reorganized PCC. With
respect to any potential avoidance actions, in determining whether to pursue
legal remedies for the avoidance and recovery of any transfers, the likelihood
of successful recovery must be weighed against the legal fees and other expenses
that would likely be incurred by the Debtors. Inasmuch as the Debtors'
investigation of such payments is in its initial phase, the Debtors are unable
to provide any meaningful estimate of the total amount that could be recovered.
The Debtors are unaware of any statutory liens, fraudulent conveyance actions,
or avoidable setoffs. As described above, the Plan contemplates that all non-
insider creditors except the PRT Noteholders will be paid in full. Accordingly,
recovery of preferences from creditors will provide no benefit to the estates.
Thus, no preference actions are anticipated.
2. Certain Released Avoidance Actions. If Class 1 accepts the Plan in
accordance with Section 1126(c) of the Code, then, upon the day after the
Effective Date, Class 1 and the holders of Claims in Class 1, the Existing
Indenture Trustee, and their respective officers, directors, employees, members
and agents and any attorneys and accountants employed by any of them or acting
on their behalves shall be released from any and all claims, obligations, suits,
judgments, damages, rights, causes of action and liabilities whatsoever
(including, without limitation, those arising under the Code), whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity
or otherwise, based in whole or in part on any act, omission, transaction, event
or other occurrence taking place before, on or after the Petition Date up to the
day after the Effective Date, in any way relating to their Claims and their
activities in the Reorganization Case, as further set forth in Section 6.11(B)
---------------
of the Plan. Further, upon the Effective Date, the Debtors shall be deemed to
have released all causes of action under section 550 of the Bankruptcy Code to
avoid and recover the transfer of funds to GBHC that occurred on or about April
27, 1999, pursuant to Section
Page 24
<PAGE>
19 of the Voting Agreement, or any subsequent transfer thereof. Further, upon
the day after the Effective Date, the Debtors shall be deemed to have released
all causes of action under section 550 of the Bankruptcy Code to avoid and
recover prepetition transfers to any of the Indenture Trustee, the Consenting
Holders, and any of their attorneys and respective transferees.
Except as set forth in Section IV.E.2 hereinabove, any creditor that
--------------
received a pre-petition payment from the debtors after February 24, 1999
or, in the case of insiders, May 26, 1998, is hereby notified that the
Debtors and/or Reorganized PCC may sue it to recover those payments if they
constitute preferences under section 547 of the Bankruptcy Code.
V.
EVENTS LEADING TO BANKRUPTCY
On April 28, 1999, the GBCC Group, HCC and the Consenting Holders
(constituting holders of $82.823 million of the $85 million of Existing PRT
Notes) entered into a Voting Agreement (a copy of which is attached hereto as
Appendix C). Under the terms of the Voting Agreement, the parties agreed to a
- ----------
Financial Restructuring (therein so called) of the Existing PRT Notes. The
terms of the Plan incorporate what was agreed to in the Voting Agreement, and
this Disclosure Statement solicits acceptance by all creditors of PCC, PRT and
NJMI of the Financial Restructuring and Plan. The Voting Agreement was entered
into to facilitate the implementation of the Financial Restructuring and in
consideration of the agreement of PCC, PRT, and NJMI to commence chapter 11
proceedings and to file and seek confirmation of a plan which would incorporate
the terms contained in the Voting Agreement.
The need to enter into a Financial Restructuring of the Existing PRT Notes
arose due to PRT's default under the terms of the Existing Indenture. The
filing of the Sands Bankruptcy constituted a technical event of default under
the Existing Indenture. Moreover, PRT missed certain semi-annual interest
payments due on the Existing PRT Notes after the filing of the Sands Bankruptcy.
Additionally, debt service on the Existing PRT Notes was historically funded
primarily (a) from management fees earned through NJMI from the Sands Management
Contract, (b) from distributions made to PCC by PMLP (resulting from fees
generated under the Aurora Management Contract), and (c) from consulting fees
earned in respect of the Tunica Consulting Agreement. The Sands Bankruptcy, and
the subsequent rejection of the Sands Management Contract, eliminated one of the
major sources of funds to meet debt service on the Existing PRT Notes.
Additionally, the Illinois Gaming Board ("IGB") has expressed some concern
about the long-term continuation of the Aurora Management Contract for various
reasons. More specifically, PMLP is required to maintain a supplier's license
with respect to the management services it provides to the Aurora Casino.
PMLP's supplier's license expired in December 1998 and was renewed by the IGB
through December 1999 with the condition that PMLP provide justification for
future renewal.
Page 25
<PAGE>
The IGB has expressed its opposition to the licensing of holders of management
services contracts with percentage-based fees for Illinois riverboat gaming
operations. The Aurora Management Contract is currently the only percentage-
based management contract between a supplier and a riverboat gaming operation.
PCC believes that failure to consummate a plan of reorganization which will
facilitate termination of the Aurora Management Contract may cause the IGB to
deny renewal of PMLP's supplier's license at December 31, 1999 and consequently
render PCC's limited partnership interest worthless.
For all of the above reasons, the Chapter 11 cases of PCC, PRT, and NJMI
were filed.
VI.
POST-BANKRUPTCY OPERATIONS
AND SIGNIFICANT EVENTS
A. Post-Bankruptcy Operations
Since the Debtors filed their voluntary petitions on May 25, 1999, the
Debtors have continued to operate in the normal course of business. The Debtors
have not made any significant purchases or sales of assets, and the Debtors are
paying postpetition obligations (except for those subject to Court approval) as
they become due.
B. Significant Orders Entered During the Case
1. First Day Orders
On the Petition Date, the Debtors filed a number of motions designed to
allow them to continue their business in the ordinary course without unnecessary
disruption as a result of the bankruptcy filings. The Court entered orders
that, among other things, allowed the Debtors' cases to be jointly administered,
allowed the Debtors to maintain their bank accounts and cash management system,
set a shortened bar date for the filing of proofs of claim, and authorized the
Debtors to employ certain professionals including the law firms of Haynes and
Boone, L.L.P. ("H&B"), Klehr, Harrison, Harvey, Branzburg & Ellers ("Klehr"),
and Brown, Michael & Carroll ("BMC").
2. Official Unsecured Creditors Committee
An Official Unsecured Creditors Committee ("Creditors Committee") was
appointed by the Office of the United States Trustee in this Case on June 4,
1999. The Creditors Committee is composed of the following:
(1) Donaldson, Lufkin & Jenrette Securities Corporation
Page 26
<PAGE>
(2) SunAmerica Inc.
(3) Putnam Investment Management, Inc., Putnam Fiduciary Trust Company,
and The Putnam Advisory Company, Inc., acting collectively, for
certain advisory affiliates
(4) U.S. Bank, National Association
C. Professionals' Fees and Expenses
1. Professionals employed by the Debtors
H&B was employed as co-counsel to the Debtors pursuant to Court Order
entered May 26, 1999. H&B was retained to serve as the Debtors' bankruptcy and
general counsel. Prior to the Petition Date, the Debtors paid H&B a $75,000.00
retainer, which H&B currently holds.
Klehr was employed as co-counsel to the Debtors pursuant to Court Order
entered May 26, 1999. Klehr was retained to perform general bankruptcy services
for the Debtors. Prior to the Petition Date, the Debtors paid Klehr a $25,000
retainer, which Klehr currently holds.
BMC was employed as special New Jersey regulatory counsel to the Debtors
pursuant to Court Order entered May 26, 1999. BMC was retained to perform
certain regulatory work for the Debtors in New Jersey, relating to the obtaining
of necessary regulatory approvals in connection with the Financial
Restructuring. Prior to the Petition Date, the Debtors paid BMC a $2,000
retainer, which BMC currently holds.
The Exhibit B attached to the Voting Agreement (which Voting Agreement is
---------
attached hereto as Appendix C) provides an estimate of what the fees and
----------
expenses of the various Debtor professionals (as well as other Chapter 11 fees
and expenses of the debtors) might be. H&B, Klehr, and BMC will file first and
final fee applications at the end of the Chapter 11 cases requesting
reimbursement of their fees and expenses incurred during the Chapter 11 cases.
2. Professionals employed by the Creditors Committee
Ropes and Gray ("R&G") and their local counsel Pepper Hamilton LLP were
employed by an informal bondholder committee prior to the Petition Date to
provide general legal services in connection with the Financial Restructuring
and the Debtors' bankruptcy cases. Similarly, the law firm of Fox, Rothschild,
O'Brien & Frankel, LLP ("Fox") was engaged on behalf of the informal bondholders
committee to act as special regulatory counsel in New Jersey to assist in the
obtaining of certain regulatory approvals from the New Jersey Casino Control
Commission in connection with the Financial Restructuring and Chapter 11 cases.
Applications for these firms to be employed on behalf of the Creditors Committee
in this Case have been approved by the Bankruptcy Court. The Debtors agreed
prepetition to reimburse the fees and expenses of the informal bondholder
committee's/Consenting Holders' counsel and did reimburse such fees and expenses
on a regular basis prepetition during the negotiations over the form of
Financial Restructuring. Additionally, prior to the Petition Date, the Debtors
paid R&G a $75,000 retainer, Pepper Hamilton, LLP a
Page 27
<PAGE>
$50,000 retainer and Fox a $7,500 retainer which each firm currently holds. Once
again, the Exhibit B attached to the Voting Agreement (which Voting Agreement is
---------
attached hereto as Appendix C) provides an estimate of what the fees and
----------
expenses of the various professionals (including those of R&G, Pepper Hamilton,
LLP and Fox) might be and R&G, Pepper Hamilton, LLP and Fox will file first and
final fee applications at the end of the Chapter 11 cases (for the period of
time during which they were formally employed by the Creditors Committee) and
may also file section 503(b) reimbursement requests for their fees and expenses
incurred by those firms during the period of time during which they represented
the informal bondholder committee (prior to the time they were formally employed
by the official Creditors Committee).
VII
DESCRIPTION OF THE PLAN
A. Introduction
A summary of the principal provisions of the Plan and the treatment of
Classes of Allowed Claims and Interests is set out below. The summary is
qualified in its entirety by the Plan. This Disclosure Statement is only a
summary of the terms of the Plan. It is the Plan and not the Disclosure
Statement that governs the rights and obligations of the parties.
