Sample Plan and
Disclosure Statement _ Debt to Equity Conversion

This Disclosure Statement and Plan of Reorganization were the culmination of the 1999 Chapter 11 reorganization of Stuart Entertainment, Inc., a leading manufacturer and distributor of bingo and bingo-related gaming supplies. The reorganization was pre-negotiated with a majority of Stuart's debt holders before the petition was filed, and was structured around a "conversion" of Stuart's $100 million of unsecured bonds into all the equity of the reorganized company. Old equity was cancelled, and the holders of old common shares received a small cash distribution under the Plan. While the Plan provided that general unsecured claims received 25¢ on the dollar on account of their claims, most general unsecured creditors were trade vendors and suppliers, who had already been paid in full in accordance with an order issued by the Delaware bankruptcy court at the beginning of the case. This version of the Disclosure Statement has been edited and excerpted for publication purposes.

Executive Guide to Corporate Bankruptcy

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

DISCLOSURE STATEMENT IN SUPPORT OF

FIRST AMENDED PLAN OF REORGANIZATION

Sample Plan and Disclosure Statement _

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Executive Guide to Corporate Bankruptcy

Sample Plan and Disclosure Statement _

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Executive Guide to Corporate Bankruptcy

QUESTIONS AND ANSWERS ABOUT

THE STUART REORGANIZATION
The following is a brief summary of certain basic questions and answers pertinent to Stuart's reorganization. This summary is not intended to be a complete discussion of the matters raised in this summary. You should refer to the remainder of the Disclosure Statement and the Plan for a detailed description of Stuart's reorganization.

Q: Why is Stuart reorganizing?

A: Over the past several years Stuart has incurred significant indebtedness in connection with the operation of its business, as well as increased competition in its industry. As a result, Stuart has no ability to service or otherwise satisfy its existing obligations to its Noteholders. Stuart believes that the restructuring contemplated by the attached Plan will enable its Creditors to recover more than if Stuart were to seek other restructuring alternatives or a liquidation under Chapter 7 of the Bankruptcy Code.

Q: What is a Chapter 11 proceeding?

A: Chapter 11 is the principal reorganization chapter of the United States Bankruptcy Code. Under Chapter 11, a debtor such as Stuart may reorganize its business for the benefit of itself and its creditors and shareholders. Bankruptcy Court confirmation of a plan of reorganization is the principal objective of a Chapter 11 case.

Q: How are parties that have a relationship with Stuart treated in a Chapter 11 proceeding?

A: It depends on what sort of claim you have against Stuart and how that claim is classified under the Plan of Reorganization. In general, the Chapter 11 Plan divides claims and equity interests that individuals and entities have against Stuart into separate classes. The Plan specifies the property of Stuart that each class is to receive and contains other provisions necessary to the reorganization of Stuart. Depending on how your claim is classified, and assuming you have an allowed claim, you may receive cash, equity securities in Stuart, the preservation of your relationship with Stuart, or nothing at all. You should review this Disclosure Statement to more fully understand what your rights are under the Plan.

Q: What is the process for approving Stuart's Chapter 11 reorganization?

A: Generally under the Bankruptcy Code, every class of claims that is

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"impaired" under the Plan must vote in favor of the Plan in order for it to be confirmed by the Bankruptcy Court. A class of claims in impaired if claims in that class are paid less than the full value of the claims under the Plan. Holders of claims constituting at least two-thirds in dollar amount and more than one-half in number of allowed claims within each class must vote to accept the Plan for that class to be deemed to have accepted the Plan. Holders of at least two-thirds in the amount of allowed equity interests in each impaired class of equity interests must vote to accept the Plan in order for that class to be deemed to have accepted the Plan.

If a class of claims will be paid in full under the Plan, or reinstated, or their legal, equitable and contractual rights are to remain unchanged by the reorganization, such classes will be deemed to be unimpaired and to have accepted the Plan. Accordingly, holders of such claims will not be entitled to vote on the Plan.

Q: Can the Plan be approved if one or more of the impaired classes doesn't receive the requisite vote to accept the Plan?

A: Yes. Chapter 11 of the Bankruptcy Code permits a plan of reorganization to be confirmed if at least one class of impaired claims vote in favor of the plan. However, if not all impaired classes vote to accept the plan, the Bankruptcy Court must find that the plan meets a number of statutory tests before it may confirm, or approve, the plan. Many of these tests are designed to protect the interests of holders of claims or equity interests who do not vote to accept the plan but who will nonetheless be bound by its provisions if confirmed by the Bankruptcy Court.

Q: What do I, as a holder of a claim against Stuart, need to do to ensure that I have an Allowed Claim under the Plan?

A: You should read carefully this Disclosure Statement and ensure that you follow the instructions contained in it for asserting your claim and that you meet the appropriate deadlines. You also should ensure that you vote timely on the Plan by promptly returning your Ballot. You may wish to consult legal counsel with respect to your rights.

Q: As a current holder of Stuart common stock, what will I receive if the Plan is confirmed by the Bankruptcy Court?

A: If the Plan is confirmed by the Bankruptcy Court, you will receive a pro rata share of $150,000 and nothing else. For example, if you own ten percent (10%) of the outstanding shares of Common Stock of Stuart on the applicable voting record date, you would be entitled to ten percent (10%) of the $150,000, or $15,000. This also

Executive Guide to Corporate Bankruptcy

means that, following confirmation of the Plan, you will no longer be a shareholder of Stuart and will have no other rights against Stuart.

Q: As a current holder of 12-1/2% Senior Subordinated Notes due 2004 (the "Notes") of Stuart, what will I receive if the Plan is approved by the Bankruptcy Court?

A: If the Plan is confirmed by the Bankruptcy Court, Stuart will issue one hundred percent (100%) of the shares of its New Common Stock to holders of the Notes. Accordingly, subject to the discussion below, you will receive your pro rata share of the New Common Stock issued by Stuart. For example, if you own ten percent (10%) of the Notes, you will be entitled to receive ten percent (10%) of the shares of New Common Stock then issued by Stuart.

Q: Is the percentage of New Common Stock that I receive under the Plan subject to decrease in any way?

A: Yes. The Plan contemplates that the executive management of Stuart will receive options to purchase New Common Stock upon confirmation of the Plan. If exercised, these options (which are referred to under the Plan as the Executive Options and the Equity Incentive Options) will result in the issuance of additional shares of New Common Stock, which will result in a decrease in the percentage of shares of New Common Stock held by you. This concept is commonly referred to as dilution.

Q: As a holder of Notes, may I elect to receive cash in lieu of shares of New Common Stock?

A: Yes. You may elect to receive cash in lieu of shares of New Common Stock by selecting the appropriate box on your Ballot. By making such an election, you will be entitled to receive a cash payment equal to twenty five percent (25%) of your Allowed Claim based on your ownership of Notes. For example, if you have an Allowed Notes Claim of $800,000 and you elect on your Ballot to receive cash, you would be entitled to receive $200,000 in cash in full satisfaction of your Claim.

Q: What do I need to do now?

A: If you are the holder of a Claim or Equity Interest in Classes 3A, 4, 5, 6, or 7, you should review this Disclosure Statement and the Plan, and fill out a Ballot to accept or reject the Plan. All Ballots must be actually received by the Voting Agent, Arthur Andersen LLP, Attn: Josh Skevington, P.O. Box 60725, Phoenix, Arizona 85082, Tel. (602) 286-1841, Fax (602) 286-2199, by 4:00 p.m.,

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Eastern time, on November 26, 1999, unless the Bankruptcy Court extends that deadline.

If you are the holder of a Claim in Classes 1, 2, or 3, your Class is unimpaired and is therefore deemed to have accepted the Plan. Accordingly, you are not entitled to vote.

Q: When is Stuart expected to complete its reorganization?

A: A hearing before the Bankruptcy Court to consider confirmation of the Plan is currently set for December 14, 1999. Assuming that hearing occurs as scheduled, and is completed as Stuart intends and anticipates, the Plan will become effective, and Stuart's reorganization will be complete, by December 31, 1999.

Q: Who should I contact if I have questions concerning the plan?

A: If you have additional questions concerning the Plan, please contact:

Craig D. Hansen

Thomas J. Salerno

Jordan A. Kroop

SQUIRE, SANDERS & DEMPSEY L.L.P.

40 North Central Avenue, Suite 2700

Phoenix, Arizona 85004

Telephone: (602) 528-4000

Facsimile: (602) 253-8129

Executive Guide to Corporate Bankruptcy

INTRODUCTION AND SUMMARY

Overview

On August 13, 1999, STUART ENTERTAINMENT, INC., a Delaware corporation ("Stuart"), filed its petition for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). That same day, Stuart filed with the Bankruptcy Court its Plan of Reorganization. On August 23, 1999, Stuart filed a Disclosure Statement with respect to the August 13, 1999 Plan of Reorganization. On October 11, 1999, Stuart filed its First Amended Plan of Reorganization (the "Plan") and this Disclosure Statement. With this Disclosure Statement, Stuart has filed with the Bankruptcy Court the First Amended Supplement to the Plan of Reorganization (the "Plan Supplement"), which contains, among other things, certain documentation necessary to implement the Plan. For purposes of this Disclosure Statement, the Plan and the Plan Supplement will be collectively referred to as the Plan, unless otherwise noted.

The purpose of this Disclosure Statement is to provide Stuart's Creditors and holders of Equity Interests with adequate information to make an informed judgment about the Plan. This information includes, among other matters, a brief history of Stuart, a summary of its Chapter 11 Case, a description of Stuart's assets and liabilities, a description of the terms under which Stuart's business will be reorganized and restructured in accordance with the Plan, and an explanation of how the Plan will function.

It is important that Creditors and holders of Equity Interests read and carefully consider this Disclosure Statement and the Plan, and that such Creditors and holders of Equity Interests vote promptly on the acceptance of the Plan. Stuart's current capital structure is over-leveraged and, as a result, Stuart has no ability to service or otherwise satisfy its obligations to holders of the 12½% Senior Subordinated Notes due November 15, 2004 (the "Notes"). Stuart believes that the restructuring contemplated by the Plan will yield a recovery to Creditors greater than the return that could be achieved through other restructuring alternatives or a liquidation under Chapter 7 of the Bankruptcy Code.

YOU SHOULD READ THIS DISCLOSURE STATEMENT IN ITS ENTIRETY BEFORE VOTING ON THE PLAN. THIS DISCLOSURE STATEMENT SUMMARIZES CERTAIN TERMS OF THE PLAN, BUT THE PLAN ITSELF IS THE GOVERNING DOCUMENT. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN AND THE DISCLOSURE STATEMENT, THE TERMS OF THE PLAN CONTROL.

If you have any questions concerning the procedures for voting, please contact Donald E. Tanguilig, Squire, Sanders & Dempsey L.L.P., Two Renaissance Square, 40 North Central Avenue, Suite 2700, Phoe

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nix, Arizona 85004, telephone number (602) 528-4000, facsimile number (602) 253-8129.

If you have questions concerning your treatment under the Plan, please contact legal counsel to Stuart, Craig D. Hansen and Jordan A. Kroop, Squire, Sanders & Dempsey L.L.P., Two Renaissance Square, 40 North Central Avenue, Suite 2700, Phoenix, Arizona 85004, telephone number (602) 528-4000, facsimile number (602) 253-8129.

A SUMMARY DESCRIPTION OF THE CLASSIFICATION OF YOUR CLAIM OR EQUITY INTEREST AND THE TREATMENT PROPOSED UNDER THE PLAN ARE CONTAINED IN "OVERVIEW OF THE PLAN _ Treatment of Claims and Equity Interests Under the Plan" BELOW. EXHIBIT 1 TO THIS DISCLOSURE STATEMENT IS A COMPLETE COPY OF THE PLAN.

Stuart reserves the right to amend, modify, or supplement the Plan at any time before the confirmation of the Plan, provided that such amendments or modifications do not materially alter the treatment of, or distributions to, Creditors and holders of Equity Interests under the Plan.

SECURITIES ARE TO BE ISSUED BY REORGANIZED STUART IN ACCORDANCE WITH THE PLAN. STUART BELIEVES THAT SUCH SECURITIES ARE BEING OFFERED AND ISSUED UNDER EXEMPTIONS PROVIDED IN SECTION 1145 OF THE BANKRUPTCY CODE AND CERTAIN RULES AND REGULATIONS PROMULGATED UNDER THAT SECTION. WHILE THESE SECURITIES MAY BE TRANSFERRED AND RESOLD WITHOUT REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, THE PLAN MAY IMPOSE CERTAIN RESTRICTIONS ON THE TRANSFERABILITY OF SUCH SECURITIES. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT TAKEN A POSITION WITH RESPECT TO THE SECURITIES TO BE ISSUED IN ACCORDANCE WITH THE PLAN.

THE FINANCIAL PROJECTIONS CONTAINED IN THIS DISCLOSURE STATEMENT REPRESENT STUART'S ESTIMATES OF FUTURE EVENTS BASED ON CERTAIN ASSUMPTIONS MORE FULLY DESCRIBED BELOW, SOME OR ALL OF WHICH MAY NOT BE REALIZED. NONE OF THE FINANCIAL ANALYSES CONTAINED IN THIS DISCLOSURE STATEMENT IS CONSIDERED TO BE A "FORECAST" OR "PROJECTION" AS TECHNICALLY DEFINED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE USE OF THE WORDS "FORECAST," "PROJECT," OR "PROJECTION" WITHIN THIS DISCLOSURE STATEMENT RELATE TO THE BROAD EXPECTATIONS OF FUTURE EVENTS OR MARKET CONDITIONS AND QUANTIFICATIONS OF THE POTENTIAL RESULTS OF OPERATIONS UNDER THOSE CONDITIONS.

Executive Guide to Corporate Bankruptcy

ALL FINANCIAL INFORMATION PRESENTED IN THIS DISCLOSURE STATEMENT WAS PREPARED BY STUART. reference IS MADE TO EXHIBIT 2 OF THE DISCLOSURE STATEMENT, WHICH IS STUART'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, AS AMENDED ("FORM 10-K/A"). REFERENCE IS ALSO MADE TO STUART'S QUARTERLY REPORT ON FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 ("FORM 10-Q"), LOCATED AT EXHIBIT 3. EACH CREDITOR AND EQUITY INTEREST HOLDER IS URGED TO REVIEW THE PLAN IN FULL BEFORE VOTING ON THE PLAN TO ENSURE A COMPLETE UNDERSTANDING OF THE PLAN AND THIS DISCLOSURE STATEMENT.

Certain statements, projections of future operating results, valuation estimates and the like contained in this Disclosure Statement and elsewhere are statements that Stuart believes constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Reorganized Stuart, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: general economic and business conditions; competition; loss of any significant customers; changes in business strategy or development plans; availability, terms and deployment of capital; adverse uninsured determinations in any existing or future litigation or regulatory proceedings and any other factors referenced in this Disclosure Statement or otherwise. See "RISK FACTORS." These forward-looking statements speak only as of the date of this Disclosure Statement, and Stuart expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained in this Disclosure Statement to reflect any change in Stuart's or Reorganized Stuart's expectations with regard to such statements or any change in events, conditions or circumstances on which any such statement is based.

THIS DISCLOSURE STATEMENT IS INTENDED FOR THE SOLE USE OF CREDITORS AND OTHER PARTIES IN INTEREST, AND FOR THE SOLE PURPOSE OF ASSISTING THEM IN MAKING AN INFORMED DECISION ABOUT THE PLAN. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONJUNCTION WITH THE SOLICITATION OF VOTES TO ACCEPT OR REJECT THE PLAN OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DISCLOSURE STATEMENT OR IN THE BALLOTS. IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATIONS MUST

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NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY STUART.

THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION TO PERMIT A CREDITOR TO VOTE ON THE PLAN.

CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS DISCLOSURE STATEMENT HAVE THE DEFINITIONS GIVEN TO THEM IN THE PLAN.

STUART STRONGLY URGES ACCEPTANCE OF THE PLAN, THE TERMS OF WHICH IT NEGOTIATED WITH CONTRARIAN CAPITAL MANAGEMENT, L.L.C., WHO ALSO STRONGLY URGES ACCEPTANCE OF THE PLAN.