B. Designation of Claims and Interests
The following is a designation of the classes of Claims and Interests under
this Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Tax Claims have not been classified and are excluded
from the following classes. A Claim or Interest is classified in a particular
class only to the extent that the Claim or Interest qualifies within the
description of that class, and is classified in another class or classes to the
extent that any remainder of the Claim or Interest qualifies within the
description of such other class or classes. A Claim or Interest is classified
in a particular class only to the extent that the Claim or Interest is an
Allowed Claim or Allowed Interest in that class and has not been paid, released
or otherwise satisfied before the Effective Date; a Claim or Interest which is
not an Allowed Claim or Interest is not in any Class. Notwithstanding anything
to the contrary contained in the Plan, no distribution shall be made on account
of any Claim or Interest which is not an Allowed Claim or Allowed Interest.
Class Status
----- ------
Claims
Class 1: All Claims of any kind of the Impaired -
PRT Noteholders (including Claims filed on entitled to vote
their behalf by the Existing Indenture Trustee)
Against any of PCC, PRT and NJMI,
Page 28
<PAGE>
including Claims Against PRT and PCC
(as guarantor) in respect of the Existing PRT
Notes and the PCC Guarantee
Class 2: PRT's Claim Against PCC arising Impaired -
pursuant to the PCC $62.9 Million Note Payable entitled to vote
to PRT
Class 3 : PRT's Claims against PCC arising Unimpaired -
pursuant to (A) the PCC $1.117 Million not entitled to vote
Indebtedness to PRT; and (B) the PCC (deemed to accept;
$5 Million Note Payable to PRT 11 U.S.C. (S) 1126(f))
Class 4: NJMI's Claim against PCC arising Unimpaired -
on account of the PCC $5.050 Million not entitled to vote
Indebtedness to NJMI (deemed to accept;
11 U.S.C. (S) 1126(f))
Class 5: GBCC's Claim against PRT arising Impaired -
pursuant to the PRT $15 Million Note Payable entitled to
to GBCC vote
Class 6: PRT's Claim Against NJMI arising Unimpaired -
pursuant to the NJMI $22.1 Million Note not entitled to vote
Payable to PRT (deemed to accept;
11 U.S.C. (S) 1126(f))
Class 7: GBCC's Claim against NJMI Impaired -
arising pursuant to the NJMI entitled to
$277,576 Indebtedness to GBCC vote
Class 8: Unsecured Claims against any of Unimpaired -
PCC, PRT and NJMI not otherwise classified not entitled to vote
(deemed to accept;
accept; 11 U.S.C. (S)
1126(f))
Interests
Class 9: Interests of PCC's Unimpaired - not
Equity Security Holder entitled to vote
Page 29
<PAGE>
(deemed to accept;
11 U.S.C. (S) 1126(f))
Class 10: Interests of PRT's Impaired -
Equity Security Holder entitled to vote
Class 11: Interests of NJMI's Impaired -
Equity Security Holder entitled to vote
C. Treatment of Claims and Interests
1. Treatment of Unclassified Claims.
(a) Allowed Administrative Claims.
(i) General. Subject to the bar date provisions in the Plan (to
the extent applicable), each holder of an Allowed Administrative Claim shall
receive Cash (from the Chapter 11 Payables Reserve) equal to the unpaid portion
of such Allowed Administrative Claim on the later of (1) the Effective Date or
as soon as practicable thereafter, (2) the date on which such Claim becomes an
Allowed Administrative Claim, and (3) such other date as is mutually agreed upon
by (a) the Debtors (and/or Newco) and (b) the holder of such Claim.
(ii) Bar Date for Administrative Claims.
*General Provisions. Except as provided in Section 3.1(C)
--------------
of the Plan (regarding payment of ordinary course Administrative Claims), and
except with regard to statutory fees pursuant to 28 U.S.C. (S) 1930, requests
for payment of Administrative Claims must be Filed no later than forty-five (45)
days after the Effective Date. Holders of Administrative Claims (including,
without limitation, professionals requesting compensation or reimbursement of
expenses) that are required to File a request for payment of such Claims and
that do not File such requests by the applicable bar date shall be forever
barred from asserting such Claims against the Liquidating Trustee, the Debtors,
Reorganized PCC, Newco, or any of their affiliates or any of their respective
property.
*Professionals. All professionals or other entities
requesting compensation or reimbursement of expenses pursuant to sections 327,
328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered
before the Effective Date (including, without limitation, any compensation
requested by any professional or any other entity for making a substantial
contribution in the Reorganization Case) shall File and serve on the Debtors,
Newco, the Creditors Committee, and the Liquidating Trustee an application for
final allowance of compensation and expenses no later than forty-five (45) days
after the Effective Date. Any professional fees and reimbursements or expenses
incurred by Debtors, relating solely to the closing of the Financial
Page 30
<PAGE>
Restructuring, objections to Claims and the prosecution of fee applications,
Newco, the Creditors Committee (or any successor thereto), subsequent to the
Effective Date, shall be paid by Newco without application to the Bankruptcy
Court.
*Objections to Administrative Claims, Including Those of
Professionals. Objections to requests for payment of Administrative Claims
(including objections to applications of professionals for compensation or
reimbursement of expenses) must be Filed and served on the claimant and/or
professional to whom the objection is addressed, the Debtors, Newco, the
Creditors Committee, and the Liquidating Trustee, no later than seventy (70)
days after the Effective Date.
(iii) Payment of Statutory Fees. Notwithstanding any other
provision of this Plan, all fees payable pursuant to 28 U.S.C. (S) 1930 shall be
paid in Cash when due (by the Debtors, prior to the Effective Date, and by
Newco, after the Effective Date).
(iv) Ordinary Course Liabilities. Notwithstanding any other
provision of this Plan, holders of Administrative Claims based on liabilities
incurred postpetition in the ordinary course of the Debtors' business shall not
be required to File any request for payment of such Claims, and such obligations
shall be paid as they become due (by the Debtors, prior to the Effective Date,
and by Newco, after the Effective Date), unless (1) the Debtors and/or Newco and
(2) a holder of such a Claim otherwise mutually agree.
(b) Allowed Tax Claims. The holders of Allowed Tax Claims shall be
paid in full in Cash (from the Chapter 11 Payables Reserve) on the later of (1)
the Effective Date or as soon as practicable thereafter, (2) the date on which
such Claim becomes an Allowed Tax Claim, and (3) such other date as is mutually
agreed upon by (a) the Debtors and/or Newco and (b) the holder of such Claim.
2. Classification and Treatment of Classified Claims and Interests
(a) Class 1 - Claims Of The PRT Noteholders. The Allowed Class 1
Claims, which shall be Allowed Unsecured Claims in the aggregate amount of $ 85
million plus all accrued and unpaid interest (together with interest on unpaid
interest) as of the Petition Date, shall be discharged, extinguished, and
satisfied in full by the distribution of the following consideration:
(i) On the day after the Effective Date, in respect of $62.9
million principal amount of the Existing PRT Notes, and the interest arrearages
associated therewith, each holder of an Allowed Class 1 Claim shall receive a
Pro Rata share of Cash in the amount of $40,329,375, all as further described in
- --------
Section 6.2(J) and (Q) of the Plan.
- -------------- ---
(ii) On the Effective Date, in respect of $22.1 million
principal amount of the Existing PRT Notes, and the interest arrearages
associated therewith, each holder of an
Page 31
<PAGE>
Allowed Class 1 Claim shall receive the right to receive a Pro Rata share of the
--------
Liquidating Trust.
(iii) Each holder of an Allowed Class 1 Claim shall also
receive a Pro Rata share of the excess Cash (i.e., excess of Chapter 11 Payables
--------
Reserve) that is available for distribution as of the Effective Date and on
certain dates thereafter, if any, as described in Section 6.4(C) of the Plan.
------ --------------
(b) Class 2 - PRT's Claim against PCC arising pursuant to the PCC
$62.9 Million Note Payable To PRT. The Allowed Class 2 Claim shall be
discharged, extinguished, and satisfied in full, as of the Effective Date, in
exchange for PCC's having agreed, on the Effective Date, to satisfy PRT's
primary obligation on account of $62.9 million principal amount of the Existing
PRT Notes (and the interest arrearages associated therewith).
(c) Class 3 - PRT's Claims against PCc arising pursuant to (A) the
PCC $1.117 Million Indebtedness to PRT and (B) the PCC $5 Million Note Payable
to PRT. The Allowed Class 3 Claims shall be discharged, extinguished, and deemed
satisfied in full, as of the Effective Date, by virtue of the PRT-NJMI Merger,
followed by the NJMI Liquidation (whereby PCC succeeds to the ownership of the
assets of NJMI).
(d) Class 4 - NJMI's Claim against PCC arising on account of the PCC
$5.050 Million Indebtedness to NJMI. The Allowed Class 4 Claim shall be
discharged, extinguished, and deemed satisfied in full, as of the Effective
Date, by virtue of the PRT-NJMI Merger, followed by the NJMI Liquidation
(whereby PCC succeeds to the ownership of the assets of NJMI).
(e) Class 5 - GBCC'S Claim against PRT arising pursuant to the PRT
$15 Million Note Payable to GBCC. The Allowed Class 5 Claim shall be paid $1000
and the remainder of the Claim shall be discharged and extinguished, as of the
Effective Date.
(f) Class 6 - PRT'S Claim against NJMI arising pursuant to the NJMI
$22.1 Million Note Payable to PRT. The Allowed Class 6 Claim shall be
discharged, extinguished, and deemed satisfied in full, as of the Effective
Date, by virtue of the PRT-NJMI Merger.
(g) Class 7 - GBCC'S Claim against NJMI arising Pursuant To The NJMI
$277,576 Indebtedness to GBCC. The Allowed Class 7 Claim shall be paid $1000 and
the remainder of the Claim shall be discharged and extinguished, as of the
Effective Date.
(h) Class 8 - Unsecured Claims against any of PCC, PRT or NJMI not
otherwise classified. To the extent necessary for purposes of section 1122 of
the Code, the Allowed Unsecured Claims against each of PCC, PRT, and NJMI shall
be deemed classified in separate sub-Classes under Section 4.8 of the Plan. The
-----------
Allowed Class 8 Claims shall be discharged, extinguished, and satisfied in full,
by the distribution of Cash to each holder of an Allowed Class 8
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<PAGE>
Claim, in the full amount of any such holder's Allowed Claim (from the Chapter
11 Payables Reserve or, alternatively, from Insurance Proceeds if any such Claim
is an Insured Claim), on the later of (A) the Effective Date or as soon as
practicable thereafter; (B) the date on which any such Claim becomes an Allowed
Claim; and (c) such other date as is mutually agreed upon by the Debtors (and/or
Newco) and the holder of any such Claim. Notwithstanding the foregoing, any
right of setoff that the Debtors may have with regard to any of these Claims is
preserved.
(i) Class 9 - Interests of PCC'S Equity Security Holder (PPI). The
Allowed Class 9 Interest Holder shall retain its stock under the Joint Plan. The
Joint Plan leaves unaltered the legal, equitable and contractual rights of such
Interest holder. On the Effective Date, as part of the Plan implementation, HCC
shall purchase the PCC stock from PPI for $1000.
(j) Class 10 - Interests OF PRT'S Equity Security Holder (PCC). The
Allowed Class 10 Interests shall receive common stock of NJMI, as of the
Effective Date, pursuant to the PRT-NJMI Merger.
(k) Class 11 - Interests of NJMI'S Equity Security Holder (PCC). The
Allowed Class 11 Interests shall receive the assets of NJMI and PRT, as of the
Effective Date, as a result of the PRT-NJMI Merger followed by the NJMI
Liquidation.
VII
MEANS FOR EXECUTION AND IMPLEMENTATION
OF THE PLAN
A. Pro Rata Payments in Respect of Management Contracts. On the Effective
Date, and prior to the commencement of the events set forth in Section VIII.B.
---------------
hereinbelow, (1) HCA shall distribute to PMLP, which shall then distribute to
PCC, an amount of Cash equal to the Pro Rata portion of the net fees that have
--------
been earned and/or accrued in respect of the Aurora Management Contract, between
the end of the last calendar quarter and the Effective Date, notwithstanding the
fact that the net fees in respect of the Aurora Management Contract are not due
and payable to PMLP until the twenty-fifth day following the end of each
calendar quarter; and (2) HWCC-Tunica shall distribute to PCC an amount of Cash
equal to the Pro Rata portion of the net fees that have been earned and/or
--------
accrued in respect of the Tunica Consulting Agreement, between the end of the
last calendar month and the Effective Date, notwithstanding the fact that the
net fees in respect of the Tunica Consulting Agreement are not due and payable
to PCC until the first of each calendar month.
B. Plan Implementation Steps Occurring on and After the Effective Date. On
the Effective Date, or on the day after the Effective Date (as indicated below)
the following events shall occur in the following sequence:
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<PAGE>
1. On the Effective Date, GBCC shall forgive the PRT $15 Million Note
Payable to GBCC, in exchange for $1000 Cash consideration from PRT,
and such indebtedness shall be extinguished and discharged as of the
Effective Date.
2. On the Effective Date, GBCC shall forgive the NJMI $277,576
Indebtedness to GBCC, in exchange for $1000 Cash consideration from
NJMI, and such indebtedness shall be extinguished and discharged as of
the Effective Date.
3. On the Effective Date, NJMI shall effect a distribution of a dividend
to its sole shareholder, PCC, which dividend shall consist of the
following consideration: the Deferred Fee.
4. On the Effective Date, PHC 1 and PHC 2 shall each effect a
distribution of a dividend to their sole shareholder, GBCC, which
respective dividends shall consist of PHC 1's and PHC 2's respective
one-half interests in the Sands Confirmation Payment. Thereafter, GBCC
shall make a capital contribution to PPI of the entire Sands
Confirmation Payment. Thereafter, PPI shall make a capital
contribution to PCC of its right to receive the Sands Confirmation
Payment. Thereafter, PCC shall make a capital contribution to PRT of
its right to receive the Sands Confirmation Payment.
5. On the Effective Date, PCC shall make a capital contribution to Newco
of 79% of the common stock of GBH, and Newco shall issue to PCC: (a)
the Newco Membership Interests, and (b) the Newco Warrants.
6. On the Effective Date, PCC shall make a capital contribution to PRT of
the following: (a) the Newco Warrants, (b) the Deferred Fee, and (c)
the $5 Million GBHC Subordinated Note.
7. On the Effective Date, PRT shall form the Liquidating Trust and shall
irrevocably deliver and convey to it the following: (a) the Newco
Warrants, (b) the Deferred Fee, (c) the $5 Million GBHC Subordinated
Note, (d) the $10 Million GBHC Subordinated Note, and (e) the Sands
Confirmation Payment.
8. On the Effective Date, PCC shall make a capital contribution to PRT of
$250,000 Cash. Thereafter, PRT shall irrevocably deliver and convey
$250,000 Cash to the Liquidating Trust.
9. On the Effective Date, PRT shall convey the rights to share in the
Liquidating Trust to the PRT Noteholders, Pro Rata, in exchange for
--------
$22.1 million principal amount of the Existing PRT Notes (and the
interest arrearages associated therewith).
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<PAGE>
10. On the Effective Date, PCC shall become obligated to pay the PRT
Noteholders $40,329,375, on the day after HCC purchases the stock of
PCC as set forth in Section 6.2(P) below, and shall receive, in
--------------
exchange for such obligation, $62.9 million principal amount of the
Existing PRT Notes (and the interest arrearages associated therewith).
11. On the Effective Date, PCC shall exchange the $62.9 million principal
amount of the Existing PRT Notes (and the interest arrearages
associated therewith) with PRT for the PCC $62.9 Million Note Payable
to PRT.
12. On the Effective Date, PRT shall merge with and into NJMI (the "PRT-
NJMI Merger") and the PRT Common Stock shall be canceled in exchange
for Common Stock in NJMI, as the surviving corporation.
13. On the Effective Date, NJMI shall, in a transaction constituting a
tax-free liquidation or corporate reorganization for federal income
tax purposes, be liquidated (the "NJMI Liquidation") or merged into
PCC, and PCC shall succeed to the ownership of NJMI's assets, and the
NJMI Common Stock shall be canceled.
14. On the Effective Date, PCC shall effect a distribution of a dividend
to PPI, its sole stockholder, which dividend shall consist of the
following consideration: the Newco Membership Interests.
15. On the Effective Date, the Reorganized PCC shall irrevocably deliver
and convey to Newco all of the Cash that remains in the Reorganized
PCC, after the PRT-NJMI Merger, followed by the NJMI Liquidation
(i.e., the Chapter 11 Payables Reserve). Newco shall hold such Cash
for the benefit and payment of the holders of Allowed Administrative
Claims, Allowed Tax Claims, and Allowed Class 8 Claims, and (i)
$50,000 of such Cash will be segregated by Newco and held in reserve,
exclusively for payment of NJMI's deductible amount under applicable
policies of insurance, and (ii) $250,000 of such Cash will be
segregated by Newco and held in reserve, exclusively for payment of
any potential Allowed Tax Claims. Newco shall as soon thereafter as
practicable make the Distributions required under the Plan to any
holder of an Allowed Administrative Claim, an Allowed Tax Claim, or an
Allowed Unsecured Claim in Class 8, unless the Debtors (and/or Newco)
and a holder of any such Claim shall have otherwise mutually agreed.
The Reorganized PCC shall irrevocably deliver and convey to the
Liquidating Trust (a) the rights to any unearned premiums on insurance
policies of PCC, PRT or NJMI; (b) that certain proof of claim filed by
PCC in the GBH bankruptcy case in the amount of $1,279.58 (and all
rights associated therewith); and (c) that certain proof of claim
filed by NJMI in the GBHC bankruptcy case in the amount of $144,930.24
(and all rights associated therewith), the latter of which Reorganized
PCC succeeded to by virtue of the NJMI Liquidation. Such unearned
premiums (and/or rights thereto) and such proofs of
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<PAGE>
claim (and rights associated therewith) delivered to the Liquidating
Trust by the Reorganized PCC, pursuant to this Section VIII.B.15.
------------------
shall, along with the other consideration delivered to the Liquidating
Trust pursuant to Section VIII.B.4., VIII.B.7 and VIII.B.8
------------------ -------- --------
hereinabove, and the proceeds thereof, be available for distribution
to the PRT Noteholders.
16. On the Effective Date, HCC shall purchase 100% of the PCC Common Stock
from PPI for $1000.
In the event that all of the events set forth in Section VIII. A.
--- ----------------
and B.1.-16. hereinabove do not occur on the Effective Date (and
--------
do not occur in the sequence set forth above), unless otherwise
mutually agreed by the Debtors and the Creditors Committee, then
the Plan and the Confirmation Order (and any steps that occurred
in connection with the events set forth in Sections VIII.A. and
----------------
B.1-16 hereinabove) shall be void ab initio and of no further
------
force and effect, notwithstanding the provisions of section 1144
of the Bankruptcy Code, and the Debtors, all Creditors, and all
other parties-in-interest shall be restored to their respective
rights and positions as if the Plan had never been confirmed. To
the extent any executory contracts or leases are to be assumed or
rejected pursuant to the Plan or the Confirmation Order and to
the extent that any Claim becomes an Allowed Claim or is
disallowed pursuant to the Plan, then if the Plan is withdrawn or
revoked, such assumption or rejection and such Claim allowance or
disallowance shall be of no further force or effect.
17. On the day after the Effective Date, the Reorganized PCC shall pay in
Cash $40,329,375 to the Disbursing Agent in full discharge of the
obligation of PCC arising under #10 hereinabove. The Disbursing Agent
shall distribute such proceeds to the PRT Noteholders.
C. Merger/Liquidation of Corporate Entities. In order to optimize the benefits
of the Financial Restructuring for the Debtors' Estates and their Creditors,
certain corporate consolidation (i.e., the PRT-NJMI Merger and the NJMI
Liquidation) and other transactions with or among related entities are occurring
as of the Effective Date. Notwithstanding the occurrence of any such
consolidation or other transactions as of the Effective Date, Persons holding
Claims against or Interests in any Debtor are receiving treatment under the Plan
that is at least as favorable as any treatment to which such Creditor or
Interest holder would have been entitled to receive if such consolidation or
transactions had not occurred.