Executive Guide to Corporate Bankruptcy

Summary of Classification and Treatment Under the Plan ¹

As described more fully in this Disclosure Statement, the Plan enables a restructuring of Stuart's prepetition indebtedness and operations. Among other things, the Plan provides for the exchange of Notes for New Common Stock, provided that certain holders of Notes may elect to receive a cash distribution in lieu of New Common Stock. Holders of General Unsecured Claims, to the extent not otherwise previously satisfied, will receive in satisfaction of their Claims a cash payment equivalent to twenty-five percent (25%) of the value of their Allowed General Unsecured Claim. Holders of Old Common Stock, and other holders of Equity Interests and Equity Related Claims will receive a Pro Rata portion of $150,000 in Cash, subject to certain conditions. Set forth in the following section is a summary of the classification and treatment of Claims and Equity Interests under the Plan.

The Plan divides the Claims of known Creditors and Equity Interests into Classes and sets forth the treatment afforded to each Class. The classification of Claims and the distributions to be made under such classification takes into account the relative priorities of Claims, Equity Interests, and Equity Related Claims. Stuart believes that it has classified all Claims, Equity Interests, and Equity Related Claims in compliance with the provisions of Section 1122 of the Bankruptcy Code.

If the Plan is confirmed by the Bankruptcy Court, each holder of an Allowed Claim will receive the same treatment as all holders of other Allowed Claims in the same Class, regardless of whether a particular holder voted to accept the Plan. Moreover, upon confirmation, the Plan will be binding on all Creditors and Equity Interests regardless of whether such Creditors or Equity Interests voted to accept the Plan.

The Plan creates various Classes of Claims against, and Equity Interests in, Stuart. The table below sets forth the specific classification and treatment under the Plan of each of the Classes.

¹ This summary contains only a brief and simplified description of the classification and treatment of Claims and Equity Interests under the Plan. This summary does not describe every provision of the Plan. Accordingly, you should refer to the entire Disclosure Statement (including exhibits), the Plan, and the Plan Supplement for a complete description of the classification and treatment of Claims and Equity Interests.

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Executive Guide to Corporate Bankruptcy

Sample Plan and Disclosure Statement _

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Voting and Confirmation Procedures

This Disclosure Statement is accompanied by copies of the following: (a) the Plan, attached as Exhibit 1 to this Disclosure Statement; (b) an Order of the Bankruptcy Court approving this Disclosure Statement under Section 1125 of the Bankruptcy Code; (c) an Order of the Bankruptcy Court approving the forms of Ballots to be used for voting on the Plan, and approving the notice of, and fixing the time for, submitting Ballots and the Confirmation Hearing; and (d) a Ballot to accept or reject the Plan.

The appropriate form of Ballots are to be used by holders of Claims and Equity Interests in Classes 3A, 4, 5, 6, and 7. Holders of Claims in Classes 1, 2, and 3 are unimpaired under the Plan and are deemed to have accepted the Plan without voting. With respect to holders of Notes and Equity Interests, Ballots are being furnished to record holders of such Notes and Equity Interests as of the Voting Record Date, with instructions requiring that all such record holders distribute Ballots to their respective beneficial holders, collect such beneficial holders' Ballots, and complete and submit a master Ballot summarizing the Ballots received from beneficial holders.

Who May Vote. Under the Bankruptcy Code, impaired classes of Claims or Equity Interests are entitled to vote on a plan of reorganization. A Class that is not impaired under a plan is deemed to have accepted a Plan and does not vote. A Class is "impaired" under the Bankruptcy Code unless the legal, equitable, and contractual rights of the holders of Claims or Equity Interests in that Class are not modified or altered. For purposes of the Plan, holders of Claims and Equity Interests in Classes 3A, 4, 5, 6, and 7 are impaired and entitled to vote on the Plan.

Voting Instructions. All votes to accept or reject the Plan must be cast by using the appropriate form of Ballot enclosed with this Disclosure Statement. No votes other than ones using such Ballots will be counted, except to the extent the Bankruptcy Court orders otherwise. The Bankruptcy Court has set October 27, 1999 as the Voting Record Date under the Plan. The Voting Record Date is the date for the determination of record holders of Claims entitled to receive a copy of this Disclosure Statement and vote, using appropriate Ballots, to accept or reject the Plan. All Ballots (including master Ballots for record holders of Notes and Equity Interests as described above) must be actually received by Arthur Andersen LLP, Attn: Josh Skevington, P.O. Box 60725, Phoenix, Arizona 85082, Tel. (602) 286-1841, Fax (602) 286-2199 (the "Voting Agent"), by 4:00 p.m., Eastern time, on November 26, 1999 (the "Voting Deadline"), unless the Bankruptcy Court extends such date before such time.

Executive Guide to Corporate Bankruptcy

For your vote to count, your Ballot must be properly completed according to the voting instructions on the Ballot and received no later than the Voting Deadline by the Voting Agent. Any Ballot not indicating an acceptance or rejection will be deemed an acceptance of the Plan. If you are a beneficial holder of a security held by a nominee or record holder, your Ballot must be returned to your nominee or record holder in time for the nominee or record holder to include a summary of your Ballot on the Master Ballot to be submitted to the Voting Agent by the Voting Deadline.

For questions about voting procedures, the amount of your Claim, or the packet that you received, please contact:

Donald E. Tanguilig

Squire, Sanders & Dempsey L.L.P.

40 North Central Avenue, Suite 2700

Phoenix, Arizona 85004

Telephone: (602) 528-4000

Facsimile: (602) 253-8129

If you have any questions concerning the restructuring or the Plan, please contact:

Craig D. Hansen

Thomas J. Salerno

Jordan A. Kroop

SQUIRE, SANDERS & DEMPSEY L.L.P.

40 North Central Avenue, Suite 2700

Phoenix, Arizona 85004

Telephone: (602) 528-4000

Facsimile: (602) 253-8129

Acceptance or Rejection of the Plan

Under the Bankruptcy Code, a voting Class of Claims is deemed to have accepted the Plan if it is accepted by creditors in such Class who, of those voting on the Plan, hold at least two-thirds in amount and more than one-half in number of the Allowed Claims of such Class. A voting Class of Equity Interests is deemed to have accepted the Plan if it is accepted by holders of Equity Interests who hold at least two-thirds in amount of the Equity Interests of such Class that have actually voted on the Plan.

If the Plan is not accepted by all impaired Classes of Allowed Claims, the Plan may still be confirmed by the Bankruptcy Court under Section 1129(b) of the Bankruptcy Code if: (a) the Plan has been accepted by

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at least one impaired Class of Claims; and (b) the Bankruptcy Court determines, among other things, that the Plan "does not discriminate unfairly" and is "fair and equitable" with respect to each non-accepting impaired Class (the "Cramdown Provisions"). If the Plan is not accepted by all impaired Classes of Allowed Claims or Equity Interests, Stuart reserves the right to ask the Bankruptcy Court to confirm the Plan under the Cramdown Provisions.

Confirmation Hearing, Objections

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a Confirmation Hearing. Section 1128(b) of the Bankruptcy Code provides that any party-in-interest may object to Confirmation of the Plan. Under Section 1128 of the Bankruptcy Code and Rule 3017(c) of the Bankruptcy Rules, the Bankruptcy Court has scheduled the Confirmation Hearing before the Honorable Mary F. Walrath, United States Bankruptcy Judge, at the United States Bankruptcy Court, District of Delaware, 824 Market Street, 5^th Floor, Wilmington, Delaware for December 14, 1999 at 2:00 p.m. A notice (the "Confirmation Hearing Notice") setting forth the time and date of the Confirmation Hearing has been included along with this Disclosure Statement. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice, except for an announcement of such adjourned hearing date by the Bankruptcy Court in open court at such hearing.

Any objection to Confirmation of the Plan must be in writing, must comply with the Bankruptcy Rules and the Local Rules of the Bankruptcy Court, and must be filed and served as required in the Confirmation Hearing Notice.

Executive Guide to Corporate Bankruptcy

THE CHAPTER 11 FILING
Overview of the Debtor and Its Business Operations

Stuart, formerly known as Bingo King Company, Inc. and currently doing business as Bingo King (in conjunction with several non-debtor subsidiaries), is a leading manufacturer of a full line of bingo and bingo-related products, including disposable bingo paper, pulltab tickets, ink dabbers, electronic bingo systems and related equipment and supplies. Stuart enjoys a broad reputation for innovation and new product development and has been a leader in the bingo industry for approximately 50 years, having helped to popularize many important breakthroughs in bingo, such as disposable bingo paper and electronic bingo systems.

Bingo is one of North America's most popular forms of gaming and entertainment. Many nonprofit organizations sponsor bingo games for fundraising purposes, while commercial entities, Indian gaming enterprises, casinos and government sponsored entities operate bingo games for profit. Stuart sells or leases its products to this diverse group of end-users through more than 300 distributors, its direct sales force and Stuart-owned distribution outlets.

Stuart believes that it derives a competitive advantage in the bingo industry by offering a wider array of bingo and bingo-related products than its competitors. Stuart supplies bingo halls with all the products and equipment necessary to operate a bingo game of any size, including bingo paper, fixed-base or hand-held electronic bingo systems, ink dabbers, pulltab tickets, bingo ball blowers, public address systems, television monitors, multi-media flashboards, computerized verification systems, tables, chairs, concession equipment, and party supplies.

Stuart was reincorporated in Delaware in 1986, and is a successor, by merger effective as of January 21, 1987, to a business formed in 1948. Stuart's principal executive office is currently located at 3211 Nebraska Avenue, Council Bluffs, Iowa 51501. Its telephone number is (712) 323-1488.

Relationship of Debtor With Its Subsidiaries

Stuart is the operating parent company of a family of subsidiary companies, certain of which maintain ongoing operations relating either to certain areas of Stuart's business or certain geographical areas. Additionally, certain subsidiaries do not maintain ongoing operations, but rather hold various gaming licenses necessary to enable Stuart and its operating subsidiaries to maintain business operations in compliance with applicable law and gaming regulations. Stuart and its subsidiaries are organized as follows:

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As reflected in the chart above, Stuart's significant operating subsidiaries are as follows:

Video King Gaming Systems, Inc. Video King Gaming Systems, Inc., a wholly owned subsidiary of Stuart ("Video King"), was formed in 1992 to develop a line of electronic gaming equipment, primarily for Stuart's bingo markets. Video King began manufacturing and shipping selected products in 1993. Video King continues to focus its sales efforts within the Company's established bingo markets. The traditional domestic and international for profit gaming markets may be a future market, but Video King has no current plans for such markets.

Stuart Entertainment, S.A. de C.V. Stuart Entertainment, S.A. de C.V., a Mexican corporation and a wholly owned subsidiary of Stuart ("Stuart Entertainment Mexico") was formed in 1991 by Stuart and Bingo Press & Specialty Limited for the purpose of printing and finishing bingo paper exclusively for their respective needs. During 1998, 1997 and 1996 all of the bingo paper manufactured by Stuart Entertainment Mexico was sold to Stuart.

Bingo Press & Specialty Limited. Bingo Press & Specialty Limited, an Ontario, Canada corporation and a wholly owned subsidiary of Stuart ("Bazaar"), operates under the trade name Bazaar & Novelty and was acquired by Stuart in December 1994. Bazaar manufactures and distributes a complete line of bingo cards, pulltab tickets, ink dabbers, supplies and accessories in Canada. Bazaar's products are sold primarily to distributors, who

Executive Guide to Corporate Bankruptcy

resell them to fraternal, charitable, religious and social organizations, lodges, hospitals, nursing homes, PTA groups, legions, and other similar not-for-profit organizations that use such products to raise money and provide entertainment. To a lesser extent, Bazaar's products are sold to charitable and commercial bingo halls, governmental lottery agencies, and through Stuart-owned distribution outlets.

Bingo Systems and Supply, Inc. Bingo Systems and Supply, Inc. ("Bingo Systems") became a wholly owned subsidiary of Stuart by virtue of an acquisition effective on November 1, 1998. Bingo Systems finishes bingo paper manufactured by Stuart and distributes bingo paper, ink dabbers, bingo equipment, pulltabs tickets, and other related products to fraternal, charitable, religious and social organizations, lodges, hospitals, nursing homes, PTA groups, legions, and other similar not-for-profit organizations that use such products to raise money and provide entertainment.

Previous Acquisitions

Acquisition of Bingo Systems & Supply, Inc. On November 1, 1998, Stuart completed the acquisition of all the outstanding capital stock of Bingo Systems for aggregate consideration of $2,200,000, consisting of $1,000,000 in cash and a $1,200,000 promissory note, made payable to the Elliott Trust and providing the basis for the Elliott Trust Secured Claim.

Acquisition of Alberta Bingo Supply, Inc. On June 1, 1998, Bazaar purchased certain assets related to the bingo business formerly conducted by one of its distributors, Alberta Bingo Supply, Inc. ("ABS"). Under the terms of the agreement, Bazaar paid C$1,000,000 for the goodwill of the acquired business and C$410,000 for certain equipment and fixtures. Bazaar agreed to sell the ABS existing inventory relating to its bingo business, as an agent for ABS, for a period of six months ending December 1, 1998. Bazaar agreed to pay to ABS the difference between C$1,404,113 and the amount of such inventory (valued at cost) sold during the six-month period. As of December 31, 1998, Bazaar paid or has been credited C$1,354,113 for the inventory and has withheld C$50,000 pending a minor dispute concerning inventory valuation.

Acquisition of Power Bingo Corp. On July 1, 1997, Stuart completed the acquisition of substantially all the assets of Power Bingo Corp., a market leader in hand-held electronic bingo units for a purchase price of $1.2 million, consisting of $1.1 million in cash and forgiveness of a note receivable plus future payments of approximately $2.7 million that was based on the market performance of the hand-held electronic bingo units. All payments have been made.

Industry Overview

Bingo Industry. The National Association of Fundraising Ticket Manufacturers' 1996 Charity Gaming in North America Report (the "NAFTM

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Report") estimated that over 60,000 organizations have licenses to operate bingo games in the United States and Canada. According to industry reports compiled by the Bingo Bugle, which is a series of regional newspapers aimed at bingo players, bingo players visit bingo halls in the United States and Canada an estimated 1.2 billion times a year. Stuart believes that significant amounts are wagered on bingo in the United States and Canada, and that electronic bingo systems may be a positive factor in encouraging additional players to visit bingo halls. Over each of the last few years, more states have begun to permit electronic bingo and Stuart is finding increased player acceptance of electronic bingo systems as the products are introduced into different markets.

Regulations governing traditional paper bingo and electronic bingo systems vary by jurisdiction. In the United States, traditional paper bingo is legal in all states except Arkansas, Hawaii, Tennessee and Utah. Electronic bingo systems are currently legal in 29 states in some form and in Indian gaming halls in compliance with the Indian Gaming Regulatory Act ("IGRA"). In Canada, traditional paper bingo is legal in all ten provinces and two territories. Fixed-base electronic bingo systems, however, may only be used in halls owned or authorized by the provincial governments. Currently, fixed-base electronic gaming systems are permitted only in British Columbia and Manitoba, while hand-held electronic bingo systems are legal only in Ontario and must be used in conjunction with bingo paper.

The bingo industry in the United States is highly fragmented among numerous bingo game operators. The majority of bingo games in the United States are operated by small nonprofit organizations for fundraising purposes. Such organizations include religious, fraternal, social, military, and civic organizations. A smaller percentage of bingo games in the United States are operated for profit in large bingo halls by casinos, Indian gaming enterprises, and commercial operators. For example, Foxwoods Resort and Casino in Connecticut, the Seminole Indian Casino in Florida, the Potawatomi Bingo Casino in Wisconsin, and Win River Casino Bingo in California all feature large-scale modern bingo halls with seating capacities ranging in size from approximately 1,000 to 3,000 seats.

In Canada, bingo is generally highly centralized under the administration of government-sponsored entities or licensed commercial operators, which own and operate large bingo halls, with average session attendance in excess of 175 players. These government sponsored entities and commercial operators run games on behalf of various charitable organizations, often playing several sessions per day.

Satellite-linked bingo games have been introduced in recent years in the Canadian Provinces of Alberta, British Columbia, Quebec, and Ontario. The British Columbia, Quebec, and Ontario satellite bingo systems are government operated. These satellite-linked bingo games pool the prize money available among commercial bingo halls thus offering higher jack

Executive Guide to Corporate Bankruptcy

pots. Satellite-linked games have been approved in the state of Washington, but have not been introduced.