D. Transfer of Assets to the Liquidating Trust.
1. Initial Delivery of Assets to the Liquidating Trust. On the Effective
Date, pursuant to Sections 6.2(D), (E), (F), (G) (H), and (O) of the Plan: (a)
---------------------------------- ---
PRT shall deliver the Newco Warrants,
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<PAGE>
the Deferred Fee, the $5 Million GBHC Subordinated Note, the $10 Million GBHC
Subordinated Note, the Sands Confirmation Payment, and $250,000 Cash; and (b)
PCC shall deliver any unearned premiums (and/or rights thereto) on insurance
policies of PCC, PRT or NJMI, the $1,279.58 proof of claim filed by PCC in the
GBH bankruptcy case, and the $144,930.24 proof of claim filed by NJMI in the
GBHC bankruptcy case to the Liquidating Trust, all on behalf of and for the
benefit of the holders of Class 1 Claims. The holders of Class 1 Claims shall
collectively be the beneficial interest holders of the Liquidating Trust.
2. Chapter 11 Payables Reserve Conveyed to Newco. Additionally, on the
Effective Date, pursuant to Section 6.2(O) of the Plan, the Reorganized PCC
--------------
shall deliver the Chapter 11 Payables Reserve to Newco, on behalf of and for the
benefit of the holders of Allowed Administrative Claims, Allowed Tax Claims, and
Allowed Class 8 Claims.
3. Undertaking Regarding Chapter 11 Payables Reserve. To the extent that
the Chapter 11 Payables Reserve ultimately exceeds the Allowed Administrative
Claims, Allowed Tax Claims and Allowed Class 8 Claims, then such excess funds
shall be paid to the Disbursing Agent for distribution to the Class 1 holders.
Additionally, on the Effective Date, all Cash constituting the Chapter 11
Payables Reserve that is in excess of the maximum amount, based on reasonable
good faith estimates, that may be necessary to pay all Filed and not-yet-
disallowed Claims in Class 8, Tax Claims to be treated under Section 3.2 of the
-----------
Plan, and expected requests for payment of administrative expenses shall be
promptly transferred by Newco to the Disbursing Agent for distribution to the
Class 1 holders. Additionally, on the seventy-fifth day after the Effective
Date, all Cash constituting the Chapter 11 Payables Reserve in excess of the
maximum amount, based on reasonable good faith estimates, that may be necessary
to pay all not-yet-disallowed Claims in Class 8, Tax Claims to be treated under
Section 3.2 of the Plan, and not-yet-disallowed requests for payment of
- -----------
administrative expenses shall be transferred by Newco to the Disbursing Agent
for distribution to the Class 1 holders.
E. Ratification of Liquidating Trust Agreement. On the Effective Date, each
Creditor will be deemed to have ratified and become bound by the terms of the
Liquidating Trust Agreement. The Liquidating Trust Agreement shall become
effective upon its execution by the Debtors and acceptance by the Liquidating
Trustee.
1. Powers and Duties. The Liquidating Trustee shall have the powers,
duties and obligations specified in this Plan and the Liquidating Trust
Agreement.
2. Compensation of Liquidating Trustee. The Liquidating Trustee shall be
entitled to receive from the Trust Estate compensation for his services as
Liquidating Trustee substantially in accordance with the description in the
Liquidating Trust Agreement, which compensation shall be approved by the Court
at the Confirmation Hearing. The Liquidating Trustee shall also be reimbursed by
the Trust Estate for all reasonable out-of-pocket expenses incurred by the
Liquidating Trustee in the performance of his duties.
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<PAGE>
3. Limitation of Liability. The Liquidating Trustee shall use reasonable
discretion in exercising each of the powers herein granted. No Liquidating
Trustee or any attorney, agent, or servant of the Liquidating Trustee shall be
personally liable in any case whatsoever arising in connection with the
performance of obligations under the Plan, whether for their acts or their
failure to act unless they shall have been guilty of willful fraud or gross
negligence.
The Liquidating Trustee may consult with attorneys, accountants, and
agents, and the opinions of the same shall be full protection and justification
to the Liquidating Trustee and his employees for anything done or admitted or
omitted or suffered to be done in accordance with said opinions. The Liquidating
Trustee shall not be required to give any bond for the faithful performance of
his duties under the Plan or under the Liquidating Trust Agreement.
4. Right to Hire Professionals and Agents. The Liquidating Trustee shall
have the right to reasonably utilize the services of attorneys or any other
professionals which, in the discretion of the Liquidating Trustee, are necessary
to perform the duties of the Liquidating Trustee. Reasonable fees and expenses
incurred by the attorneys, accountants or other agents of the Liquidating
Trustee shall be paid by the Liquidating Trust. The Liquidating Trustee may hire
agents to effect distributions from the Liquidating Trust, and may pay the
reasonable fees and expenses of such agents.
5. Tax Treatment of the Liquidating Trust. It is intended that the
Liquidating Trust will be treated as a "liquidating trust" within the meaning of
Treasury Regulations Section 301.7701-4(d). Accordingly, for federal income tax
purposes, the transfer and assignment of the assets, as described in Section
-------
6.2(D), (G), (H), and (I) of the Plan shall be treated as a deemed transfer and
- ---------------- ---
assignment of such assets to the holders of Claims who are beneficiaries of the
Trust, followed by a deemed transfer and assignment by such holders to the
Liquidating Trust. The Liquidating Trust shall be treated as a grantor trust
owned by such holders. Each owner of an interest in the Liquidating Trust shall
be considered for tax purposes to own an undivided interest in the assets of the
Liquidating Trust. The Liquidating Trustee shall provide the PRT Noteholders
with a valuation of the assets transferred to the Liquidating Trust and such
valuation shall be used consistently by the Debtors, the Liquidating Trust and
all PRT Noteholders for all federal income tax purposes. All items of income,
deduction, credit or loss of the Liquidating Trust shall be allocated for
federal, state and local income tax purposes on a current basis among the PRT
Noteholders, as set forth in the Liquidating Trust Agreement; provided, however,
that to the extent that any item of income cannot be allocated to a particular
PRT Noteholder in the taxable year in which it arises, the Liquidating Trust
shall pay the federal, state, and local taxes attributable to such income (net
of related deductions) at the highest rate applicable to trusts; (for federal
tax purposes, 39.6% currently). The Liquidating Trust shall file annual
information returns as a grantor trust pursuant to Treasury Regulations Section
1.671-4(a) that will include information concerning the allocation of items of
income, gain or loss, deduction or credit to the PRT Noteholders. Each PRT
Noteholder will receive a copy of such information return.
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<PAGE>
6. Termination of Liquidating Trust. The duties, powers and
responsibilities of the Liquidating Trustee shall terminate four years after the
Effective Date or, if earlier, upon the liquidation and distribution to the
holders of beneficial interests in the Liquidating Trust of all proceeds in the
Liquidating Trust estate in accordance with the Plan. If all proceeds in the
Liquidating Trust have not been distributed to holders of beneficial interests
in the Liquidating Trust, the term of the Liquidating Trust may be extended from
time to time by order of the Bankruptcy Court for such period or periods as it
determines are reasonable, such determination to be made within six months of
the beginning of the extended period.
F. Cancellation of Old Securities. As of the Effective Date, all Old
Securities (except for the PCC Common Stock) shall be terminated and canceled,
and the Existing Indenture, statements of resolution, and any other
documentation governing such Old Securities (except for the PCC Common Stock)
shall be rendered void. Notwithstanding the foregoing, such termination will not
impair the rights and duties under the Existing Indenture as between the
Existing Indenture Trustee and the beneficiaries of the trust created thereby
including, but not limited to, the rights of the Existing Indenture Trustee to
receive payment of its fees and expenses, to the extent not paid by the Debtors
(See Section 8.6 of the Plan), from amounts distributable to holders of Existing
-----------
PRT Notes.
G. Registration Exemption for Newco Warrants, Beneficial Interests in
Liquidating Trust and Reorganized PCC Undertaking. The Confirmation Order shall
provide that the distribution of the Newco Warrants, the beneficial interests in
the Liquidating Trust and the undertaking of Reorganized PCC pursuant to Section
-------
6.2(J) of the Plan (to the extent that any of these could be deemed to be
- ------
securities), to or for the benefit of holders of Allowed Claims (or the
beneficial holders thereof), pursuant to the Plan and the related documentation
in the Plan Supplement, shall be exempt from any and all federal, state and
local laws requiring the registration of such security, to the extent provided
by section 1145 of the Bankruptcy Code. Note that the Newco Warrants shall not
be transferable to the beneficial holders of the Liquidating Trust or any other
person (nor exercisable by the Liquidating Trustee or the beneficial holders of
the Liquidating Trust or any other person) until required regulatory approvals
are obtained from the New Jersey Casino Control Commission. Additionally, note
that the beneficial interests in the Liquidating Trust shall not be
transferable.
H. Objections to Claims. Except as otherwise provided for with respect to
Administrative Claims and applications of professionals for compensation and
reimbursement of expenses, as provided in Section 3.1(A) of the Plan, or as
--------------
otherwise ordered by the Bankruptcy Court after notice and a hearing, objections
to Claims, shall be Filed and served upon the holder of such Claim not later
than the later of (A) forty-five (45) days after the Effective Date, and (B)
forty-five (45) days after a proof of claim is Filed, unless this period is
extended by the Court on request of a party seeking to object. After the
Effective Date, the Liquidating Trustee and Newco shall be the sole entities
with standing to object to Claims (other than Claims of professionals for
compensation and reimbursement of expenses). Any party-in-interest may object to
Claims prior to the Effective Date.
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<PAGE>
IX.
CONDITIONS TO CONFIRMATION OF PLAN
A. Conditions to Confirmation. Except as expressly waived by the Debtors and
the Creditors Committee, the following conditions must occur and/or be satisfied
prior to Confirmation of the Plan:
1. The Debtors must request and obtain from the Bankruptcy Court a Claims
Bar Date for the Claims against the Debtors (excluding Claims of governmental
entities), and such Claims Bar Date shall have passed.
2. There shall be no Claims for cure of executory contracts or unexpired
leases.
3. The Debtors shall have set aside $250,000 in reserve for any potential
Allowed Tax Claims (to be transferred to Newco pursuant to Section 6.2 of the
-----------
Plan to hold in reserve).
4. All Class 8 Unsecured Claims, other than the Claims in respect of the
Existing Indenture Trustee Expenses and/or Insured Claims, are disallowed by a
----------
Final Order of the Bankruptcy Court or other Court of competent jurisdiction,
which Final Order is no longer subject to being modified or reversed on
reconsideration or appeal, or are otherwise resolved in a manner mutually
acceptable to the Debtors and the Creditors Committee.
5. All Claims of the PRT Noteholders and the Existing Indenture Trustee
(on behalf of the PRT Noteholders and excluding any Existing Indenture Trustee
Expenses) shall be allowed under the Confirmation Order.
6. The Confirmation Order (and related findings of fact and conclusions
of law) shall be in form and substance reasonably satisfactory to the Debtors
and the Creditors Committee.
7. The documentation in the Plan Supplement shall be in form and
substance reasonably satisfactory to the Debtors and the Creditors Committee.
8. No Agreement Termination Event, as such term is used in the Voting
Agreement, shall have occurred.
B. Waiver of Conditions. The Debtors and the Creditors Committee may waive any
condition set forth in Section IX.A. above at any time, without notice,
-------------
without leave of or order of the Court, and without any formal action other than
proceeding to confirm the Plan.
C. Regulatory Conditions Not Waivable. It is the contention of GBHC, GBH and
GBPF that if the Debtors and the PRT Noteholders are unable to obtain waivers of
the qualification requirement for certain security holders (see discussion in
Section XII herein), then it is unlikely that the Plan can be confirmed without
- -----------
substantial modifications, as the PRT Noteholders will be unable
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<PAGE>
to hold the beneficial interests in the assets in the Liquidating Trust. The
Debtors' position concerning the regulatory risks of the Plan are set forth
herein at Section XII.
------------
X.
CONDITIONS TO EFFECTIVENESS OF THE PLAN
A. Conditions to Effectiveness. Except as expressly waived by the Debtors and
the Creditors Committee, the following conditions must occur and be satisfied on
or before the Effective Date:
1. The Confirmation Order (and related findings of fact and conclusions
of law) shall have been signed by the Court and duly entered on the docket for
the Reorganization Case by the clerk of the Court in form and substance
reasonably acceptable to the Debtors and the Creditors Committee.
2. The Confirmation Order shall have become a Final Order.
3. No Agreement Termination Event under the Voting Agreement shall have
occurred.
4. The Conditions to Consummation of the Financial Restructuring set
forth in Section 2 of the Voting Agreement shall have been met.
B. Waiver of Conditions. The Debtors and the Creditors Committee may waive any
condition set forth in Section X.A. (except for Section X.A.2.) at any time,
------------ --------------
without notice, without leave of or order of the Court, and without any formal
action other than proceeding to consummate the Plan.
XI.
FUTURE BUSINESS OF REORGANIZED PCC AND NEWCO
A. Ownership and Future business of reorganized pcc
Pursuant to Section 6.2(P) of the Plan, the Reorganized PCC shall be a 100%
--------------
wholly owned subsidiary of HCC on and after the Effective Date. It is
anticipated that the Reorganized PCC will be wound up and dissolved shortly
after the Effective Date unless there are business reasons to justify its
continued existence.
B. Composition of Management and Directors of Reorganized PCC
The names of the members of the Board of Directors of the Reorganized PCC
that will serve on and after the Effective Date will be identified in a document
to be filed with the Bankruptcy Court as part of the Plan Supplement. The new
officers of Reorganized PCC that will serve on and after the Effective Date
shall also be identified in a document to be filed with the Bankruptcy Court as
part of the Plan Supplement. Such document will disclose the identity of any
insider that will be
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<PAGE>
employed or retained by the Reorganized PCC, and the nature of any compensation
for such insider.
C. Ownership and Future Business of Newco
Newco, a newly formed Delaware limited liability company, shall be 100%
wholly owned by PPI on and after the Effective Date, subject to dilution by the
Newco Warrants held by the Liquidating Trust (which Newco Warrants may only be
exercised with regulatory approval from the New Jersey Casino Control
Commission). Newco will own 79% of the GBH common stock on and after the
Effective Date. Other than holding such common stock, Newco's only anticipated
business purpose, at the current time, is for it to serve as a "disbursing
agent," of sorts, in connection with the Plan (that is, in connection with
payments to the holders of Allowed Administrative Claims, Allowed Tax Claims and
Allowed Class 8 Claims). More specifically, pursuant to Section 6.2(O) of the
--------------
Plan, the Reorganized PCC will transfer to Newco certain cash to be held by
Newco for the benefit and payment of the holders of Allowed Administrative
Claims, Allowed Tax Claims, and Allowed Class 8 Claims. Additionally, pursuant
to Section 6.4 of the Plan, Newco will be obligated to transfer to the
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Disbursing Agent cash in excess of what is ultimately necessary to pay the
Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 8 Claims.
Additionally, Newco has the authority (along with the Liquidating Trust),
pursuant to Section 6.10 of the Plan to file objections to Claims.
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D. Composition of Management and Directors of Newco
The names of the managers (if any) of Newco that will serve on and after
the Effective Date will be identified in a document to be filed with the
Bankruptcy Court as part of the Plan Supplement. It is anticipated that such
managers will be current insiders of the Debtors.
E. Liquidating Trust
The name of the individual that will serve on and after the Effective Date
as the Liquidating Trustee will be identified in a document to be filed with the
Bankruptcy Court as part of the Plan Supplement. It is not anticipated that such
person will be an insider of the Debtors. The Liquidating Trustee may have to be
qualified under the New Jersey Casino Control Act.
XII.
RISKS AND FEASIBILITY
A. Risks Relative to the PRT Noteholders
The Plan contemplates, in principal part, a $40,329,375 cash "take-out" of
the Existing PRT Notes. It is the Debtors' good faith belief that there is
virtually no risk associated with this component of the Plan, since the
$40,329,375 cash has been escrowed in an account at State Street
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Bank and Trust Company, a Massachusetts chartered trust company, Account No.
102449-020. However, it should be noted that it shall be an Agreement
Termination Event, under the Voting Agreement, if an order confirming the Plan
shall not have been entered and the Effective Date shall not have occurred by
January 31, 2000, and it is relatedly a condition to Confirmation and to the
occurrence of the Effective Date that no Agreement Termination Event shall have
occurred. Thus, upon information and belief, there are no feasibility issues
with regard to the cash "take-out" component of the Plan, so long as the Plan is
implemented and becomes effective prior to January 31, 2000.
In addition, the Plan also contemplates that a Liquidating Trust will be
established, the beneficial interest holders of which shall be the holders of
Existing PRT Notes. It is anticipated that the assets of the Liquidating Trust
shall consist substantially of the following: (1) various claims (including the
Deferred Fee and the Sands Confirmation Payment) that the Debtors have in the
GBHC, GBH and GBPF bankruptcy cases; and (2) the Newco Warrants. There are, in
fact, certain risks relating to the assets in the Liquidating Trust. These risks
are two-fold: (1) there are risks relative to the collectibility of the claims
against GBHC/GBH/GBPF; and (2) there are regulatory risks with regard to the
transferability and exercisability of the Newco Warrants and with regard to
other aspects of the Liquidating Trust. It is the specific contention of GBHC,
GBH and GBPF that these risks also include significant regulatory risks which
may preclude the transferability of the $5 Million GBHC Subordinated Note, the
$10 Million GBHC Subordinated Note, and NJMI claims against GBHC, to the
Liquidating Trust.
First, with regard to the risks relative to the collectibility of the
claims against GBHC/GBH/GBPF, there can be no assurance that these claims will
ultimately be allowed in full in the Sands Bankruptcy. The Debtors cannot at
this point in time make any predictions about the likely outcome of any proof of
claim litigation, regarding these claims, in the Sands Bankruptcy. GBHC/GBH/GBPF
preserved in the September 1998 Settlement Agreement any "ordinary course of
business" type defenses, setoffs or counterclaims that they might have with
regard to the Debtors' proofs of claim. GBHC has specifically conveyed that it
may allege that it has offsets against the PCC and PRT notes receivable on
account of a claim in the approximate amount of $10 million that GBHC allegedly
holds against PCPI Funding Corp., a defunct subsidiary of GBCC, in respect of
that certain advance from GBHC to PCPI Funding Corp., on or about September 27,
1990 in the amount of $6.6 million, plus accrued interest. GBHC may very well
allege other theories for disallowance. Moreover, even if the claims are
ultimately allowed in full, there can be no assurance that there will be any
meaningful distribution in the Sands Bankruptcy on account of these claims. A
plan of reorganization was filed in the Sands Bankruptcy June 1, 1999 and other
plans (or modifications to this plan) may be filed. The plan filed in the Sands
Bankruptcy on June 1, 1999 contemplates no distribution to PCC on account of the
$5 Million GBHC Subordinated Note nor any distribution to PRT on account of the
$10 Million GBHC Subordinated Note.