Pulltab Industry. In the United States and Canada, pulltab tickets generally are sold at charitable bingo halls as an additional source of fundraising. In several states and the Province of Ontario, pulltab tickets are approved for sale in third party retail locations, including bars and taverns. Eleven states also use pulltab tickets, in addition to scratch-off tickets, in their instant lottery ticket sales. Stuart believes that significant amounts of money are wagered on pulltab tickets in the United States and Canada, and that these amounts may increase if additional jurisdictions permit the sale of pulltab tickets and if jurisdictions that currently permit the use of pulltab tickets expand the permitted point of sale locations to include third party retail locations.

In the United States, pulltab tickets are currently legal (either through state lotteries or through other outlets) in approximately 40 states. Each state has developed specific regulations that affect the style of play in its market by regulating the point of sale, price per ticket, game themes and payouts.

In Canada, seven provincial lotteries use pulltab tickets in their instant lottery ticket sales. Ontario allows the sale of pulltab tickets at charitable bingo halls and under charity license at third party retail locations such as bars, restaurants, concessionaires, gas stations, hotels, mall kiosks, supermarkets, convenience stores and bowling alleys. Currently there are approximately 9,500 such third party retail locations in Ontario.

In November 1997, Stuart was awarded a five-year contract by the Ontario Gaming Control Commission ("OGC") to be the sole supplier of pulltab tickets to all charity licensed retail locations in the Province of Ontario (see "Government Regulations"). Stuart's position in Ontario, which is, according to the 1997 NAFTM Report, North America's largest charity marketplace, has been solidified with the five-year contract with possible extensions. In September 1997, the OGC announced the list of the final proponents for operation and ownership of the 44 charity gaming clubs that were to replace the system of roving Monte Carlo casinos. In 1998, the OGC withdrew its approval of such clubs and assumed ownership and operation of the five clubs then operating. The OGC also authorized the use of slot machines at seventeen racetracks in Ontario. Stuart is currently unable to anticipate whether the clubs or slot machines will have a material impact on the bingo and pulltab markets in Ontario.

Competition

The markets in which Stuart's products compete are extremely competitive. The principal competitive factors in the bingo paper and pulltab ticket markets are quality, service, and price. Stuart's major competitor in the bingo paper and pulltab markets is Arrow International. Stuart's elec

Sample Plan and Disclosure Statement _

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tronic bingo systems, System 12Ô and Power Bingo KingÔ, compete with a number of other manufacturers of electronic bingo systems, none of whom manufacture a full line of bingo and bingo-related products. Stuart also competes with other forms of entertainment such as lotteries, on-line gaming products and the continued expansion of the legalization by the United States, Canada, and other foreign jurisdictions of casino gaming. While there can be no assurances that Stuart will continue to remain competitive in these or other areas, Stuart believes that through its strong distribution network, manufacturing facilities, and technology it will be able to maintain its unique position as a manufacturer of a full line of both consumable and electronic bingo and bingo-related products.

Stuart's Business

Products

Stuart offers a wide array of bingo and bingo-related products. Stuart is capable of supplying a bingo hall with all the products and equipment necessary to operate a bingo game of any size, including bingo paper, fixed-base or hand-held electronic bingo systems, ink dabbers, pulltab tickets, bingo ball blowers, public address systems, television monitors, multi-media flashboards, computerized verification systems, tables, chairs, concession equipment and party supplies. Stuart is organized on a global product line basis under three reportable segments.

Consumable Bingo Products

Bingo Paper. Stuart sells a complete line of bingo paper, which is generally sold in booklet form and is available in a variety of sizes, styles and colors, Stuart's bingo paper line includes a number of specialty bingo games under proprietary trademarks or licenses such as Bonanza Bingo®, Bonus Line®, Double Action™, Wildcard Bingo™, Triangle Bingo™, three styles of 90-number bingo games and other specialty bingo games that can be played as variations on or concurrently with the standard 75-number bingo game. Stuart also sells a line of disposable cards designed for play on tour buses, cruise ships and other environments with limited space for play.

Stuart's bingo card configurations are developed in-house by a mathematician using sophisticated algorithmic models, which are validated through computer simulation in which in excess of 1,000,000 simulated games are played on a given pattern in order to determine the probability of a winner occurring when a specific number of cards are in play and a specific number of balls are called. Stuart has a number of unique series of cards. These different series types range in size from a series of 9,000 unique cards to a series in excess of 3,000,000 unique cards. These card series are stored electronically in Stuart's verification system, which allows the sponsoring organization to verify and display winning cards electronically. Stuart believes that this seamless integration of several paper bingo card series and electronic verification is matched by only one other

Executive Guide to Corporate Bankruptcy

competitor in the industry.

Ink Dabbers. Stuart manufactures ink dabbers, used to mark called numbers on paper bingo sheets, and ink refills for such dabbers. Stuart sells a varied line of ink colors, bottle styles and sizes, including its successful line of gift packs, which are 3, 4, or 5 bottles packaged together in a decorative gift box using different themes such as movies, comedy and seasonal holidays. Stuart pioneered the use of decorative and innovative labels on ink dabbers, for seasonal items like Christmas and Halloween and for customized labels for bingo halls and distributors. Stuart also developed a labeling process that allows distributors to directly customize labels on-site for their bingo halls. Stuart launched its new 3 and 4 ounce ergonomically designed bottles in 1998. Stuart has applied for a utility patent relating to this new marker. Stuart has been sued by a competitor, alleging that the marker infringes that competitor's patent. Stuart believes the new bottle may have a positive impact on sales of its ink dabbers.

General Merchandise. Stuart distributes other supplies and equipment used by bingo hall operators, such as tables, chairs, public address systems and concession supplies. Stuart purchases for resale bingo accessories such as key chains, lighters, marker holders, coffee mugs and other advertising products, many of which can be customized. Party supplies, flags, balloons and bar and concession equipment for use at fundraising events and bazaars are also sold by Stuart both through Stuart-owned distribution outlets in Canada and through Stuart's distributor network.

Pulltab And Lottery Products

Pulltab Tickets. Stuart manufactures and sells pulltab tickets, which are also referred to as break open tickets, lucky seven tickets, instant bingo and Nevada tickets. Stuart also manufactures scratch off tickets and instant lottery tickets. Stuart currently has a library of over 800 different designs and denominations for pulltab tickets. Stuart has contracted to provide pulltab lottery tickets in four states and five Canadian provinces. A typical pulltab ticket consists of two thin sheets of cardboard, one of which is opaque, printed with colorful designs and laminated together. The player pulls open from one to five perforated windows to reveal hidden combinations of symbols to determine whether the card is a winner, and if so, the amount of the prize. Each set of tickets sold contains a predetermined number of winning tickets. A typical pulltab ticket has a prize structure that varies from approximately 60% to 85% of the gross receipts being paid out as prizes to the players. The remaining percentage of the gross receipts is used to cover the cost of the product and expenses and to provide fundraising dollars or revenue to the sponsoring organization.

Electronic Bingo Products

Electronic Bingo Systems. Stuart believes that electronic bingo systems will be the next major evolutionary step in the industry, and that it is well

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positioned to capitalize on the opportunity provided by electronic bingo. The popularity of electronic bingo systems is growing rapidly because electronic bingo systems provide the player with additional entertainment value and permit simultaneous play on many more cards than is possible in a typical paper game. The ability to play more cards leads to greater sums wagered per player and, thus, higher profits per bingo session for the bingo hall operator. Stuart's strategy is to be a leading producer of electronic bingo systems. As part of this strategy, Stuart currently manufactures two electronic bingo systems: (i) System 12™ and (ii) Power Bingo King™.

System 12™ is a fixed-base cashless electronic bingo and multi-game system that integrates computer technology with player interactive touch-screen terminals and live bingo. System 12™ is based on a local area network in which terminals for bingo players are connected to a host computer. The host computer allows players to play up to 255 electronic cards per game. Bingo players also have the opportunity to play a bingo game electronically on touch-screen terminals while simultaneously playing traditional paper bingo with other players. System 12™ provides the player access to a stand-alone bingo game and to other games such as video keno, video poker, video slots and video pulltab tickets, where permitted by law. System 12™ enables hall management to control all game functions, track player trends and generate sales reports. Stuart had more than 2,300 System 12™ fixed-base units in place at December 31, 1998 which includes systems sold in prior years.

Power Bingo King™, a hand-held electronic bingo system, allows players to play up to 200 electronic bingo cards simultaneously per game. Each Power Bingo King™ unit is completely portable and has the capability to show the electronic bingo card closest to winning at any given point in time. The system also automatically notifies a player of a winning card. Stuart derived revenues from more than 31,000 Power Bingo King™ hand-held units at December 31, 1998.

Bingo Hall Equipment. Stuart manufactures and sells an extensive line of electronic bingo hall equipment traditionally used in bingo establishments. The electronic bingo hall equipment line includes: (a) electronic blowers that select numbers for bingo games by ejecting numbered balls one at a time; (b) electronic flash boards, measuring up to five feet high and 22 feet wide, which display to the bingo players the numbers selected from the electronic blowers; (c) electronic systems that allow quicker verification of winning bingo cards and (d) electronic pulltab ticket dispensing machines.

Marketing And Sales

Stuart sells its bingo and bingo-related products to a diverse set of end-user groups through more than 300 independent distributors, 11 Stuart-owned distribution outlets in Canada, Stuart's direct sales force and mail

Executive Guide to Corporate Bankruptcy

order catalogs. Stuart believes that its ability to act as a full-service provider of bingo and bingo-related products and services and its sale of well-known brand names provide it with a significant marketing advantage.

Stuart maintains strong relationships with its distributors, many of whom received assistance from Stuart in the development of their businesses. Distributors are supported by Stuart-sponsored seminars designed to assist the distributors in developing and refining sales and marketing programs and to introduce new products. Stuart believes that the seminars have enhanced customer relations and generated incremental sales.

Relationships with distributors are important because the distributors maintain close contact with bingo halls and are attuned to changing preferences among bingo players. These relationships have resulted in new product ideas and opportunities for Stuart. Stuart has historically been able to capitalize on these opportunities through utilizing its existing distributor network.

Catalogs represent another form of marketing for Stuart. Stuart utilizes catalogs to support distributors, some of which are customized with the distributor's name. Catalogs are also used in direct mail campaigns to end-users. Additionally, customers can order product support information through an automated ordering system.

Stuart also markets its products through advertising in gaming publications and through participation in national, regional and local gaming tradeshows and in distributor tradeshows. For example, in 1998 Stuart was a prominent exhibitor and seminar participant at the Bingo World Expo and at the World Gaming Congress and Exposition, large trade shows that have attracted over 20,000 participants.

During 1998, Stuart continued to direct its marketing efforts toward strengthening relations with its existing distributors and adding new distributors. Stuart plans to focus marketing efforts during 1999 on further developing its distributor network with an emphasis on its electronic bingo products. Stuart has also sponsored group seminars designed to assist distributors and other customers in developing and refining sales and marketing programs and to introduce new products. Stuart believes the seminars have been well received by its distributor network and have been successful in enhancing customer relations and generating incremental sales. Stuart sales personnel also conduct seminars with individual distributors designed to assist them in developing sales and marketing programs, to educate distributors in ways of improving the success of their customers' fund-raising efforts and to provide management assistance to certain distributors. Stuart makes available to distributors catalogs of Stuart's full product line on which distributors may imprint their names and which they may give to their customers.

Sample Plan and Disclosure Statement _

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Stuart markets the bingo hall equipment, as well as the fixed-base and hand-held electronic bingo systems through Stuart's distributor network, by submitting proposals to bid tenders by governmental entities, principally in the United States and Canada, by soliciting for-profit gaming markets, and by submitting proposals directly to Native American gaming facilities. Solicitation of charitable and for-profit gaming markets is performed primarily by Stuart's existing sales staff. Stuart also markets its equipment at selected trade shows and exhibitions.

Bazaar's bingo products are marketed principally through Stuart-owned locations, independent distributors and government agencies. The independent distributors are located in the Canadian provinces of British Columbia, Newfoundland, Ontario, Quebec, and Saskatchewan. Government agencies distribute bingo paper products exclusively in the provinces of British Columbia and Manitoba. Stuart-owned distribution outlets operate in the provinces of Alberta, Manitoba, New Brunswick, Nova Scotia, and Ontario.

Foreign And Export Sales

To date, Stuart has not had a significant volume of export sales. During 1998, approximately 69% of sales were to the United States, 30% to Canada, with the balance representing sales to other foreign countries.

Seasonality And Backlog

Stuart's business is somewhat seasonal as its sales are traditionally stronger during the first half of the year than during the second half of the year. As of December 31, 1998 and 1997, the dollar amount of backlog orders believed to be firm amounted to $2,924,000 and $1,425,000, respectively.

Manufacturing Process

Stuart utilizes technologically advanced equipment to manufacture its products. Manufacturing personnel take an active part in the research and development process to ensure that continual improvements in cost control, quality and technology are achieved. Stuart has undertaken a project to implement perpetual inventory and material resource planning programs at all manufacturing locations via networking on a main frame computer. Stuart has implemented this project at certain of its locations and plans to implement the project at all principal locations by the end of 1999.

On November 13, 1996, Stuart acquired substantially all the assets and assumed certain liabilities of Trade Products, Inc. ("Trade Products"). Stuart's domestic pulltab ticket production is consolidated at Trade Products' manufacturing facility in Lynnwood, Washington. Stuart began to consolidate Stuart's domestic production of bingo paper and ink dabbers is consolidated at its Texas border facilities. Stuart has recently engaged an independent consulting firm to determine if other consolidation efforts

Executive Guide to Corporate Bankruptcy

would be beneficial to Stuart.

Bingo Paper. Stuart manufactures bingo cards on a number of specialized high-speed web presses capable of printing a variety of different game cards in configurations of 24, 30, 36 and 48 cards per sheet. The bingo cards are produced for inventory and then sold unfinished or are cut and packaged to meet customer specifications.

The introduction of a new sophisticated laser printer in fiscal year 1997 has enabled Stuart to manufacture in excess of 3,000,000 unique bingo cards for use primarily in satellite and high stakes games. Stuart as a result, is actively servicing those markets.

Ink Dabbers. Stuart fills ink dabbers and refills through automated liquid filling lines. Stuart has the ability to customize ink dabbers by applying unique and distinct labels. A number of ink formulas have been developed specifically for use in the bingo industry, but the ink markers have also been sold to a variety of other markets.

Pulltab Tickets. In manufacturing pulltab tickets, Stuart utilizes a number of high speed, multicolor offset presses and a variety of other equipment, including laminators, collators, die-cutters and serial numbering machinery.

Suppliers

The components for Stuart's bingo equipment and the paper and other materials used in printing bingo sheets and pulltab tickets, are generally available from various suppliers at competitive prices. As a result, Stuart is generally not dependent on any single supplier. Stuart experienced stable prices in paper products during 1997. During 1998, the price of paper products increased slightly. The equipment, accessories and supplies which Stuart distributes are standard items and are available from other manufacturers.

Research And Development Activities

Stuart maintains a continuous product development program intended to enhance Stuart's product lines and, thus, increase Stuart's market penetration. Product development efforts in the bingo paper and pulltab ticket product lines are directed toward new product development, as well as, improvement of the graphic design of its current lines. The market for pulltab tickets, in particular, is ever-changing, requiring the continual introduction of new pulltab tickets in response to changing consumer preferences of design and color.

Stuart has substantially increased its commitment to the growing importance of electronic bingo systems in Stuart's overall product mix by increasing the resources for development of its electronic bingo products. Stuart believes that as a result of this increased commitment, Stuart's electronic bingo systems have innovations unique in the industry and that the

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features offered in its electronic bingo systems are as comprehensive as any found in the market place. Stuart is currently developing the next generation of Stuart's fixed-based and hand-held electronic bingo products. These products were introduced at the Bingo World Expo in the first quarter of 1999.

Stuart continually updates and redesigns its bingo hall equipment products in an effort to maximize the utility, ease of use and reliability of these products. A significant effort is being devoted to the diversification of products within the electrical equipment product line in response to the trend within the bingo and gaming industries toward the adaptation of electrical and mechanical devices. In particular, in 1998 Stuart introduced a new PC-based bingo blower and desk that offers increased video capabilities and a touch screen user interface during the fourth quarter of 1998.