Second, with regard to the regulatory risks, various approvals from the New
Jersey Casino Control Commission ("NJCCC") are likely required pursuant to the
Plan, as a result of both the
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"Newco" and the Liquidating Trust features of the Plan. First, New Jersey law
requires that no entity shall be eligible to hold a casino license unless each
holder of "securities" issued by such entity is "qualified." N.J.S.A. 5:12-
85(d). Thus, Newco (which the Plan contemplates will indirectly own 79% of the
common stock/"securities" of the Sands) will have to be "qualified" by the
NJCCC. A petition is currently pending before the NJCCC for such qualification
of Newco (Petition No. 1659904), and such qualification is expected, but not
assured. GBHC has indicated it may oppose Petition No. 1659904. Similarly, the
ultimate holders of the Newco Warrants (i.e., the Liquidating Trustee and the
beneficiaries of the Liquidating Trust) will also likely have to be "qualified"
by the NJCCC as holders of "securities" of a casino licensee. A petition is
currently pending before the NJCCC for a deferral of the qualification of the
Liquidating Trustee (Petition No. 1659906) and the beneficiaries of the
Liquidating Trust until such time as the holder(s) of the Newco Warrants (i.e.,
the Liquidating Trustee or the beneficiaries of the Liquidating Trust) seek to
exercise or transfer the Newco Warrants. Such a deferral by the NJCCC is
expected (but is not assured) since the Plan contemplates that the Newco
Warrants will not be exercisable nor transferable without NJCCC approval and
since the value of the Newco Warrants is so speculative. GBHC has indicated it
may oppose certain of the relief requested in Petition No. 1659906. Even if the
deferral of qualification is granted by the NJCCC pursuant to the pending
application, there is no guarantee that the NJCCC will ultimately "qualify" the
holders of the Newco Warrants or permit their exercise or transfer. Finally, New
Jersey law also contemplates that a casino licensee shall establish the
integrity of all financial sources. N.J.S.A. 5:12-84(b). As the holder of the
various claims against the Sands, the Liquidating Trust (or the Liquidating
Trustee or its beneficiaries) could be considered financial sources to a casino
licensee that need "qualification" by the NJCCC. A petition now pending before
the NJCCC (Petition No. 1659906) requests a waiver of the potential requirement
that the Liquidating Trustee or beneficial owners of the Liquidating Trust be
"qualified" as financial sources. Such waiver is expected but not assured. In
the event such waiver is not received, the Plan may not be confirmable unless
the holders of Class 1 Claims become qualified as financial sources.
Finally, Petition No. 1659906 pending before the NJCCC requests overall
approval of the "Financial Restructuring" contemplated by the Plan. There is a
risk that the NJCCC will not approve such Financial Restructuring, in which case
the Debtors may be required to modify the Plan. If the NJCCC approves the
Financial Restructuring subject only to restrictions that (a) prior to exercise
of the Newco Warrants, any holder must be licensed or qualified and (b) a holder
of Newco Warrants may not transfer them without NJCCC approval, then the Debtors
intend to go forward with confirmation and consummation. If the NJCCC approves
the Financial Restructuring in substantial part but refuses to defer approval of
the Newco Warrants (or outright refuses to approve the Newco Warrants), then the
Debtors, with the concurrence of the Creditors Committee, may modify the Plan as
necessary to make it confirmable.
To reiterate, the Plan contemplates that the Newco Warrants will not be
transferable to the beneficial holders of the Liquidating Trust (nor exercisable
by the Liquidating Trustee or the beneficial holders of the Liquidating Trust or
any other person) until required regulatory approvals
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are obtained from the New Jersey Casino Control Commission. There can be no
assurance that the New Jersey Casino Control Commission will approve the
transfer and/or exercise of the Newco Warrants. Moreover, there is no assurance
that the Newco Warrants have any meaningful value since the Newco Membership
Interests (for which the Newco Warrants are exercisable) are only worth
something if Newco's 79% ownership in GBH ultimately has value. Given the
current status of the Sands Bankruptcy, it is entirely possible that the GBH
stock has no value. The plan filed June 1, 1999 in the Sands Bankruptcy
contemplates cancellation and no distribution on account of the equity in GBH.
B. Risks Relative to Claims Other than PRT Noteholder Claims. All other Claims
of Creditors of the Debtors (of which there are very few) will be unimpaired
under the Plan, in that they will be paid in cash in full on the Effective Date
or as soon as they become Allowed Claims (except for certain intercompany and/or
insider Claims). It is anticipated that the only significant "other" Claims
against the Debtors will be Administrative Claims. The Debtors believe that
there is little risk that the actual amount of the total, non-PRT Noteholder
Allowed Claims in this case will exceed the aggregate cash that the Debtors will
have on hand on the Effective Date. In any event, the bar date (as to non-
governmental entities) will expire prior to the time of the Confirmation
Hearing, so parties will have certainty on this issue prior to Confirmation.
XIII.
ALTERNATIVES TO PLAN AND LIQUIDATION ANALYSIS
There are three possible consequences if the Plan is rejected or if the
Bankruptcy Court refuses to confirm the Plan: (a) the Bankruptcy Court could
dismiss the Debtors' Chapter 11 bankruptcy cases, (b) the Debtors' Chapter 11
bankruptcy cases could be converted to liquidation cases under Chapter 7 of the
Bankruptcy Code, or (c) the Bankruptcy Court could consider an alternative plan
of reorganization proposed by some other party.
A. Dismissal
If the Debtors' bankruptcy cases were to be dismissed, the Debtors would no
longer have the protection of the Bankruptcy Court and the applicable provisions
of the Bankruptcy Code.
B. Chapter 7 Liquidation
If the Plan is not confirmed, it is likely that the Debtors' Chapter 11
cases will be converted to cases under Chapter 7 of the Bankruptcy Code, in
which a trustee would be elected or appointed to liquidate the assets of the
Debtors for distribution to creditors in accordance with the priorities
established by the Bankruptcy Code. Whether a bankruptcy case is one under
Chapter 7 or Chapter 11, secured creditors, Administrative Claims and Priority
Claims are entitled to be paid in cash and in full before unsecured creditors
receive any funds.
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If the Debtors' Chapter 11 cases were converted to Chapter 7, the present
Administrative Priority Claims may have a priority lower than priority claims
generated by the Chapter 7 cases, such as the Chapter 7 trustee's fees or the
fees of attorneys, accountants and other professionals engaged by the trustee.
The Debtors believe that liquidation under Chapter 7 would result in far
smaller distributions being made to Creditors than those provided for in the
Plan. Conversion to Chapter 7 would give rise to (a) additional administrative
expenses involved in the appointment of a trustee and attorneys and other
professionals to assist such trustee; (b) additional expenses and Claims, some
of which would be entitled to priority, which would be generated during the
liquidation and from the rejection of leases and other executory contracts in
connection with a cessation of the Debtors' operations; and (c) a possible
failure to realize the value of the Tunica Consulting Agreement and the Aurora
Management Contract (see discussion at Section V hereinabove). In a Chapter 7
---------
liquidation, it is very possible that general unsecured creditors would receive
little or a greatly diminished recovery on their claims.
The plan provides for two elements of consideration to the PRT Noteholders.
The first element transfers all of the assets of PCC, PRT and NJMI except for
the PMLP limited partnership interest and the Tunica Consulting Agreement to the
Liquidating Trust established for the benefit of the PRT Noteholders. Thus, the
noteholders would receive the same value for the assets so transferred as they
would receive in a Chapter 7 liquidation.
The second element of the plan provides for a cash payment of $40,329,375
to the PRT Noteholders for the PMLP limited partnership interest and the Tunica
Consulting Agreement. This sum represents the discounted present value of the
Tunica Consulting Agreement ($2.85 million) and the PMLP limited partnership
interest in the Aurora Management Contract ($37.48 million) assuming both
contracts remain in effect for their respective remaining contract terms.
Although this is a reasonable assumption with respect to the Tunica Consulting
Agreement, it is doubtful that the Aurora Management Contract will remain in
effect for the remaining 94 year term.
PMLP is required to maintain a suppliers license with respect to the
management services it provides to the Aurora Casino. PMLP's supplier's license
expired in December 1998 and was renewed by the Illinois Gaming Board (the
"IGB") through December 1999 with the condition that PML provide justification
for future renewal.
The IGB has expressed its opposition to the licensing of holders of
management services contracts with percentage-based fees for Illinois riverboat
gaming operations. PMLP's existing management contract is currently the only
percentage-based management contract between a supplier and riverboat gaming
operation. PCC believes that failure to consummate a plan of reorganization will
facilitate the termination of the Aurora Management Contract, may cause the
Illinois Gaming Board to deny renewal of PMLP's suppliers license at December
31, 1999 and consequently render PCC's limited partnership interest worthless.
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Even if the IGB were to renew the supplier's license on a year to year
basis, it is highly unlikely that such renewals would extend past the maturity
of the existing PRT Notes (April 15, 2004). In such event the estimated present
value of the PMLP limited partnership interest would be $16.2 million.
In determining the future cash flow of the Aurora Management Contract it
was assumed that revenues earned and expenses incurred would escalate 3% per
year. No provision was made for any future increases in Illinois gaming taxes or
the possibility of additional competition. Accordingly, the Debtor believe that
the $40,329,375 cash payment provided for in the plan includes a "top dollar"
price for the PMLP limited partnership interest and significantly in excess of
what would be realized by the PRT Noteholders in a Chapter 7 liquidation
scenario.
XIV.
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN
The following discussion summarizes certain United States federal income
tax consequences of the implementation of the Plan to the Debtors and to the PRT
Noteholders.
The following summary is based on the Internal Revenue Code of 1986 (the
"Code"), Treasury regulations thereunder, judicial decisions and published
rulings and pronouncements of the Internal Revenue Service ("IRS") as in effect
on the date hereof. Changes in these rules, or new interpretations of these
rules, may have retroactive effect and could significantly affect the federal
income tax consequences described below.
The federal income tax consequences of the Plan are complex and subject to
uncertainties. The Debtors have not requested a ruling from the IRS or an
opinion of counsel with respect to any of the tax aspects of the Plan. Thus, no
assurance can be given as to the interpretation that the IRS will adopt. In
addition, this summary does not address foreign, state or local tax consequences
of the Plan, and it does not purport to address the federal income tax
consequences of the Plan to special classes of taxpayers (such as foreign
taxpayers, broker-dealers, banks, insurance companies, financial institutions,
small business investment corporations, regulated investment companies, tax-
exempt organizations or investors in pass through entities). The tax
consequences to PRT Noteholders may vary based upon the specific characteristics
and circumstances of the holders.
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO THE HOLDER OF A
CLAIM. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE
PLAN.
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A. Treatment of the Debtors
1. Transaction Steps. Pursuant to the Plan, the Debtors and other
-----------------
members of the GBCC consolidated group are engaging in various steps to form the
Liquidating Trust and to reorganize (the "Transaction Steps"), prior to the
distribution to the PRT Noteholders of beneficial interests in the Liquidating
Trust with respect to their Existing PRT Notes. The Transaction Steps have been
ordered in such a manner as to minimize adverse tax consequences to the Debtors
and other members of the GBCC consolidated group.
2. Cancellation of Debt.
--------------------
On the Effective Date, and the date thereafter, pursuant to the Plan,
the Debtors will distribute $40,329,375, any additional Reorganized PCC cash not
retained for the Chapter 11 Payables Reserve, the right to receive such retained
cash not later needed for the Chapter 11 Payables Reserve, and beneficial
interests in the Liquidating Trust to holders of Existing PRT Notes with an
outstanding principal amount of $85 million and accrued interest. As described
more fully in Section 6.2 of the Plan, the Liquidating Trust will hold various
-----------
assets (such assets, the "Liquidating Trust Assets").
As discussed more fully below, the transfers to the Liquidating Trust
should be treated for federal income tax purposes as if (i) the Debtors sold the
non-cash Liquidating Trust Assets at their fair market value to the PRT
Noteholders and transferred cash to such PRT Noteholders in exchange for the
Existing PRT Notes, and (ii) immediately thereafter, the PRT Noteholders
contributed the Liquidating Trust Assets to the Liquidating Trust.
The Debtors generally will realize cancellation of indebtedness income
("COD income") in respect of the PRT Existing Notes, in an amount equal to the
difference between (i) the adjusted issue price of the PRT Existing Notes and
the accrued interest from which the Debtors are discharged and (ii) the amount
of cash and the fair market value of non-cash Liquidating Trust Assets
transferred by the Debtors in respect of the PRT Existing Notes. Because the
Debtors are in bankruptcy, this COD income generally will not be included in the
gross income of the Debtors.
In general, the Internal Revenue Code provides that a debtor in a
bankruptcy case must reduce its tax attributes, such as NOLs, tax credits, and
tax basis in its assets, by any excluded COD income. This rule is subject to
certain exceptions, such as where the payment of the discharged debt would have
given rise to a tax deduction, or where the tax basis of the debtor's assets is
less than the debtor's liabilities. The Debtors should realize a significant
amount of excluded COD income pursuant to the Plan.
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B. Consequences to PRT Noteholders
1. Generally. Each PRT Noteholder will recognize gain or loss in respect
---------
of the PRT Existing Notes, in an amount equal to the difference between (i) the
amount of cash and the fair market value of non-cash Liquidating Trust Assets
received by the Debtors and the Liquidating Trust in respect of the PRT Existing
Notes (other than the amounts, if any, treated as interest) and (ii) the
adjusted tax basis of the PRT Existing Notes in the hands of such Noteholder.
The character of any income or loss realized by a PRT Noteholder as
capital gain or loss and, in the case of capital gain or loss, as short-term or
long-term, will depend on a number of factors, including (i) the tax status of
such holder, (ii) whether the Existing PRT Note is a capital asset in the hands
of such holder, (iii) whether the Existing PRT Note has been held for more than
a year, (iv) the extent to which the holder had previously claimed a loss, bad
debt deduction or charge to a reserve for bad debts with respect to the Existing
PRT Note. Special considerations apply to PRT Noteholders who acquired their PRT
Notes at a discount subsequent to their issuance or when interest was in
default. Each holder of an Existing PRT Note is urged to consult its own tax
advisor as to the application of these factors to its own particular
circumstances. The tax consequences of the receipt of cash and property that is
allocable to accrued but unpaid interest is discussed below in the section
entitled "Receipt of Interest."
No gain or loss should be recognized by such a PRT Noteholder on the
deemed contribution of the Liquidating Trust. The Liquidating Trust will provide
to each such PRT Noteholder a report setting out the fair market value as of the
Effective Date of the Liquidating Trust Assets transferred by the Debtors in
respect of the Existing PRT Notes which values will be consistent with those
used by the Debtors in determining their COD income. The PRT Noteholders must
use those values for all federal income tax purposes.
2. Receipt of Interest. A PRT Noteholder will recognize ordinary income
-------------------
to the extent it receives cash or property properly allocable to interest that
has not already been included by the PRT Noteholder in income for federal income
tax purposes under its method of accounting. In the event that the cash and
other property properly allocable to interest is less than the amount previously
included as interest on the Existing PRT Note in the PRT Noteholder's federal
income tax return, the discharged portion of interest may be deducted in the
taxable year in which the Effective Date occurs. Whether, and the extent to
which, consideration distributed under the Plan is properly allocable to
interest is uncertain; PRT Noteholders should therefore consult their own tax
advisors concerning that subject.
3. Backup Withholding. Under the Code, interest, dividends and other
------------------
"reportable payments" may, under certain circumstances, be subject to "backup
withholding" at a 20% rate. Withholding generally applies if the payee (i) fails
to furnish his social security number or other taxpayer identification number
("TIN"); (ii) furnishes an incorrect TIN; (iii) fails properly to report
interest or dividends; or (iv) under certain circumstances, fails to provide a
certified statement,
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signed under penalty of perjury, that the TIN provided is its correct number and
that it is not subject to backup withholding.
4. Tax Treatment of Liquidating Trust. The Liquidating Trust is intended
----------------------------------
to qualify as a liquidating trust pursuant to Treasury Regulations section
301.7701-4(d) and the remainder of this discussion assumes that the Liquidating
Trust so qualifies.
The transfer of assets to the Liquidating Trust will be treated for
federal income tax purposes as if (i) the Debtors sold the non-cash assets in
the Liquidating Trust at their fair market value to the PRT Noteholders and also
transferred cash to such Noteholders, in exchange for the Existing PRT Notes,
and (ii) immediately thereafter, the PRT Noteholders transferred the Liquidating
Trust Assets to the Liquidating Trust. The remainder of this discussion assumes
that the Liquidating Trust will qualify as a liquidating trust for federal
income tax purposes.
The Liquidating Trust will be treated as a grantor trust owned by the
holders of the Existing PRT Notes. Each owner of an interest in the Liquidating
Trust (a "Creditor-beneficiary") will therefore be considered for tax purposes
to own an undivided interest in the corresponding underlying assets of the
Liquidating Trust, and, as discussed more fully below, will be taxable on its
allocable share of the income, gains, or losses of the Liquidating Trust. None
of the losses, NOL carryforwards or other tax attributes of the Debtors will be
available to offset income or gain of the Liquidating Trust and the Creditor-
beneficiaries.
Each Creditor-beneficiary will be required to take into account and
report on its federal income tax return its allocable share of the income, gain,
deduction, loss and credit (and each separate item thereof) recognized by the
Liquidating Trust, including its share of income, gain or loss recognized on
payments with respect to any of the assets on a current basis, or on the
disposition of such assets, in the same manner as if such Creditor-beneficiary
held directly its allocable shares of the assets. A Creditor-beneficiary's gain
or loss on the Liquidating Trust's disposition of an asset will be equal to the
difference between (i) its pro rata share of the amount of cash or other
property received by the Liquidating Trust in exchange for such asset and (ii)
its adjusted basis in its pro rata share of such asset. The character of such
income, gain, deduction or loss will generally be determined by reference to the
nature of the payment and the character of the asset in the hands of such
Creditor-beneficiary.
Each Creditor-beneficiary's obligation to report its share of the
Liquidating Trust's tax items is not dependent on the distribution of any cash
or other proceeds by the Liquidating Trust. Accordingly, a Creditor-beneficiary
may incur a tax liability as a result of owning a beneficial interest in the
Liquidating Trust, regardless of whether the Liquidating Trust distributes any
amounts to such Creditor-beneficiary.
The Liquidating Trust may hold Liquidating Trust Assets for PRT
Noteholders who remain unidentified after the Effective Date (e.g.,
distributions to such PRT Noteholders are returned
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as undeliverable). While there is no authority governing the treatment of such
holders, or their effect, if any, on the qualification of the Liquidating Trust
as a grantor trust, the Liquidating Trust intends to pay tax on income and gain
allocable to such PRT Noteholders at the highest rate applicable to trusts (for
federal income tax purposes, currently, 39.6%), to the extent that income, gain,
deduction, loss and credit (and each separate item thereof) recognized by the
Liquidating Trust cannot be allocated by such PRT Noteholders.
The Liquidating Trust will file annual information tax returns as a
grantor trust with the Internal Revenue Service that will include information
concerning the allocation of items of income, gain, loss, deduction or credit to
Creditor-beneficiaries. Each Creditor-beneficiary will receive a copy of such
information return and will be required to report on its federal income tax
return its allocable share of all such items. The character of income, gain,
loss, credit and deduction to any Creditor-beneficiary, and the ability of any
Creditor-beneficiary to benefit from any deductions or losses, may depend on the
particular status of such Creditor-beneficiary.
XV.
MISCELLANEOUS PROVISIONS
A. Issuance of "Securities" under the Plan.
In the event that any of the Newco Warrants being issued under the Plan,
the beneficial interests of the PRT Noteholders in respect of the Liquidating
Trust, or the undertaking of the Reorganized PCC pursuant to Section 6.2(J) of
--------------
the Plan could be deemed to be "securities," the following discussion applies.
However, it should be noted that the Newco Warrants shall not be transferable to
the beneficial holders of the Liquidating Trust or any other person (nor
exercisable by either the Liquidating Trustee or the beneficial holders of the
Liquidating Trust or any other person) until required regulatory approvals are
obtained from the New Jersey Casino Control Commission. Additionally, the
beneficial interests in the Liquidating Trust shall not be transferable absent
regulatory review and approval of the transferee.
Section 1145 of the Bankruptcy Code exempts the original issuance of
securities under a plan of reorganization from the registration requirements of
section 5 of the 1933 Act and state and local laws requiring registration or
licensing if three principal requirements are satisfied: (i) the securities must
be issued by the debtor, its successor, or an affiliate participating with the
debtor under a plan of reorganization; (ii) the recipients of the securities
must hold a claim against the debtor, an interest in the debtor or a claim for
an administrative expense against the debtor; and (iii) the securities must be
issued entirely in exchange for the recipient's claim against or interest in the
debtor, or "principally" in such exchange and "partly" for cash or property.
Newco will be a Delaware limited liability company whose only member
currently is PCC and whose only member after implementation of the Plan will be
PPI. Pursuant to Section 6.2(O)
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of the Plan, Newco shall become the owner of PCC's 79% common stock interest in
GBH plus certain Cash of the Debtors that is not transferred to the Liquidating
Trustee. The Debtors will transfer to the Liquidating Trust their claims and
rights to receive payments from the Sands Debtors. Pursuant to the Plan, the
Liquidating Trustee will receive, and hold pending the receipt of necessary
regulatory approvals or waivers, the Newco Warrants (warrants to acquire 62 % of
the membership interests in Newco). The Newco Warrants are being issued pursuant
to the Plan by either an "affiliate" of the Debtors or, alternatively, a
"successor" to the Debtors (that is, Newco) inasmuch as the GBH Stock and
certain Cash, both assets of the Debtors, are being transferred to Newco.