Government Regulation

Overview. Stuart is subject to regulation in most jurisdictions in which its bingo, bingo-related products (including pulltabs) and electronic gaming systems are sold or used by persons or entities licensed to conduct gaming activities. The gaming regulatory requirements vary from jurisdiction to jurisdiction and licensing, other approval or finding of suitability processes with respect to Stuart, its personnel, and its products can be lengthy and expensive. Many jurisdictions have comprehensive licensing, reporting, and operating requirements with respect to the sale and manufacture of bingo and bingo-related products, including bingo paper, pulltab tickets, and electronic bingo equipment. These licensing requirements have a direct impact on the conduct of Stuart's day-to-day operations. Generally, gaming regulatory authorities may deny applications for licenses, other approvals or findings of suitability for any cause they deem reasonable. There can be no assurance that Stuart, its products, or its personnel will receive or be able to maintain any necessary gaming licenses, other approvals or findings of suitability. The loss of a license in a particular jurisdiction will prohibit Stuart from selling products in that jurisdiction and may prohibit Stuart from selling its products in other jurisdictions. The loss of one or more licenses held by Stuart could have a material adverse effect on Stuart's business.

Native American Gaming. Gaming on Native American lands, including the terms and conditions under which gaming equipment can be sold or leased to Native American tribes, is or may be subject to regulation under the laws of the tribes, the laws of the host state and the IGRA. Under the IGRA, gaming activities are classified as Class I, II, or III. Class II gaming includes bingo and, if played at the same location as bingo, pulltab tickets. Class III gaming includes slot machines, video lottery terminals, and casino style games. Native American tribes may conduct Class II gaming under the IGRA without entering into a written compact with the state in which gaming is conducted if such state permits Class II gaming, but must enter into a separate written compact with the state in which they are located

Executive Guide to Corporate Bankruptcy

in order to conduct Class III gaming activities. Tribal-state compacts vary from state to state. Many compacts require that equipment suppliers meet ongoing registration and licensing requirements of the state and/or the tribe, some establish equipment standards that may limit or prohibit the placement of electronic gaming systems on Indian lands, and some impose background check requirements on the officers, directors and shareholders of gaming equipment suppliers. Under the IGRA, tribes are required to regulate all gaming under ordinances approved by the Chairman of the National Indian Gaming Commission ("NIGC"). Such ordinances may impose standards and technical requirements on gaming hardware and software, and may impose registration, licensing and background check requirements on gaming equipment suppliers and their officers, directors and shareholders.

Regulation of Traditional Bingo Products and Pulltab Tickets. Traditional paper bingo is legal in all states in the United States except Arkansas, Hawaii, Tennessee and Utah, and is legal in all provinces and territories in Canada. Pulltab tickets currently are legal for sale (either through state lotteries or through other outlets) in approximately 40 states. Each state has developed regulations that impact the style of play for its market. In several states, including Alaska, Minnesota, Nebraska, North Dakota, Ohio, and Washington, it is legal for bars and taverns to sell pulltab tickets on their premises. In Minnesota, Ohio, and North Dakota, pulltab tickets are sold by licensed nonprofit organizations in taverns, while in Alaska and Nebraska, taverns sell pulltab tickets as sales agents of licensed nonprofit organizations. In Washington, taverns sell pulltab tickets directly to their customers.

At present, Alaska, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin require bingo and/or charitable gaming manufacturers and/or suppliers to be licensed. Stuart is currently licensed in each of these jurisdictions, except for Maine and Virginia. Stuart has not applied for a license in Maine and Virginia and does not conduct activities that it believes are subject to licensing in those states. Stuart is permitted to and does ship products to licensed distributors in Maine and Virginia. Stuart also holds a Bingo Suppliers License in Los Angeles, California and in Anne Arundel County, Maryland and licenses from several Native American tribes that require licensing through their own tribal gaming commissions. Stuart is registered in the Provinces of Ontario, Manitoba, New Brunswick, and Nova Scotia, which require the registration of manufacturers.

In Canada, the Canadian National Gaming Law gives provincial governments the ultimate authority to conduct and manage all lottery schemes, including pulltabs and bingo. Ontario allows the sale of pulltab tickets at

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third-party retail locations under charity license. In November 1997, Stuart was awarded a five-year provincial contract by the OGC to be the sole supplier of pulltab tickets to charity licensed retail locations in the Province of Ontario. The Provinces of British Columbia and Manitoba also have contracts with manufacturers to supply pulltab tickets and bingo paper. There is nothing to prevent any of the other Provinces from issuing requests for proposals for bingo paper, pulltab tickets or any other device utilized in legalized gaming. There can be no assurance that Stuart would be successful if additional contracts were tendered for these types of products.

Because not all Stuart's products are legally allowed to be sold in every locality to which Stuart ships products, Stuart routinely contacts state agencies to determine the existence and nature of any state and local restrictions applicable to its products in order to comply with such restrictions.

Regulation of Electronic Gaming Systems. Stuart's electronic products, including System 12™ and Power Bingo King™, are more heavily regulated than traditional paper bingo, and federal, state, provincial, tribal and local regulations vary by jurisdiction.

IGRA defines Class II gaming to include "the game of chance commonly known as bingo, whether or not electronic, computer or other technologic aids are used in connection therewith," and defines Class III gaming to include "electronic or electromechanical facsimiles of any game of chance or slot machines of any kind." Stuart believes that both its System 12™ and Power Bingo King™ are Class II games. In the event that either System 12™ or Power Bingo King™ is classified as a Class III device, such a designation would either (a) reduce the potential market for the devices, because only Indian gaming halls that had entered into a tribal-state compact that permits Class III electronic gaming systems would be permitted to use the device, or (b) require Stuart to modify System 12™ or Power Bingo King™ to have it reclassified as a Class II game. If programmed to play video poker, video keno, video bingo, video slots, or video pulltab tickets, System 12™ is properly classified as a Class III gaming system subject to the full range of regulations applicable to such systems.

Electronic bingo is less widely permitted than paper bingo. Electronic bingo is currently operated at locations in over 25 states. Because many state laws and regulations are silent with respect to electronic bingo, changes in regulatory and enforcement policies could impact the continued operation of electronic bingo in these states.

Some jurisdictions require the inspection, approval or modification of electronic bingo systems before sale in those states. In February 1998, Stuart announced that the Texas Lottery Commission had approved Stuart's application to enter the Texas market with its fixed-base product System 12™. Stuart has submitted System 12™ for approval in Mississippi but has not

Executive Guide to Corporate Bankruptcy

yet submitted, nor received, approval for System 12™ in any other charitable gaming jurisdiction in the United States (other than various tribal locations). Stuart is licensed by the Colorado Limited Gaming Commission to manufacture and sell slot machines in Colorado. This license will permit Stuart to market System 12™ in Colorado once the system is tested and approved by the Commission. Stuart has received written approvals for its Power Bingo King™ system in at least ten states. Written approvals is not required in certain jurisdictions.

Although Canadian federal law prohibits the playing of games of chance on or through slot machines, computer or video devices, this law excepts playing such games in halls operated or authorized by the provincial governments. The Manitoba Lottery Corporation has installed System 12™ in its government-owned bingo halls. Stuart is currently marketing System 12™ to the other provincial governments. Ontario is currently the only province that permits the use of hand-held bingo systems, and such systems are only permitted to be used in conjunction with paper bingo.

General Regulation of Stockholders and Other Security Holders of Publicly Traded Corporations. In certain jurisdictions, any beneficial owner of the Old Common Stock or New Common Stock may be subject on a discretionary basis to being required to file applications with gaming regulatory authorities, to being investigated and found suitable or to being qualified. The gaming laws and regulations of some jurisdictions provide that beneficial owners of more than 5% of the common stock and, potentially, holders of the debt securities of a company may be subject to certain reporting procedures and may be required to be investigated and licensed, qualified or found suitable. Stuart's Certificate of Incorporation authorizes Stuart under certain circumstances to redeem, at the lesser of the holder's original investment in Stuart or the current market price, the Old Common Stock held by any person whose status as a shareholder may jeopardize Stuart's gaming licenses or approvals. Likewise, the Plan provides for certain restrictions on distribution of New Common Stock to comply with the Gaming Regulations. See "ADDITIONAL IMPLEMENTION OF THE PLAN _ Description of Gaming Regulations."

Federal Regulation. The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it unlawful for a person to transport in interstate or foreign commerce or receive from interstate or foreign commerce any gambling device or component thereof, unless the person is registered with the Attorney General of the United States. Stuart has registered and must renew its registration annually. In addition, various record keeping and equipment identification requirements are imposed by the Federal Act. Violation of the Federal Act is a criminal act and penalties may include seizure and forfeiture of the equipment as well as other penalties.

Application of Future or Additional Regulatory Requirements. In the future, Stuart intends to seek the necessary licenses, approvals, and

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findings of suitability for Stuart, its products, and its personnel in all jurisdictions throughout the world where significant sales are anticipated to be made. However, there can be no assurance that such licenses, approvals, or findings of suitability will be obtained, that they will not be revoked, suspended, or conditioned or that they will be obtained in a timely manner. If a license, approval, or finding of suitability is required by a regulatory authority and Stuart fails to seek, does not receive the necessary approved license or finding of suitability, or the necessary license approval or finding of suitability is revoked, Stuart may be prohibited from selling its products for use in the respective jurisdiction or may be required to sell its products through other licensed entities at a reduced profit to Stuart.

Employees

As of December 31, 1998, Stuart and its Subsidiaries had approximately 1,740 full-time employees in the United States, Canada and Mexico. Approximately 250 employees of Stuart Entertainment Mexico are members of a union subject to a collective bargaining agreement. The collective bargaining agreement does not place any significant financial or operational burdens on Stuart. A group of approximately 300 employees in the St. Catherines, Ontario plant recently voted to organize and be represented by the United Steelworkers of America. Stuart considers relations with its employees to be good. Stuart's employee benefits include medical insurance, long-term disability insurance, and life insurance. Stuart also offers a 401(K) retirement plan to all eligible employees.

Facilities

Stuart's corporate offices are currently located in Council Bluffs, Iowa. Stuart intends to relocate its corporate offices to the Minneapolis/St. Paul, Minnesota area. The following table sets forth Stuart's principal properties as of the Petition Date:

as a director of Stuart.

Executive Guide to Corporate Bankruptcy

(1) Stuart amended the lease agreement on June 30, 1998. Pursuant to this amendment, Stuart has the option to renew the lease for one additional nine month period. Stuart plans to relocate its corporate headquarters to the Minneapolis, Minnesota but may decide to keep the Council Bluffs location open for a certain period, which may require Stuart to exercise its option to renew the lease.

(2) Stuart has the option to renew this lease for one additional five-year period. Stuart has rejected the lease for the McAllen, Texas facility and will vacate that facility by November 15, 1999.

(3) Stuart Entertainment S.A. de C.V., Stuart's wholly-owned Mexican subsidiary, is the lessee under this lease, and Stuart is guarantor. Stuart has obtained the Bankruptcy Court's authority to assume its obligations as guarantor under the lease.

(4) Stuart has the option to renew this lease for two additional five-year periods.

(5) Stuart has the option to renew this lease for one additional ten-year period.

Substantially all Stuart's property and equipment are subject to liens to secure borrowings by Stuart under the DIP Facility (or other financing agreements). In general, Stuart's properties and equipment are in good condition and are considered to be adequate for their present use.

Current Directors and Executive Officers

Directors. The following table sets forth the name and age of each director of Stuart, his principal occupation and business experience during the past five years, and the year of commencement of his term as a director

of Stuart.

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Executive Officers. The following table sets forth the name and age of each executive officer of Stuart, his principal occupation and business experience during the past five years, and the year of commencement of his term as an executive officer of Stuart.

Prepetition Debt Structure

The Notes

On November 16, 1996, Stuart raised $100 million by issuing $100

Executive Guide to Corporate Bankruptcy

million aggregate principal amount of 12½% Senior Subordinated Notes due November 15, 2004 (the "Notes"). The Notes were issued in a private placement in reliance upon Rule 144A under the Securities Act of 1933, as amended. Interest on the Notes is payable semi-annually in arrears on May 15 and November 15. Stuart did not make the May 15, 1999 interest payment on the Notes and approximately $9,097,221 in unpaid interest has accrued as of the Petition Date. The grace period with respect to such payment expired on June 15, 1999, thereby resulting in an "Event of Default" under the Indenture governing the terms of the Notes (the "Indenture"). HSBC Bank USA, formerly known as Marine Midland Bank, is the Indenture Trustee for the Notes. The Notes mature on November 15, 2004. The Indenture imposes certain limitations on Stuart's ability to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, and consummate certain asset sales.

Stuart used the net proceeds from the Notes (i) to repay in full existing revolving credit and term facilities, at which time such facilities were cancelled, and certain other outstanding debt instruments, and (ii) to acquire substantially all of the assets and assume certain liabilities of Trade Products, as described in the Asset Purchase Agreement, dated August 6, 1996, and amended on October 10, 1996, between Stuart, Trade Products, and Harry Poll, Ronald G. Rudy and Harry Wirth as the shareholders of Trade Products (collectively, the "Shareholders"). Stuart purchased the Assets on November 13, 1996, for a total purchase price of $37.2 million, subject to certain post-closing adjustments, plus the issuance of warrants to purchase 300,000 shares of Stuart's Old Common Stock. Neither Trade Products nor the Shareholders were affiliated with Stuart.

Prepetition Working Capital Facility

In November 1997, Stuart entered into a credit facility consisting of two loan and security agreements, one between Stuart and Congress Financial Corporation ("Congress") (Central) (the "U.S. Facility") and one between Bingo Press & Specialty Limited, a wholly owned subsidiary of Stuart ("Bazaar"), and Congress Financial Corporation (Canada) (the "Canadian Facility" and collectively with the U.S. Facility, the "Credit Facility"). The Credit Facility provided for maximum borrowings of up to $30 million, of which up to $20 million could be borrowed under the U.S. Facility and up to US$10 million could be borrowed under the Canadian Facility. The Credit Facility provided for a three-year term and expires in November 2000. The Credit Facility was secured by substantially all of Stuart's operating assets.

The Credit Facility imposed certain covenants and other requirements on Stuart and Bazaar (the "Borrowers"), including the requirement that the Borrowers maintain a certain minimum level of net worth. As of the Petition Date, the Borrowers were not compliance with many of these covenants. The Credit Facility also contained cross-default provisions with any

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other agreement, document, or instrument relating to indebtedness for borrowed money in an amount in excess of $50,000 owing to any person other than Congress. These cross-default provisions provided that, if Stuart were in default under any other applicable indebtedness, Stuart also would be in default under the Credit Facility. Accordingly, Stuart's default under the Notes was an "Event of Default" under the Credit Facility. As of the Petition Date, Stuart had not obtained a waiver of these defaults. Congress had not, however, indicated any intention to declare Stuart in default. Congress did not exercise its remedies under the Credit Facility, so the obligations outstanding under the Credit Facility were not accelerated and payable in full as of the Petition Date. Rather, Congress agreed to extend the U.S. Facility into the postpetition period to provide Stuart with interim debtor-in-possession financing in accordance with an order of the Bankruptcy Court entered on the Petition Date.

In accordance with a subsequent order of the Bankruptcy Court, Stuart entered into a replacement $30 million revolving credit facility with Foothill Capital Corporation (the "Foothill Facility") for debtor-in-possession financing throughout the Chapter 11 Case. Obligations under the Foothill Facility are secured by substantially all Stuart's operating assets, with certain assets of certain of Stuart's subsidiaries provided additional borrowing base for revolving loans. Certain proceeds of the Foothill Facility were required to be used to satisfy all outstanding obligations under the Credit Facility with Congress. Simultaneously with the closing of the Foothill Facility, all Stuart's and Bazaar's obligations to Congress under the Credit Facility were satisfied in full. All obligations under the Foothill Facility are to be satisfied in accordance with Section 2.7 of the Plan.

Prepetition Capital Structure

General

Stuart is a Delaware corporation and its affairs are governed by its Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and the Delaware General Corporation Law.

The authorized capital stock of Stuart consists of 30,000,000 shares of Old Common Stock, par value $0.01 per share. As of the Petition Date, there were 6,946,211 shares of Old Common Stock issued and outstanding, held of record by approximately 1,500 stockholders.

Common Stock

Holders of shares of Old Common Stock are entitled to one vote per share on all matters to be voted on by stockholders and do not have cumulative voting rights. The holders of Old Common Stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors of Stuart in its discretion from funds legally available therefor. In the event of liquidation, dissolution, or winding up of Stuart, the holders of Old Common Stock are entitled to share ratably in all assets

Executive Guide to Corporate Bankruptcy

available for distribution to the stockholders after payment of Stuart's liabilities. The Old Common Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. All of the outstanding shares of Old Common Stock are fully paid and nonassessable.

Anti-Takeover Provisions of Delaware Law

Stuart is subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date that the person became an interested stockholder unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) fifteen percent (15%) or more of the corporation's outstanding voting stock. This provision may have the effect of delaying, deferring or preventing a change in control of Stuart without further action by the stockholders.

Delisting from NASDAQ SmallCap Market

On February 26, 1998, NASDAQ notified Stuart that Stuart was not in compliance with the new net tangible assets/market capitalization/net income maintenance requirements that became effective on February 23, 1998. On July 20, 1998, NASDAQ notified Stuart that, effective July 28, 1998, the Old Common Stock was scheduled for delisting from the NASDAQ SmallCap Market. On July 28, 1998, the Common Stock was delisted from the NASDAQ SmallCap Market and is currently quoted on the OTC Electronic Bulletin Board under the symbol "STUA." As a result, an investor may now find it more difficult to dispose of, and to obtain accurate quotations as to the value of, the Old Common Stock.

If the trading price of the Old Common Stock is less than $5.00 per share at a time when Stuart's net tangible assets total less than $5,000,000, trading in the Old Common Stock will also be subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended. Under such rule, broker/dealers who recommend such low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's written consent before the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a "penny stock" (generally, accord

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ing to recent regulations adopted by the Securities and Exchange Commission, any equity security not traded on an exchange or quoted on the NASDAQ SmallCap Market that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated with such stock. Such requirements could have the effect of severely limiting the market liquidity of the Old Common Stock.

Events Precipitating Chapter 11 Filing

Stuart's operating margins have suffered recent declines in part because of increased competition, including competition from companies offering new forms of gaming that are outside the traditional consumable bingo and pulltab markets that Stuart supplies. Stuart has attempted to offset this increase in competition by developing electronic bingo and pulltab systems and by consolidating manufacturing operations. Additionally, Stuart has been pursuing an aggressive acquisition program in an effort to quickly broaden its product offerings. In order to finance these acquisitions, Stuart took on substantial debt, including the Notes.

Stuart also implemented a number of initiatives in an effort to improve operations and reduce costs. Specifically, Stuart announced plans to relocate its headquarters to the Minneapolis/St. Paul, Minnesota area and to close certain of its production facilities, including a manufacturing and distribution facility in McAllen, Texas, whose operations could be combined with and moved to other existing Stuart facilities.

Despite recent improvements in operations, the benefits from Stuart's initiatives have not completely offset the effects of declining margins caused by increased competition and the apparent decline in the popularity of traditional forms of bingo and pulltabs. Furthermore, Stuart's declining margins and its inability to generate profits as projected resulted in cash flow levels insufficient to service Stuart's current debt, resulting in defaults under the Indenture and the Credit Facility as described above.

In an effort to address the viability of Stuart's highly leveraged capital structure and explore opportunities to restructure its debt, Stuart engaged the assistance of Wasserstein Perella & Co. ("Wasserstein"), as its financial advisor, and Squire, Sanders & Dempsey, L.L.P ("SS&D") as its restructuring counsel, in January 1999. Stuart, Wasserstein and SS&D contacted holders of Notes to facilitate the formation of an ad hoc committee of holders of the Notes to discuss restructuring alternatives ahead of the May 15, 1999 interest payment on the Notes.

The Restructuring Agreement

Negotiations regarding a restructuring of Stuart's debt and equity commenced with members of the ad hoc committee. On May 21, 1999, Stuart

Executive Guide to Corporate Bankruptcy

announced that it had reached an agreement with certain members the ad hoc committee regarding a restructuring of Stuart's debt and equity (the "Restructuring Agreement"). Before the completion of the negotiations that culminated in the Restructuring Agreement, Contrarian Capital Management, L.L.C., ("Contrarian"), a member of the ad hoc committee, purchased all Notes held by another member of the ad hoc committee who had engaged in those negotiations. As of May 24, 1999, Contrarian and Salomon Smith Barney had executed the Restructuring Agreement, which provided for a full conversion of the Notes into 100% of the equity in the reorganized company and a corresponding cancellation of existing equity. In July 1999, after Salomon Smith Barney executed the Restructuring Agreement, Contrarian purchased all the Notes held by Salomon Smith Barney such that Contrarian currently holds in excess of 50% of the Notes.

Stuart did not make the May 15, 1999 interest payment to holders of the Notes. In accordance with the Restructuring Agreement, however, Contrarian has agreed to refrain from taking any action to enforce the Notes or the obligations of Stuart under the Indenture for a period of time designed to accommodate the Chapter 11 process and confirmation of the Plan.

Under the Restructuring Agreement, upon the effectiveness of the Plan, the holders of the Notes will receive one hundred percent (100%) of the common stock issued and outstanding on that date, subject to dilution by shares reserved for issuance under the Executive Management Options and the Equity Incentive Options. See "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan" for a detailed description of the Executive Management Options and the Equity Incentive Options. The Restructuring Agreement originally contemplated that the Old Common Stock would be canceled and that holders of Old Common Stock would receive warrants to obtain shares of New Common Stock. Because Stuart intends to become a private company after the Effective Date of the Plan (see "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ Private Company Status."), Contrarian consented to changing this treatment for purposes of the Plan such that, subject to numerous conditions, including approval by the Bankruptcy Court in the Chapter 11 Case, holders of Old Common Stock will, rather than warrants, receive a Pro Rata share of $150,000 in Cash under the Plan. The Restructuring Agreement also provides that the Credit Facility in the principal amount of $30 million will be restructured or satisfied under a new senior secured working capital facility. See "SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE _ Post-Petition Financing." Further, under the Restructuring Agreement, Contrarian has agreed to support the payment of all trade claims in the ordinary course of Stuart's business.

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Efforts to Solicit an Alternative Transaction

In view of this full conversion of the Notes, the ad hoc committee and Stuart agreed to solicit third party offers for an outright sale that might generate a better recovery to creditors than the debt conversion contemplated by the Restructuring Agreement. Wasserstein directed the solicitation process and initially identified 13 prospects and ultimately received two non-binding offers — including one from an entity that was not one of the original 13 prospects. In close consultation with Wasserstein and members of the ad hoc committee, Stuart considered the two proposals, and determined that neither would provide a greater potential recovery to creditors than the debt conversion under the Restructuring Agreement. Accordingly, Stuart rejected the proposals and filed its Chapter 11 petition in order to propose the restructuring contemplated by the Restructuring Agreement, which Stuart believes will provide the greatest potential recovery for creditors with the greatest likelihood of being consummated.

Closure of McAllen, Texas Plant

In addition to operations maintained in facilities located in Ontario, Colorado, California, and Washington, Stuart also maintains certain manufacturing and distribution operations at two facilities in McAllen, Texas and Reynosa, Mexico. Stuart has determined that it is in the best interests of creditors and its ongoing business operations to close the McAllen facility and migrate all operations conducted there to the Reynosa facility and possibly other current facilities. Stuart believes that such changes will enhance its manufacturing and operational efficiencies and relieve it of the significant financial burdens arising under the McAllen lease. As of the Petition Date, Stuart was negotiating with the landlord for both the McAllen and Reynosa facilities, ProLogis Trust, regarding the date Stuart will vacate the McAllen facility and the terms and conditions of an amendment to the lease covering the Reynosa facility. Stuart has obtained the Bankruptcy Court's authority to reject the lease covering the McAllen facility, and Stuart expects to vacate that facility by no later than November 15, 1999.

SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE

Commencement of the Chapter 11 Case

On August 13, 1999 (the "Petition Date"), in furtherance of its restructuring efforts, Stuart filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The Chapter 11 Case was assigned to the Honorable Mary F. Walrath, United States Bankruptcy Judge for the District of Delaware. Since the Petition Date, Stuart has continued to operate its businesses and manage its properties as debtor-in-possession under Sections 1107(a) and 1108 of the Bankruptcy Code. No trustee or official committee of unsecured creditors has been appointed in the Chapter 11 Case.

Executive Guide to Corporate Bankruptcy

First Day Orders

On or shortly after the Petition Date, the Bankruptcy Court entered several orders authorizing Stuart to pay various prepetition claims and granting other relief necessary to help Stuart stabilize its day-to-day business operations. These orders were designed to allow Stuart to continue business operations with minimum disruptions and dislocations, and to ease the strain on Stuart's relationships with its employees and other parties. Included among the orders entered by the Bankruptcy Court were orders authorizing Stuart to: (a) pay wages, salaries, employment taxes, employee benefit payments, and workers compensation payments; (b) pay certain trade creditors; (c) maintain certain bank accounts, cash management systems and business forms; and (d) ensure continued utility service.

Post-Petition Financing

Before the Petition Date, Stuart and certain of its operating subsidiaries negotiated with Foothill Capital Corporation ("Foothill"), the DIP Lender, to provide approximately $30 million in debtor-in-possession financing to Stuart (along with post-petition financing to certain of Stuart's non-debtor operating Subsidiaries), of which $8 million is a term loan and a maximum of $22 million is a revolving credit line. Upon final approval by the Bankruptcy Court, the post-petition financing provided by Foothill satisfied all outstanding debt to Stuart's prepetition working capital lender, Congress Financial Corporation. The Foothill financing is secured by senior liens on significant portions of the assets of Stuart and its operating Subsidiaries and entitled to satisfaction as a super-priority administrative expense claim (subject to a carveout for fees to the U.S. trustee and specific professionals). A final hearing on approval of the DIP Facility was held on September 14, 1999, at which time the Bankruptcy Court entered the DIP Financing Order, approving the DIP Facility. The DIP Financing Order terminates, unless extended, on the earliest of: (1) August 31, 2000; (2) the appointment of a Chapter 11 trustee; (3) the effective date of a confirmed plan of reorganization; (4) conversion of the Chapter 11 Case to one under Chapter 7; (5) dismissal of the Chapter 11 Case; and (6) the appointment of an examiner with power to manage or operate the financial affairs of the Debtor.

Retention of Professionals

On or shortly after the Petition Date, the Bankruptcy Court entered orders authorizing Stuart to retain, among others: (a) Squire, Sanders & Dempsey L.L.P., 40 North Central Avenue, Suite 2700, Phoenix, Arizona 85004, as bankruptcy and reorganization counsel; (b) Saul, Ewing, Remick & Saul, 222 Delaware Avenue, Suite 1200, Wilmington, Delaware 19899, as local bankruptcy and reorganization counsel; (c) Wasserstein Perella & Co., 32 West 52^nd Street, New York, New York 10019, as financial advisors; (d) Arthur Andersen LLP, 501 North 44^th Street, Suite 300, Phoenix,

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Arizona 85008, as accountants and as the Voting Agent; and (e) Deloitte & Touche LLP, 2000 First National Center, Omaha, Nebraska, as independent auditors and accounting and tax consultants.
OVERVIEW OF THE PLAN

A copy of the Plan accompanies this Disclosure Statement as Exhibit 1. The following summary of the material provisions of the Plan is qualified in its entirety by the specific provisions of the Plan, including the Plan's definitions of certain terms used below.

Brief Explanation of Chapter 11 Reorganization

Chapter 11 of the Bankruptcy Code is the principal reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its business for the benefit of itself and its creditors and shareholders. Confirmation of a plan of reorganization is the principal objective of a Chapter 11 case.

In general, a Chapter 11 plan of reorganization (a) divides claims and equity interests into separate classes, (b) specifies the property that each class is to receive under the plan, and (c) contains other provisions necessary to the reorganization of the debtor. A Chapter 11 plan may specify that certain classes of claims or equity interests are either to be paid in full upon the effective date of the plan, reinstated, or their legal, equitable and contractual rights are to remain unchanged by the reorganization effectuated by the plan. Such classes are referred to under the Bankruptcy Code as "unimpaired" and, because of such favorable treatment, are deemed to accept the plan. Accordingly, it is not necessary to solicit votes from the holders of claims or equity interest in such classes. A Chapter 11 plan also may specify that certain classes will not receive any distribution of property. Such classes are deemed to reject the plan.

All other classes of claims and equity interests contain "impaired" claims and equity interests entitled to vote on the plan. As a condition to confirmation, the Bankruptcy Code generally requires that each impaired class of claims or equity interests votes to accept a plan. Acceptances must be received (a) from the holders of claims constituting at least two-thirds in dollar amount and more than one-half in number of the allowed claims in each impaired class of claims that have voted to accept or reject the plan, and (b) from the holders of at least two-thirds in amount of the allowed equity interests in each impaired class of equity interest that have voted to accept or reject the plan. If any class or classes of claims or equity interests entitled to vote with respect to the plan rejects the plan, upon request of the plan proponents, the Bankruptcy Court may nevertheless confirm the plan if certain minimum treatment standards are met with respect to such class or classes.

Chapter 11 of the Bankruptcy Code does not require each holder of a

Executive Guide to Corporate Bankruptcy

claim or equity interest to vote in favor of a plan of reorganization in order for the bankruptcy court to confirm the plan. However, the Bankruptcy Court must find that the plan of reorganization meets a number of statutory tests (other than the voting requirements described in this section) before it may confirm, or approve, the plan of reorganization. Many of these tests are designed to protect the interest of holders of claims or equity interest who do not vote to accept the plan of reorganization but who will nonetheless be bound by the plan's provisions if it is confirmed by the Bankruptcy Court.

Solicitation of Acceptances of the Plan

Stuart is seeking acceptances of the Plan from holders of Allowed Claims classified in Classes 3A, 4, 5, 6, and 7 under the Plan, which are the only Classes entitled to vote under the Plan. If the requisite acceptances are received, Stuart will use the acceptances as evidenced by Ballots solicited in accordance with this Disclosure Statement and the Disclosure Statement Approval Order to seek confirmation of the Plan under Chapter 11 of the Bankruptcy Code.

If any impaired Class is determined to have rejected the Plan in accordance with Section 1126 of the Bankruptcy Code, Stuart may use the provisions of Section 1129(b) of the Bankruptcy Code to satisfy the requirements for confirmation of the Plan. See "ACCEPTANCE AND CONFIRMATION OF THE PLAN _ Confirmation _ Confirmation Without Acceptance by All Impaired Classes."

Stuart believes that this Disclosure Statement complies with applicable bankruptcy and non-bankruptcy law. This Disclosure Statement and the Plan (along with the Plan Supplement) are being transmitted to all known holders of impaired Claims and Equity Interests. Stuart believes that this Disclosure Statement contains adequate information for all holders of impaired Claims and Equity Interests to cast an informed vote to accept or reject the Plan. Furthermore, Stuart believes that holders of impaired Claims and Equity Interests will obtain a greater recovery under the Plan than they would otherwise obtain if Stuart's assets were liquidated under Chapter 7 of the Bankruptcy Code and that the Plan will enable Stuart to emerge from Chapter 11 as a viable and competitive enterprise, enhancing Stuart's ability to return to profitability.

If the Plan is confirmed by the Bankruptcy Court, each holder of an impaired Claim will receive the same pro rata consideration as other holders of Claims in the same Class, whether or not such holder voted to accept the Plan. Moreover, upon Confirmation, the Plan will bind all creditors and equity interest holders regardless of whether or not such creditors and equity interest holders voted to accept the Plan.

Unimpaired Classes

The following Classes of Claims are not impaired under the Plan, and

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under Section 1126(f) of the Bankruptcy Code, are conclusively deemed to accept the Plan, and are not entitled to vote on the Plan:
Class 1 Priority Claims

Class 2 Secured Tax Claims

Class 3 Miscellaneous Secured Claims

Classification of Claims and Equity Interests

Section 1123 of the Bankruptcy Code provides that a plan of reorganization must classify claims against a debtor. Under Section 1122 of the Bankruptcy Code, a plan must classify claims and equity interests into classes that contain substantially similar claims and interests. The Plan divides the Claims of known Creditors and the Equity Interests into Classes and sets forth the treatment offered each Class. Stuart believes it has classified all Claims and Equity Interests in compliance with the provisions of Section 1122 of the Bankruptcy Code, but it is possible that a Creditor or Equity Interest holder may challenge such classification of Claims and Equity Interests and that the Bankruptcy Court may find that a different classification is required for the Plan to be confirmed. If so, Stuart intends, to the extent permitted by the Bankruptcy Code and the provisions of the Plan, to amend or revoke the Plan and file an amended or different Plan that would make modifications to the classification of Claims or Equity Interests required by the Bankruptcy Court for confirmation.

The Classes under the Plan take into account the differing nature and priority of Claims against Stuart. Section 101(5) of the Bankruptcy Code defines "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured." A "claim" against Stuart also includes a Claim against Stuart's property as provided in Section 102(2) of the Bankruptcy Code. An "interest" is an equity interest in a debtor.

Because Stuart believes that the New Common Stock to be issued to holders of Class 4 Claims will have limited liquidity and because potentially all holders of New Common Stock must comply with the Gaming Requirements (see "ADDITIONAL IMPLEMENTION OF THE PLAN _ Description of Gaming Regulations"), with which individual investors may be unable or unwilling to comply, the Plan provides for a means by which holders of Notes may receive a Cash payment rather than shares of New Common Stock. Receipt of a Cash payment in lieu of New Common Stock is strictly voluntary under the Plan, and any holder of Notes may make a Noteholder Election, by so indicating on its Ballot, to have its Claim treated with a Cash payment, or treated with a distribution of New Common Stock.

Executive Guide to Corporate Bankruptcy

For a complete description of the Noteholder Election and the Cash Payment Option, see "OVERVIEW OF THE PLAN _ Treatment of Claims and Equity Interests Under the Plan _ Classified Claims."

For the holder of a Claim to participate in a reorganization plan and receive the treatment offered to the class in which it is classified, its Claim must be Allowed. Under the Plan, an Allowed Claim is defined as a Claim: (a) proof of which, requests for payment of which, or application for allowance of which, was filed or deemed filed on or before the Bar Date, Administrative Claim Bar Date, or the Professional Fee Bar Date, as applicable, for filing proofs of claim or requests for payment for Claims of such type against the Debtor; (b) if no proof of claim is filed, which has been or is ever listed by the Debtor in the Schedules as liquidated in amount and not disputed or contingent; or (c) a Claim that is allowed in any contract, instrument, indenture, or other agreement entered into in connection with the Plan and, in any case, a Claim as to which no objection to its allowance has been interposed within the applicable period of limitation fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court.

Treatment of Claims and Equity Interests Under the Plan

The following describes the Plan's classification of Claims against and Equity Interests and the treatment the holders of Allowed Claims and Allowed Equity Interests would receive under the Plan. The treatment of Claims set forth below is consistent with the requirements of Section 1129(a)(9)(A) of the Bankruptcy Code.

Unclassified Claims. In accordance with Section 1123(a)(1) of the Bankruptcy Code, the following Claims are designated as unclassified under Article 3 of the Plan.

Administrative Claims. Administrative Claims are generally any Claims that arise after the Petition Date in conjunction with the administration of the Chapter 11 Case and allowed under Section 503(b), Section 507(b) or Section 546(c)(2) of the Bankruptcy Code and entitled to priority under Section 507(a)(1) of the Bankruptcy Code. To the extent that a Claim is Allowed as an Administrative Claim under Section 365(d)(3) of the Bankruptcy Code, such Claim will also be treated as an Administrative Claim under the Plan. Administrative Claims include, for example, quarterly fees to the U.S. Trustee payable under Section 1930 of Title 28 of the United States Code, Claims for the payment of Professional Fees, actual and necessary costs and expenses incurred in the ordinary course of Stuart's business or of preserving Stuart's Estate, Reclamation Claims, and Preserved Ordinary Course Administrative Claims .

Professional Fees. Claims for Professional Fees are Claims of professionals providing service to parties involved in the Chapter 11 Case. Stuart estimates that Professional Fees for the entire Chapter 11 Case will aggregate approximately $2,200,000.

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Reclamation Claims. These are Claims by Creditors arising out of the sale of goods to Stuart, in the ordinary course of the Creditor's business, provided that such Creditor has otherwise satisfied the requirements of Section 546(c) of the Bankruptcy Code and applicable provisions of the Uniform Commercial Code. Stuart does not anticipate any Reclamation Claims as of the Effective Date.
Preserved Ordinary Course Administrative Claims. These are generally Claims for liabilities incurred by Stuart in the ordinary course of its business during the Chapter 11 Case relating to the purchase, lease, or use of goods and services, including services provided by Stuart's employees. Stuart does not anticipate any Preserved Ordinary Course Administrative Claims as of the Effective Date.

Priority Tax Claims. These are Claims of a governmental unity for taxes entitled to priority under Section 507(a)(8) of the Bankruptcy Code. Stuart estimates that Priority Tax Claims will not aggregate in excess of approximately $40,000.

Treatment.

Generally. Each Allowed Administrative Expense Claim, other than Preserved Ordinary Course Administrative Claims and Reclamation Claims, is to be paid in full in Cash (or otherwise satisfied in accordance with its terms) on the latest of: (a) the Effective Date, or as soon thereafter as practicable; (b) such date as may be fixed by the Bankruptcy Court, or as soon thereafter as practicable; (c) the tenth Business Day after such Claim is Allowed, or as soon thereafter as practicable; and (d) such date as the holder of such Claim and Reorganized Stuart agree.

Preserved Ordinary Course Administrative Claims. Each Allowed Preserved Ordinary Course Administrative Claim is to be paid by Reorganized Stuart in accordance with either: (a) the terms and conditions under which such Claim arose; or (b) in the ordinary course of Reorganized Stuart's business. Such payments are to be made by Reorganized Stuart without further action by the holder of such Claim.

Priority Tax Claims. Any Allowed Priority Tax Claim is to be paid in full in Cash on the Effective Date; provided, however, that Reorganized Stuart may elect to pay such Claims through deferred Cash payments over a period not exceeding six years after the date of assessment of such Claim, of a value as of the Effective Date, equal to the Allowed amount of such Claim. In that event, such payments are to be made in equal annual installments of principal, plus interest accruing from the Effective Date at the rate on the unpaid portion of Allowed Priority Tax Claim set forth in Internal Revenue Code Sections 6621 and 6622. The first such payment is to be made payable on the latest of: (a) the Effective Date, or as soon thereafter as practicable; (b) the tenth Business Day after the date on which an order allowing such Claim becomes a Final Order, or as soon thereafter

Executive Guide to Corporate Bankruptcy

as practicable; and (c) such other time as is agreed upon by the holder of such Claim and Reorganized Stuart; provided, however, that Reorganized Stuart retains the right to prepay and such Allowed Priority Tax Claim, or any remaining balance of such Claim, in full or in part, at any time on or after the Effective Date without premium or penalty.

Reclamation Claims. All requests for payment of Reclamation Claims must be filed by the Bar Date or the holders of such Claims are forever barred from asserting such Reclamation Claims against the Debtor and Reorganized Stuart. Each Allowed Reclamation Claim is to be satisfied, at Reorganized Stuart's sole option, by either: (a) the return of the goods subject to the Reclamation Claim; or (b) payment in full in Cash upon the latest of: (i) the Effective Date, or as soon thereafter as practicable; (ii) such date as may be fixed by the Bankruptcy Court, or as soon thereafter as practicable; (iii) the tenth Business Day after the date on which an order allowing such Claim becomes a Final Order, or as soon thereafter as practicable; and (iv) such other time as is agreed upon by the holder of such Claim and Reorganized Stuart.

Claims for Professional Fees. Each Person seeking an award by the Bankruptcy Court of Professional Fees: (a) must file its final application for allowance of compensation for services rendered and reimbursement of expenses incurred through the Confirmation Date within thirty days after the Confirmation Date; and (b) if the Bankruptcy Court grants such an award, each such Person must be paid in full in Cash in such amounts as are allowed by the Bankruptcy Court (i) on the later of the Effective Date or the date such Claim becomes an Allowed Administrative Expense Claim, or as soon thereafter as practicable, (ii) upon such other terms as may be mutually agreed upon between the holder of such Allowed Administrative Expense Claim and the Debtor or Reorganized Stuart, or (iii) in accordance with the terms of any applicable administrative procedures order entered by the Bankruptcy Court. All Professional Fees for services rendered in connection with the Chapter 11 Case and the Plan after the Confirmation Date including, without limitation, those relating to the occurrence of the Effective Date, the prosecution of Causes of Action preserved under the Plan, and the resolution of Disputed Claim, are to be paid by Reorganized Stuart upon receipt of an invoice for such services, or on such other terms as Reorganized Stuart may agree to, without the need for further Bankruptcy Court authorization or entry of a Final Order. If Reorganized Stuart and any Professional cannot agree on the amount of post-Confirmation Date fees and expenses to be paid to such Professional, such amount is to be determined by the Bankruptcy Court.

Claims of the DIP Lender. Simultaneously with the closing of the Exit Financing Facility, all the Debtor's obligations to the DIP Lender under the DIP Facility and the DIP Loan Documents are to be fully and finally satisfied in accordance with their terms using proceeds derived from,

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among other things, the Exit Financing Facility and/or Cash held by Reorganized Stuart.
Fees and Expenses of Indenture Trustee. The Indenture Trustee shall be compensated by Reorganized Stuart for services rendered during the period up to but not including the Effective Date, including the reasonable compensation, disbursements, and expenses of the agents and legal counsel of the Indenture Trustee in connection with the performance of their duties under the Indenture and under the Plan upon presentation of invoices without application by or on behalf of the Indenture Trustee to the Bankruptcy Court and without notice and a hearing unless specifically requested by a party in interest.

Indenture Trustee's Lien. Upon payment in full of the Allowed fees and expenses of the Indenture Trustee and its agents and counsel, the Indenture Trustee's liens on the distributions to the holders of the Notes shall be released and extinguished. If Reorganized Stuart and the Indenture Trustee cannot agree upon the amount of fees and expenses to be paid, such fees and expenses shall be determined by the Bankruptcy Court.

Classified Claims. As additionally described below, the treatment of classified Claims and the provisions governing distributions on account of Allowed Claims is set forth in Articles 4 and 5 of the Plan. You should refer to the Plan itself for the complete provisions governing the treatment of your particular Claim.

Class 1 _ Priority Claims. Class 1 is unimpaired by the Plan; consequently, all holders of Allowed Claims in Class 1 are deemed to have accepted the Plan and are not entitled to vote on the Plan. Each holder of an Allowed Priority Claim is to receive Cash in an amount equal to such Allowed Priority Claim on the later of: (a) the Effective Date, or as soon thereafter as practicable; and (b) ten Business Days after the date such Priority Claim becomes an Allowed Priority Claim, or as soon thereafter as practicable, unless the holder of such Allowed Priority Claim and Reorganized Stuart agree otherwise. Stuart estimates that as of the Petition Date, Priority Claims aggregated approximately $178,000.

Class 2 _ Secured Tax Claims. Class 2 is unimpaired by the Plan; consequently, all holders of Allowed Claims in Class 2 are deemed to have accepted the Plan and are not entitled to vote on the Plan. Each Allowed Secured Tax Claim is to be paid in full in Cash upon the latest of: (a) the Effective Date, or as soon thereafter as practicable; (b) such date as may be fixed by the Bankruptcy Court, or as soon thereafter as practicable; (c) the tenth Business Day after such Claim is Allowed, or as soon thereafter as practicable; (d) the date on which such Secured Tax Claim is scheduled to be paid in the ordinary course of business under applicable law or regulation; and (e) such date as the holder of such Claim and Reorganized Stuart agree. Stuart is not aware of any Secured Tax Claims.

Executive Guide to Corporate Bankruptcy

Class 3 _ Miscellaneous Secured Claims. Class 3 is unimpaired by the Plan; consequently, all holders of Allowed Claims in Class 3 are deemed to have accepted the Plan and are not entitled to vote on the Plan. Each Allowed Miscellaneous Secured Claim is to be paid in full in Cash upon the latest of: (a) the Effective Date, or as soon thereafter as practicable; (b) such date as may be fixed by the Bankruptcy Court, or as soon thereafter as practicable; (c) the tenth Business Day after such Claim is Allowed, or as soon thereafter as practicable; (d) the date on which such Miscellaneous Secured Claim is scheduled to be paid in the ordinary course of business under applicable law or regulation; and (e) such date as the holder of such Claim and Reorganized Stuart agree. Excluding the Claims of the DIP Lender and of the Elliott Trust, Stuart estimates that Miscellaneous Secured Claims do not exceed approximately $500,000.

Class 3A _ Elliott Trust Secured Claim. Class 3A is impaired by the Plan; consequently, the holder of the Elliott Trust Secured Claim is entitled to vote on the Plan. The Elliott Trust is The Robert and Jeannette Elliott Trust U/T/A dated August 13, 1997, with Robert Elliott and Jeannette Elliott as trustees, and was the former owner of all outstanding shares in Bingo Systems, now a Subsidiary of Stuart. In accordance with a Stock Purchase Agreement by and among the Elliott Trust, Stuart, and Bingo Systems, dated August 12, 1998, Stuart acquired all outstanding shares of Bingo Systems from the Elliott Trust and, among other consideration including a payment of cash, Stuart made a promissory note (the "Elliott Trust Promissory Note"), in the principal amount of $1,200,000, payable to the Elliott Trust. The Elliott Trust Secured Claim is in the principal amount of $800,000, as of the Petition Date, arising under the Elliott Trust Promissory Note, which is Secured by, among other things, a $600,000 irrevocable letter of credit granted to the Elliott Trust by Stuart and a second mortgage on certain real property owned by Bingo Systems. In full and final satisfaction of the Elliott Trust Secured Claim, the Elliott Trust is to be paid in full in Cash as follows: (a) eight (8) equal quarterly payments of $111,736.53, commencing on October 1, 1999 and continuing on each subsequent January 1, April 1, July 1, and October 1, with the last installment to be paid, rather than on July 1, 2001, no later than August 1, 2001; (b) except with respect to the foregoing payment schedule, Reorganized Stuart shall meet all its obligations to the Elliott Trust under the Elliot Trust Promissory Note, which, except to the extent altered by the foregoing payment schedule, shall remain in full force an affect in accordance with its own terms from and after the Effective Date.

Class 4 _ Notes. Class 4 is impaired by the Plan; consequently, all holders of Allowed Notes Claims and Allowed Notes Securities Claims are entitled to vote on the Plan. On the Confirmation Date, all Notes Claims are deemed Allowed in the aggregate amount of $100,000,000 plus accrued and unpaid interest relating to the period up to but not including the

Sample Plan and Disclosure Statement _

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Petition Date. On the Effective Date, or as soon thereafter as practicable, each holder of an Allowed Notes Claim shall receive, subject to such holder's surrender of its Debt Instrument(s) evidencing its Allowed Notes Claim in accordance with Section 4.5.9 of the Plan, in full and final satisfaction of such Allowed Notes Claim, a Pro Rata portion of a number of shares of New Common Stock equivalent to one-hundred percent (100%) of the New Common Stock, subject to dilution by the Adjusted Management Shares of New Common Stock issuable upon the exercise of the Equity Incentive Options and the Executive Options (see "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ New Incentive Stock Option Plan."). As of the Petition Date, the aggregate amount of Allowed Notes Claims (including accrued, unpaid interest up to but not including the Petition Date) was approximately $109,100,000. Stuart is unaware of any Notes Securities Claims.
Cash Payment Option. Any holder of an Allowed Notes Claim may make a Noteholder Election, by so indicating on its Ballot, to receive Cash in lieu of New Common Stock in full satisfaction of its Allowed Notes Claim. On the latest of: (a) the Effective Date, or as soon thereafter as practicable; (b) such date as may be fixed by the Bankruptcy Court, or as soon thereafter as practicable; (c) the tenth Business Day after such Claim is Allowed, or as soon thereafter as practicable; and (d) such date as the holder of such Claim and Reorganized Stuart agree, each holder of an Allowed Claim in Class 4 who makes a Noteholder Election to participate in the Cash Payment Option shall receive in full and final satisfaction of such Claim twenty-five percent (25%) of the Allowed Notes Claim in Cash, subject to such holder's surrender of its Debt Instrument(s) evidencing its Allowed Notes Claim in accordance with Section 4.5.9 of the Plan. Distributions pursuant to the Cash Payment Option shall be funded in accordance with the Company Funding Commitment and the Standby Funding Commitment. Any holder of an Allowed Claim in Class 4 who either does not submit a Ballot or does not indicate its Noteholder Election on its Ballot shall be deemed to have elected the Cash Payment Option.

Gaming Requirements. Any holder of an Allowed Notes Claim who is to receive more than five percent (5%) of the shares of New Common Stock issued to holders of Class 4 Claims must comply at all times with the Gaming Requirements as described in "ADDITIONAL IMPLEMENTION OF THE PLAN _ Description of Gaming Regulations" below. If at any time (the "Disqualification Date") any holder of New Common Stock refuses to comply with the Gaming Requirements, or if the Gaming Authorities of any jurisdiction in which Reorganized Stuart maintains a gaming license find that any holder of New Common Stock is not qualified or otherwise suitable to hold such New Common Stock in Reorganized Stuart, such holder shall either: (a) divest itself of its New Common Stock within 60 days after the Disqualification Date or such shorter

Executive Guide to Corporate Bankruptcy

period as directed by any Gaming Authorities; or (b) accept, within 60 days after the Disqualification Date or such shorter period as directed by any Gaming Authorities, the redemption of its New Common Stock by Reorganized Stuart for an amount in Cash equal to the lesser of the current market value of such New Common Stock and such holder's original cost basis in such New Common Stock determined as of the Effective Date. If such holder has not divested itself of its New Common Stock or accepted redemption of its New Common Stock within such period or periods, Reorganized Stuart shall have the option, but not the obligation, to cancel such New Common Stock.

Cancellation of Notes. As of the Effective Date, except to the extent provided otherwise in the Plan, all Notes, and all agreements, instruments, and other documents evidencing the Notes and the rights of the holders of Notes, shall be automatically canceled, extinguished, and deemed void (all without further action by any Person), and all obligations of any Person, including the Debtor, under such instruments and agreements shall be deemed fully and finally satisfied, released, and discharged.

Cancellation of Indenture. On the Effective Date, except to the extent provided otherwise in the Plan, the Indenture shall be deemed to be canceled, and the obligations of the Debtor thereunder, except for the obligation to indemnify the Indenture Trustee, shall be discharged; provided, however, that the Indenture or other agreement that governs the rights of the holders of Notes and that is administered by the Indenture Trustee, an agent or services, shall continue in effect solely for the purposes of (a) allowing such Indenture Trustee, as Disbursing Agent, to make distributions to holders of Notes under the Plan and (b) permitting such Indenture Trustee to maintain any rights or liens it may have for fees, costs, and expenses under such Indenture or other agreement.

Notes Securities Claims. In full and final satisfaction of all Notes Securities Claims, and in consideration of the distributions to the holders of Allowed Notes Claims, each holder of an Allowed Notes Securities Claim shall retain any proceeds derived from or relating to any litigation instituted or judgment obtained by any such holder or on his behalf payable by either: (a) any entity other than the Debtor, Reorganized Stuart, or any of their respective Subsidiaries; or (b) proceeds of insurance policies maintained by the Debtor. Aside from the above treatment, the holders of Notes Securities Claims shall receive no distributions under the Plan.

Class 5 _ General Unsecured Claims. Class 5 is impaired by the Plan; consequently, all holders of Allowed General Unsecured Claims are entitled to vote on the Plan. On the latest of: (a) the Effective Date, or as soon thereafter as practicable; (b) such date as may be fixed by the Bankruptcy Court, or as soon thereafter as practicable; (c) the tenth Business Day after such Claim is Allowed, or as soon thereafter as practicable; and (d) such date as the holder of such Claim and Reorganized Stuart agree,

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each Allowed General Unsecured Claim, in full and final satisfaction of such Allowed General Unsecured Claim, shall be paid an amount in Cash equivalent to twenty-five percent (25%) of the amount of such Allowed General Unsecured Claim. Stuart obtained authority from the Bankruptcy Court on the Petition Date to pay the prepetition claims of its various vendors, suppliers, and other trade creditors in the ordinary course of business. As such, few, if any, Unsecured Claims of trade creditors will remain for treatment as Class 5 Claims under the Plan. Accordingly, Stuart estimates that Class 5 General Unsecured Claims will aggregate less than $500,000.
Class 6 _ Subsidiary Claims. Class 6 is impaired by the Plan; consequently, all holders of Allowed Claims in Class 6 are entitled to vote on the Plan. The holders of Subsidiary Claims will receive no distributions under the Plan, and all such Claims are discharged under the Plan in accordance with Section 12.2 of the Plan.

Class 7 _ Equity Interests and Equity Related Claims. Class 7 is impaired by the Plan; consequently, all holders of Allowed Equity Interests and Equity Related Claims are entitled to vote on the Plan. No securities litigation is currently pending against Stuart or its officers and directors; accordingly, Stuart is unaware of any Equity Related Claims. Allowed Equity Interests and Allowed Equity Related Claims are to be satisfied as follows:

Distributions. In full and final satisfaction of all Allowed Equity Interests and Allowed Equity Related Claims, subject to the provisions of Section 4.8.6 of the Plan (see "Alternative Treatment," immediately below), on the Effective Date, or as soon thereafter as practicable, each holder of an Allowed Equity Interest and Allowed Equity Related Claim shall receive its Pro Rata portion of $150,000 in Cash. Only those holders of Equity Related Claims whose Claims are Allowed as of the Effective Date shall be entitled to receive a distribution on account of such Claims. No distribution shall be made on account of any Equity Related Claims not Allowed as of the Effective Date.

Alternative Treatment. If: (a) the Bankruptcy Court determines that the treatment of, and distributions to, Class 7 under the Plan violates the provisions of Section 1129(b) of the Bankruptcy Code (to the extent such provisions apply); or (b) Class 7 does not vote to accept the Plan; then all Equity Interests are to be canceled and extinguished on the Confirmation Date without further action under any applicable agreement, law, regulation, order, or rule, and the holders of Equity Interests will not receive or retain any rights, property, or distributions on account of their Equity Interests.

Executive Guide to Corporate Bankruptcy

Description of Transactions to be Implemented in Connection with the Plan

New Common Stock.

As stated above, holders of Allowed Claims in Class 4 are to receive shares of New Common Stock under the Plan. The following describes the New Common Stock and the rights and restrictions associated with it.

The Reorganized Stuart Certificate authorizes the issuance of 10,000,000 shares of New Common Stock and 5,000,000 of preferred stock. On the Effective Date, or as soon thereafter as practicable, Reorganized Stuart will issue approximately 1,000,000 shares of such New Common Stock, which will represent one hundred percent (100%) of the then-outstanding equity in Reorganized Stuart, subject to dilution by the shares of New Common Stock issuable upon the exercise of the Executive Options and the Equity Incentive Options (see "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ New Incentive Stock Option Plan."). The aggregate number of share underlying the Executive Options and the Equity Incentive Options (the "Adjusted Management Shares") is calculated using the following Accretion Calculation:

The Actual Company Funding Amount is the amount of Cash that Reorganized Stuart pays to holders of Allowed Class 4 Claims who elect the Cash Payment Option under the Company Funding Commitment (see "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ Effect of Standby Funding Commitment."). The Initial Management Percentage is ten percent (10%), derived through negotiations with the Executive Management Group and Contrarian. The Adjusted Management Percentage is the percentage of the issued and outstanding shares of New Common Stock issuable to members of the Executive Management Group, on a Fully Diluted Basis, upon exercise of the Equity Incentive Options and the Executive Management Options, resulting from the above Accretion Calculation. The Adjusted Management Shares is the aggregate number of shares of New Common Stock issuable to members of the Executive Management Group upon exercise of the Executive Options and the Equity Incentive Options, as calculated using

Sample Plan and Disclosure Statement _

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the above Accretion Calculation. The purpose of the Accretion Calculation is to determine the accretive effect of Reorganized Stuart's Cash payments to those holders of Claims electing the Cash Payment Option under the Company Funding Commitment on the percentage of total outstanding New Common Stock purchasable by members of the Executive Management Group upon exercise of the Equity Incentive Options and the Executive Options. For example, if the Actual Company Funding Amount is $3,000,000, the Allowed Notes Claims total is $109,097,221, and the Initial Management Percentage is 10% (which is the sum of the 4% and 6% of outstanding shares of New Common Stock to be issued upon the exercise of the Executive Options and the Equity Incentive Options, respectively), the Accretion Calculation would be as follows:

All shares of New Common Stock to be issued in accordance with the Plan (including, without limitation, those shares issued upon the exercise of the Executive Options, and the Equity Incentive Options), will, at issuance, be duly authorized, fully paid and non-assessable. The holders of such shares will have no preemptive or other rights to subscribe for additional shares. The New Common Stock will have a par value of $0.001 per share.

Divestiture. If at any time (the "Disqualification Date") any holder of New Common Stock refuses to comply with the Gaming Requirements, or if Gaming Authorities of any jurisdiction in which Reorganized Stuart maintains a gaming license find that any holder of New Common Stock is not qualified or otherwise suitable to hold such New Common Stock in Reorganized Stuart, such holder shall be required either: (a) to divest itself of its New Common Stock within 60 days after the Disqualification Date or such shorter period as directed by any Gaming Authorities; or (b) to accept, within 60 days after the Disqualification Date or such other period as directed by any Gaming Authorities, the redemption of its New Common Stock by Reorganized Stuart for an amount in Cash equal to the lesser of: (i) the current market value of such New Common Stock; and (ii) such holder's original per-share cost basis in such New Common Stock, which shall be determined by dividing the number of shares of New Common Stock issued as of the Effective Date by the aggregate reorganized equity value of Reorganized Stuart as determined by the Bankruptcy Court. If such holder has not divested itself of its New Common Stock or accepted redemption of its New Common Stock within such period or periods, Reorganized Stuart shall have the option, but not the obligation, to cancel such New Common Stock.

Executive Guide to Corporate Bankruptcy

Effect of Standby Funding Commitment.

Stuart and certain holders of Notes have entered into, or will enter into, the "Standby Funding Commitment," an agreement under which both Reorganized Stuart and such holders are obligated, under certain circumstances, to fund Cash payments on account of Allowed Claims in Class 4 under the Cash Payment Option. Reorganized Stuart's funding obligation, the "Company Funding Commitment," is the obligation of Reorganized Stuart to provide funding of up to $3,000,000 for Cash payments to Allowed Claims in Class 4 under the Cash Payment Option. The Standby Funding Commitment also provides that upon satisfaction by Reorganized Stuart of its obligations under the Company Funding Commitment, those holders of Notes executing the Standby Funding Commitment shall provide any additional funding of Cash payments to Allowed Claims in Class 4 in accordance with the terms of the Standby Funding Commitment. Pursuant to the Standby Funding Commitment and the Plan, each holder of Notes contributing to the funding of Cash Payments to Allowed Class 4 Claims shall receive, in exchange for any such funding provided to satisfy Allowed Claims in Class 4, an Allowed Claim in Class 4 in an amount equivalent to the Allowed Notes Claims such holder satisfies pursuant to the Standby Funding Commitment, and shall receive distributions of New Common Stock in accordance with Section 4.5.5 of the Plan on account of such Allowed Class 4 Claim.

New Incentive Stock Option Plan.

Exhibit D to the Plan Supplement contains the New Incentive Stock Option Plan, which provides for the granting to certain Stuart employees options to purchase New Common Stock. The Incentive Stock Option Plan is intended to facilitate the granting of the Equity Incentive Options and the Executive Options to members of the Executive Management Group, entitling such members, if such options are exercised, to receive an aggregate number of shares of New Common Stock equivalent to the Adjusted Management Percentage of the outstanding New Common Stock on a Fully Diluted Basis. The Executive Options and the Equity Incentive Options are described below.

Executive Options.

As of the Effective Date, Reorganized Stuart shall issue to the Executive Management Group the Executive Options, entitling such members to acquire an aggregate number of shares of New Common Stock equivalent to four percent (4%) of the outstanding New Common Stock as of the Effective Date on a Fully Diluted Basis, subject to the Adjusted Management Percentage. Such shares, when issued, shall dilute all shares of New Common Stock issued and outstanding at the time of issuance on a Pro Rata basis. The Executive Options shall be exercisable and shall be governed by the

Sample Plan and Disclosure Statement _

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terms and conditions set forth in the New Incentive Stock Option Plan and the applicable Employment Agreement, and shall be allocated among the Executive Management Group in a manner and in an amount as determined by Mr. Valandra on or before the Effective Date. The number of shares of New Common Stock subject to the Executive Options shall be adjusted in the event of stock splits, stock dividends, mergers, and similar events.
Equity Incentive Options.

As of the Effective Date, members of the Executive Management Group shall receive the Equity Incentive Options, entitling the holders of such options to acquire an aggregate number of shares of New Common Stock equivalent to six percent (6%) of the outstanding New Common Stock as of the Effective Date on a Fully Diluted Basis, subject to the Adjusted Management Percentage.

Exercise Price. The Equity Incentive Options have an exercise price per share equal to the fair market value per share of New Common Stock as of the Effective Date.

Vesting. The Equity Incentive Options vest and become exercisable if Reorganized Stuart meets the following EBITDA² targets during the first three full fiscal years following the Confirmation Date in accordance with the vesting schedule set forth below:

Notwithstanding the foregoing, the EBITDA targets set forth above are cumulative and the Equity Incentive Options may vest earlier or later than as set forth in the vesting schedule. For example, if Reorganized Stuart fails to meet the total EBITDA target for the first two fiscal years, but meets the EBITDA target in the third fiscal year, and the aggregate EBITDA for all three fiscal years exceeds $42 million, the Equity Incentive Options

²"EBITDA" is defined in Section 1.48 of the Plan: During each applicable fiscal year, for Reorganized Stuart and its Subsidiaries on a consolidated basis, determined in accordance with consistently applied generally accepted accounting principals, the Net Income for such period, plus, to the extent reflected in the statement of Net Income for such period , the sum of (a) Income Tax, (b) Interest Expense, (c) Depreciation Expense, and (d) Amortization (each as defined in the Plan).

Executive Guide to Corporate Bankruptcy

will vest in full. Similarly, if Reorganized Stuart meets the EBITDA target established for any fiscal year during an earlier fiscal year, the Equity Incentive Options that would have vested based on achieving such EBITDA target in the later fiscal year will vest in full. The Equity Incentive Options are to be governed by the terms and conditions set forth in the New Incentive Stock Option Plan. Such options are to be allocated among the Executive Management Group in a manner and in an amount as determined by Mr. Valandra before the Effective Date. The number of shares and exercise price of the Equity Incentive Options are to be adjusted in the event of stock splits, stock dividends, mergers, and similar events.

Employment Contracts.

As of the Effective Date, all employment contracts of existing employees of the Debtor are deemed rejected, canceled, and terminated, except that the Employment Contracts, substantially in the forms contained in Exhibit F to the Plan Supplement, will be assumed and will remain effective from and after the Effective Date of the Plan. The Employment Contracts will be between Reorganized Stuart and the members of the Executive Management Group: Joseph M. Valandra, Lawrence X. Taylor, III, Ernest M. Marchand, Jimmy D. Helton, and Clement F. Chantiam, in their respective capacities for Reorganized Stuart as set forth in "BACKGROUND AND EVENTS PRECIPITATING THE CHAPTER 11 FILING _ Current Directors and Executive Officers."

The principal terms of the Employment Contracts are as follows:

l Term _ Each Employment Contract provides for an initial term expiring on December 31, 2002.

l Base Salary _ The annual base salary of each Executive is as follows:

l General Perquisites - The Executives are entitled to participate with all other senior executive officers of Reorganized Stuart in bonus and incentive compensation programs and in Company 401(k), health and welfare benefit plans, each as adopted by Reorganized Stuart from time to time.

l Incentive Compensation _

Restructuring Bonus. Upon the successful consummation of either an exchange offer in which the Notes are exchanged for equity in Stuart, or the entry of a final non-appealable order con

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firming a Chapter 11 plan of reorganization (a "Conversion Event"), the Executives (as a group) will receive a restructuring bonus of options entitling the Executives to receive equity equal to four percent (4%) of the equity in the entity resulting from such Conversion Event, on a Fully Diluted Basis. Each Executive has been allocated a share of the four percent (4%) by Mr. Valandra. Under the Plan, this Restructuring Bonus is satisfied by virtue of the Executive Options (see "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ Executive Options.").
Equity Incentive Options. The Executives (as a group) also are entitled to receive the Equity Incentive Options, described in "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ Equity Incentive Options."

l Severance Benefits _ Under the terms of the Employment Contracts, Reorganized Stuart may terminate an Executive's employment at any time for cause, and in such event, all of such Executive's rights to compensation would cease upon his termination. If the termination is Without Cause or for Good Reason (as such terms are defined in the Employment Agreements), Reorganized Stuart must pay to the applicable Executive, in addition to amounts accrued in respective periods prior to the termination, a cash lump sum in an amount determined as follows: (A) prior to the effective date of any Conversion Event, his base salary (as in effect at the time of such termination) for a period of 18 months; and (B) from and after the effective date of any Conversion Event, an amount equal to his base salary for a period equal to the greater of 12 months or the number of months remaining until the expiration of the term of the applicable Agreement. Reorganized Stuart is also required to continue benefits of the Executive and his eligible beneficiaries for a period of 12 months following the termination date, and permit the Executive to exercise in full all outstanding vested stock options and restricted stock awards for such period. The Executive would also be entitled to exercise any equity incentive options that subsequently vest at the end of the fiscal year in which the Executive is terminated and at the end of the next succeeding fiscal year. The latter right also applies in the event an Executive is terminated due to death or disability.

l Put Rights _ If an Executive terminates his employment for Good Reason or Reorganized Stuart terminates an Executive Without Cause, the Executive will have the right to put any securities he beneficially owns to Reorganized Stuart at price to be determined at the time such put right is exercised.

Executive Guide to Corporate Bankruptcy

l Non-compete _ Each Executive is subject to a two year non-compete that commences on the date of termination. The non-compete is not operative in the event Reorganized Stuart elects not to extend the term of the applicable Employment Agreement.

Severance and Retention Bonus Program.

Stuart has determined that it is in the best interests of its ongoing operations to (i) close its McAllen, Texas plant and migrate all its operations to certain of Stuart's other manufacturing facilities, and (ii) relocate its corporate headquarters from Council Bluffs, Iowa to the Minneapolis/St. Paul metropolitan area. In order to provide employees affected by the closure of these two facilities with some degree of comfort in the stability of their jobs through these closures, thereby ensuring their continued employment and assistance during the pendency of the Chapter 11 Case, Stuart believed it was necessary to adopt a comprehensive severance and retention program.

The approximately 200 employees affected by the McAllen plant closure and headquarters relocation will receive, provided they agree to remain through a specified date determined by Stuart, a severance payment equal to one (1) week's pay for each year of employment with Stuart. Should all 200 employees participate in the severance program, the aggregate cost of the severance program to Stuart will be approximately $233,843.

Furthermore, on December 31, 1999, each employee listed on Exhibit H to the Plan Supplement will be entitled to receive a Retention Bonus consisting of Cash in an amount equal to ten percent (10%) of that employee's annual base salary in effect on the Petition Date, provided that such employee remains an employee of Reorganized Stuart through December 31, 1999, unless such requirement is waived by Reorganized Stuart in its sole discretion. Should all employees listed in Exhibit H to the Plan Supplement become eligible for Retention Bonuses, the aggregate cost of such bonuses will be approximately $767,400.

Exit Financing Facility.

On or before the Effective Date, the Debtor or Reorganized Stuart, as the case may be, shall execute the Exit Financing Documents, which shall have been approved by separate, prior Final Order of the Bankruptcy Court. The Exit Financing Facility, among other things, shall (a) be effective on the Effective Date, (b) be a senior secured facility, and (c) contain terms and conditions in form and substance acceptable to the Debtor and/or Reorganized Stuart.

Reorganized Stuart Certificate of Incorporation and By-Laws.

As of the Effective Date and without any further action by the stockholders or directors of the Debtor or Reorganized Stuart, the Debtor's certificate of incorporation and by-laws will be amended and restated substantially in the forms of the Reorganized Stuart Certificate and Reorganized Stuart By-

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Laws contained in the Plan Supplement, which provide for, among other things, the authorization of all acts necessary to implement the Plan including, without limitation, the issuance of the New Common Stock. Such restated certificate of incorporation and by-laws will also prohibit (to the extent required by Section 1123(a) and (b) of the Bankruptcy Code) the issuance of non-voting equity securities. The initial members of the board of directors of Reorganized Stuart are to serve until such directors, or their successors, are elected at a properly noticed and constituted stockholders meeting of Reorganized Stuart. After the Effective Date, Reorganized Stuart may amend and restate its certificate of incorporation and by-laws as permitted by such documents and applicable state law.
Stock Transfer Restriction.

Following the Effective Date, no Person holding shares of New Common Stock shall transfer, and Reorganized Stuart shall not register the transfer of, such shares of New Common Stock, whether by sale, assignment, gift, bequest, appointment or otherwise (collectively, a "Transfer"), if such Transfer would cause the aggregate number of outstanding shares of New Common Stock to be held of record by five hundred (500) or more Persons. Any purported Transfer of shares of New Common Stock in violation of this provision shall be null and void, and the purported transferee, with respect to the shares transferred, shall have no rights as a stockholder of Reorganized Stuart and no other rights against or with respect to Reorganized Stuart.

Private Company Status.

Stuart is currently a public company, registered under Section 12 of the Exchange Act, and its Old Common Stock is presently quoted on the OTC Electronic Bulletin Board under the symbol "STUA." Following the Effective Date of the Plan, Reorganized Stuart intends to terminate its registration under the Exchange Act such that Reorganized Stuart will no longer file reports with the SEC or otherwise be subject to the reporting requirements under the Exchange Act and the New Common Stock will not be traded on any recognized stock exchange or over-the-counter securities market. Reorganized Stuart will file necessary forms, including a Form 15, with the Securities and Exchange Commission to effect the termination of reporting requirements.

Registration Rights.

As soon as practicable following the Effective Date, Reorganized Stuart and any holder of 10% or more of the New Common Stock to be issued to holders of Allowed Class 4 Claims in accordance with the Plan shall enter into registration rights agreement(s) substantially in the form of the Registration Rights Agreement included as Exhibit K to the Plan Supplement. The Registration Rights Agreement provides, among other things, that if Reorganized Stuart registers any of its New Common Stock either for its own account or for the account of other holders of New Common Stock,

Executive Guide to Corporate Bankruptcy

any holder of New Common Stock (irrespective of its percentage holdings) shall be entitled to include its shares of New Common Stock in such registration, subject to the ability of the underwriters to limit the number of shares included in the offering. Within thirty (30) days following the Effective Date, Reorganized Stuart shall file appropriate shelf registration documents as required in the Registration Rights Agreement.

Shareholder Agreement.

As of the Effective Date, Reorganized Stuart will enter into a Shareholder Agreement with certain holders of New Common Stock and members of the Executive Management Group. Under the terms of the Shareholder Agreement, the parties thereto have agreed to grant each other a right of first refusal with respect to the sale of such party's shares of New Common Stock, subject to certain conditions. Similarly, a party who has agreed to sell its shares of New Common Stock to a third party, subject to the right of first refusal, must provide the other parties the right to include their shares in such sale (i.e., tag-along rights). Under Section 1.5 of the Shareholder Agreement, those persons who beneficially ten percent (10%) or more of the outstanding New Common Stock as of the Effective Date also will be entitled to the tag-along rights granted in that Section.

Cancellation and Surrender of Securities and Instruments.

As of the Effective Date, all Notes and Equity Interests, and all agreements, instruments, and other documents evidencing the Notes and Equity Interests and the rights of the holders of Notes and Equity Interests are canceled, extinguished, and deemed void (all without further action by any Person), and all obligations of any Person under such instruments and agreements is deemed fully and finally satisfied and released. On or before the Distribution Date, or as soon thereafter as practicable, each holder of a Debt Instrument evidencing an Allowed Notes Claim or a security evidencing an Allowed Equity Interest must surrender or cause to be surrendered such Debt Instrument or security to the Disbursing Agent. No distribution of property under the Plan is to be made to or on behalf of any such holder unless and until such Debt Instrument or security is received by the Disbursing Agent, or the unavailability of such Debt Instrument or security is reasonably established to the Disbursing Agent's satisfaction. If any holder of an Allowed Notes Claim or Allowed Equity Interest seeks to establish the unavailability of the Debt Instrument or security evidencing such Claim or Interest, the Disbursing Agent must, within the first Business Day thirty days after receipt of the holder's evidence of unavailability and statement of indemnity of Reorganized Stuart and the Disbursing Agent: (a) provide the holder, in writing, with a detailed description regarding the unacceptability of such evidence and statement of indemnity, if any; or (b) (in the case of holders of Notes) deliver to Indenture Trustee and Reorganized Stuart a notice of compliance and distribute to such holder its Pro

Sample Plan and Disclosure Statement _

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Rata portion of the New Common Stock. Any such holder who fails to surrender or cause to be surrendered such Debt Instrument or security or fails to execute and deliver an affidavit of loss and indemnity reasonably satisfactory to the Disbursing Agent and Reorganized Stuart before the first anniversary of the Effective Date will be deemed to have forfeited all rights, Claims, and Interests in respect of such Debt Instrument or security and may not participate in any distribution under the Plan, and all property in respect of such forfeited distribution, including interests accrued on such distribution, will revert to Reorganized Stuart notwithstanding any federal or state escheat laws to the contrary.
Asset Transfer.

On or before December 31, 1999, Stuart intends to transfer all or substantially all of its business operating assets including, but not limited to, property, plant, and equipment, inventory, accounts receivable, and goodwill associated therewith, to one or more of its Subsidiaries as a capital contribution to such Subsidiaries. It is anticipated that the employees of Stuart associated with the transferred businesses will also be transferred to the applicable Subsidiary. The proposed transfer of assets will facilitate the ability of the management team associated with each Subsidiary to focus on the operations of the business transferred to such Subsidiary. In addition, the transfer of such assets will insulate the assets of one Subsidiary from the business risks associated with each other Subsidiary.

ADDITIONAL IMPLEMENTION OF THE PLAN

Description of Gaming Regulations

Stuart is subject to regulation in most jurisdictions in which its bingo, bingo-related products (including pulltabs) and electronic gaming systems are sold or used by persons or entities licensed to conduct gaming activities. The gaming regulatory requirements vary from jurisdiction to jurisdiction and licensing, other approval or finding of suitability processes with respect to Stuart, its personnel and its products, can be lengthy and expensive. Many jurisdictions have comprehensive licensing, reporting and operating requirements with respect to the sale and manufacture of bingo and bingo-related products, including bingo paper, pulltab tickets and electronic bingo equipment. These licensing requirements have a direct impact on the conduct of Stuart's day-to-day operations. Generally, gaming regulatory authorities may deny applications for licenses, other approvals or findings of suitability for any cause they may deem reasonable. There can be no assurance that Stuart, its products or its personnel will receive or be able to maintain any necessary gaming licenses, other approvals or findings of suitability. The loss of a license in a particular jurisdiction will prohibit Stuart from selling products in that jurisdiction and may prohibit Stuart from selling its products in other jurisdictions. The loss of one or more licenses held by Stuart could have a material adverse effect on Stuart's

Executive Guide to Corporate Bankruptcy

business, results of operations, and financial condition.

In certain jurisdictions, any beneficial owner of Stuart's common stock may, at gaming authorities' discretion, be required to file applications with gaming regulatory authorities so that such authorities may investigate such shareholder and determine whether such shareholder is suitable or qualified to hold stock in Stuart. The gaming laws and regulations of some jurisdictions provide that beneficial owners of more than five percent (5%) of the common stock and, potentially, holders of the debt securities of Stuart may be subject to certain reporting procedures and may be required to be investigated and licensed, qualified, or found suitable. The Reorganized Stuart Certificate of Incorporation authorizes Reorganized Stuart, under certain circumstances, to redeem, at the lesser of the holder's original basis or the current market price, the New Common Stock held by any person whose status as a shareholder may jeopardize Stuart's gaming licenses or approvals. See "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ New Common Stock."

Generally, those individuals and entities required to comply with Gaming Requirements of any of the approximately 30 jurisdictions in which Stuart currently holds a gaming license may run afoul of such requirements by either: (1) failure to make full and adequate disclosure; and (2) a finding of unsuitability by gaming authorities. There are no bright line tests for suitability and criteria vary often substantially by jurisdiction. Typically, however, authorities could find a person or entity unsuitable if there were evidence of convictions or arrests relating to crimes of moral turpitude, violation of gambling laws, association with undesirable characters, an intentional failure to adequately disclose requested information, or misrepresentation or fraud in such disclosure.

Attached as Exhibit 6 to this Disclosure Statement is a grid briefly cataloguing shareholder disclosure requirements for the jurisdictions in which Stuart is currently licensed. This grid should be considered a guideline only and is not intended to be a complete analysis of applicable Gaming Requirements in any jurisdiction. Required disclosure for individuals typically involves information regarding such items as personal background, criminal history, and personal net worth, and may include requirements for the submission of certain documentation including income statements and/or tax returns, photographs, fingerprint cards (including spouse), and investigative waivers.

If the disclosing shareholder is a corporate entity or investment fund, principals with voting and investment discretion may be required to make similar disclosures. Gaming authorities (and investigative agencies working on their behalf) may, at their discretion, require disclosure of fund participants even if those participants do not have voting rights. Investigations may take up to two years or more and could include interviewing

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neighbors and former employers.
Gaming authorities typically do not have uniform standards for unsuitability. Stuart is aware of the following instances that did not, by themselves, lead to a finding of unsuitability: (1) a 15-year-old conviction of Obstruction of a Police Officer relating to a tavern altercation; and (2) an arrest for drug possession (no conviction) more than 20 years ago. Stuart is aware of the following instances that would, on the other hand, be more likely to result in a finding of unsuitability: (1) failure to completely disclose personal history (for instance, a previous marriage and divorce); (2) participation in the dealing of gray market gaming machines on Native American reservations; (3) failure to disclose actual ownership of an applicant or any of its significant shareholders. Stuart believes that that convictions for violation of gambling laws and convictions relating to fraudulent conduct would also result in a finding of unsuitability.

THE FOREGOING DESCRIPTION OF GAMING REQUIREMENTS IS INTENDED ONLY TO PROVIDE HOLDERS OF CLAIMS AND EQUITY INTERESTS WITH SOME GUIDANCE REGARDING THE TYPES OF ISSUES THAT MAY ARISE IN COMPLYING WITH THE GAMING REQUIREMENTS FOR PURPOSES OF RECEIVING SHARES OF NEW COMMON STOCK UNDER THE PLAN. IT IS IMPRACTICAL FOR STUART TO ADEQUATELY DESCRIBE EVERY STATUTE AND REGULATION RELATING TO GAMING COMPLIANCE IN EVERY JURISDICTION IN WHICH STUART OR REORGANIZED STUART IS LICENSED OR MAY BECOME LICENSED IN THE FUTURE. INDIVIDUAL HOLDERS OF CLAIMS AND EQUITY INTERESTS CONCERNED ABOUT GAMING REQUIREMENTS ARE STRONGLY CAUTIONED TO CONSULT WITH COUNSEL IN CONNECTION WITH THE RECEIPT OF SHARES OF NEW COMMON STOCK UNDER THE PLAN.

Funding for the Plan

Funds to be used to make Cash payments under the Plan have been or will be generated from, among other things, the operation of Stuart's business, certain asset dispositions, the Standby Funding Commitment, and borrowing under the Exit Financing Facility.

Post-Confirmation Officers and Directors

Initial Board of Directors.

The initial board of directors of Reorganized Stuart following the Confirmation Date will be comprised of five directors as follows: (i) Joseph M. Valandra, as director and