Pursuant to the Plan, Cash, beneficial interests in the Liquidating Trust and
the Newco Warrants (upon receipt of necessary regulatory approval) will be
exchanged for claims of PRT Noteholders, who hold claims in these cases against
PCC and PRT. Accordingly, the issuance pursuant to the Plan of the Newco
Warrants and the beneficial interests in the Liquidating Trust are exempt from
the registration requirements of section 5 of the 1933 Act and applicable state
laws.
1. Potential Post-Confirmation Transfers of the Newco Warrants and/or
Beneficial Interests in Liquidating Trust and/or the undertaking of
the Reorganized PCC pursuant to Section 6.2(J) of the Plan.
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Resales of and subsequent transactions in the Newco Warrants and/or the
beneficial interests in the Liquidating Trust (if ever requested of and
permitted by the New Jersey Casino Control Commission) and/or the undertaking of
the Reorganized PCC pursuant to Section 6.2(J) of the Plan after the original
--------------
issuance are also exempted from the registration requirements of section 5 of
the 1933 Act and applicable state laws, except for certain transactions by
"underwriters," as that term is defined in section 1145(b) of the Bankruptcy
Code. Section 1145(b) of the Bankruptcy Code defines four types of
"underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest
("accumulators");
(ii) persons who offer to sell securities offered under a plan for
the holders of such securities ("distributors");
(iii) persons who offer to buy such securities for the holders of such
securities, if the offer is (a) with a view to distributing them or (b)
made under a distribution agreement ("syndicators"); and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in section 2(11) of the 1933 Act.
Under section 2(11) of the 1933 Act, an "issuer" includes any person
directly or indirectly controlling or controlled by Newco and/or the Liquidating
Trust and/or Reorganized PCC, or any
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person under direct or indirect common control with Newco and/or the Liquidating
Trust and/or Reorganized PCC (a "control person").
Whether a person is an "issuer," and therefore an "underwriter," for
purposes of section 1145(b) of the Bankruptcy Code, depends on a number of
factors. These include: (i) the person's equity interest in Newco and/or the
Liquidating Trust and/or Reorganized PCC; (ii) the distribution and
concentration of other equity interests in Newco and/or the Liquidating Trust
and/or Reorganized PCC; (iii) whether the person is an officer or director of
Newco and/or the Liquidating Trust and/or Reorganized PCC; (iv) whether the
person, either alone or acting in concert with others, has a contractual or
other relationship giving that person power over management policies and
decisions of Newco and/or the Liquidating Trust and/or Reorganized PCC; and (v)
whether the person actually has such power notwithstanding the absence of formal
indicia of control. An officer or director of Newco and/or the Liquidating Trust
and/or Reorganized PCC may be deemed a controlling person, particularly if his
position is coupled with ownership of a significant percentage of voting stock.
In addition, the legislative history of section 1145 of the Bankruptcy Code
suggests that a creditor with at least 10% of the securities of a debtor could
be deemed a controlling person.
At the Confirmation Hearing, the Debtors will request that the Bankruptcy
Court make a specific finding and determination that the issuance and
distribution of the Newco Warrants (as well as the "beneficial interests" in the
Liquidating Trust and the undertaking of the Reorganized PCC pursuant to Section
-------
6.2(J) of the Plan) to the Creditors will be covered by the provisions of
- ------
section 1145 of the Bankruptcy Code.
To the extent that a holder of an Allowed Claim is deemed to be an
"underwriter," such holder may make public offers and sales of the Newco
Warrants and/or the beneficial interests in the Liquidating Trust (if ever
requested of and permitted by the New Jersey Casino Control Commission) and/or
the undertaking of the Reorganized PCC pursuant to Section 6.2(J) of the Plan
--------------
only in accordance with the registration requirements of the 1933 Act or
exemptions therefrom (see disclosure concerning Rule 144 below). In addition,
transfers of such securities may be restricted by, and will require compliance
with, state securities laws.
The staff of the SEC has taken the position that control persons may resell
securities issued under a plan or reorganization that was confirmed under the
Bankruptcy Code by complying with Rule 144 (except for the holding period of
Rule 144(d)). Holders of Allowed Claims who believe that they may be statutory
"underwriters" under the definition of that term contained in section 1145(b) of
the Bankruptcy Code are advised to consult with their own counsel as to the
availability of any exemptions under the 1933 Act.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR
HOLDER MAY BE AN UNDERWRITER, THE PLAN PROPONENTS MAKE NO REPRESENTATION
CONCERNING THE RIGHT OF ANY PERSON TO TRADE THE NEWCO WARRANTS AND/OR THE
BENEFICIAL INTERESTS IN THE LIQUIDATING TRUST (IF EVER REQUESTED OF AND
PERMITTED BY THE NEW
Page 53
<PAGE>
JERSEY CASINO CONTROL COMMISSION). THE PLAN PROPONENTS RECOMMEND THAT RECIPIENTS
OF THE NEWCO WARRANTS AND THE BENEFICIAL INTERESTS IN THE LIQUIDATING TRUST
CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE THE NEWCO
WARRANTS AND/OR THE BENEFICIAL INTERESTS IN THE LIQUIDATING TRUST OR WHETHER
THERE ARE ANY RESTRICTIONS ON THE RESALE OF THE NEWCO WARRANTS AND/OR THE
BENEFICIAL INTERESTS IN THE LIQUIDATING TRUST UNDER ANY APPLICABLE "BLUE SKY" OR
OTHER SECURITIES LAWS.
2. Certain Transactions by Stockbrokers
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of this Disclosure Statement (and supplement hereto, if any)
at or before the time of delivery of securities issued under the Plan to their
customers for the first 40 days after the Effective Date. This requirement
specifically applies to trading and other after-market transactions in such
securities.
B. nO LIABILITY for Solicitation or Participation.
As specified in section 1125(e) of the Bankruptcy Code, Persons that
solicit acceptances or rejections of the Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under the Plan,
in good faith and in compliance with the applicable provisions of the Bankruptcy
Code, are not liable, on account of such solicitation or participation, for
violation of any applicable law, rule, or regulation governing the solicitation
of acceptances or rejections of the Plan or the offer, issuance, sale, or
purchase of securities.
XVI.
CONCLUSION
This Disclosure Statement has attempted to provide information regarding
the Debtors' estates and the potential benefits that might accrue to holders of
Claims against and Interests in the Debtors under the Plan as proposed. The Plan
is the result of extensive efforts by the Debtors, their advisors, and
management to provide the creditors with a meaningful dividend. The Debtors
believe that the Plan is feasible and will provide each holder of a Claim
against the Debtors with an opportunity to receive greater benefits than those
that would be received by termination of the Debtors' business and the
liquidation of their assets, or by any alternative plan or sale of the business
to a third party. The Debtors, therefore, hereby urge you to vote in favor of
the Plan.
Whether or not you expect to attend the Confirmation Hearing, which is
scheduled for August 26, 1999, at 2:00 p.m. Eastern Daylight Savings Time, you
must sign, date, and mail your ballot as soon as possible for the purpose of
having your vote count at such hearing. All
Page 54
<PAGE>
votes must be returned to Stacey Jernigan, Esquire, Haynes and Boone, L.L.P.,
901 Main Street, Suite 3100, Dallas, Texas 75202-3714, as indicated on the
Ballot, on or before 4:00 p.m. Eastern Daylight Time on August 20, 1999. Any
ballot which is illegible or which fails to designate an acceptance or rejection
of the Plan will be counted as a vote in favor of the Plan.
Page 55
<PAGE>
Dated: July 7, 1999
------------
PRATT CASINO CORPORATION
Debtor and Debtor-In-Possession
/s/ John C. Hull
----------------------------------------------
By:
Its: Chief Executive Officer
PRT FUNDING CORP.
Debtor and Debtor-In-Possession
/s/ John C. Hull
----------------------------------------------
By:
Its: Chief Executive Officer
NEW JERSEY MANAGEMENT, INC.
Debtor and Debtor-In-Possession
/s/ John C. Hull
----------------------------------------------
By:
Its: Chief Executive Officer
Page 56
<PAGE>
Counsel to the Debtors:
- -----------------------
Robert D. Albergotti, Esquire
Stacey Jernigan, Esquire
HAYNES AND BOONE, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75201-3714
Telephone: (214) 651-5000
Steven K. Kortanek, Esquire
KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP
919 Market Street, Suite 1000
Wilmington, Delaware 19801-3062
Telephone: (302) 426-1189
Page 57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRT FUNDING CORP. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912897
<NAME> PRT FUNDING CORP.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 1 1
<SECURITIES> 0 0
<RECEIVABLES> 36,738 36,738
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 36,739 36,739
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 37,221 37,221
<CURRENT-LIABILITIES> 482 482
<BONDS> 100,000 100,000
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (75,721) (75,721)
<TOTAL-LIABILITY-AND-EQUITY> 37,221 37,221
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,811 4,830
<INCOME-PRETAX> (1,811) (4,830)
<INCOME-TAX> 1 1
<INCOME-CONTINUING> (1,812) (4,831)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,812) (4,831)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PRATT CASINO CORPORATION AND SUBSIDIARIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912928
<NAME> PRATT CASINO CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 1,069 1,069
<SECURITIES> 0 0
<RECEIVABLES> 211 211
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,558 1,558
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 4,097 4,097
<CURRENT-LIABILITIES> 592 592
<BONDS> 100,000 100,000
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (109,253) (109,253)
<TOTAL-LIABILITY-AND-EQUITY> 4,097 4,097
<SALES> 0 0
<TOTAL-REVENUES> 300 600
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> (760) (2,536)
<LOSS-PROVISION> 56 56
<INTEREST-EXPENSE> 1,781 4,744
<INCOME-PRETAX> (777) (1,664)
<INCOME-TAX> 1 1
<INCOME-CONTINUING> (778) (1,665)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (778) (1,665)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
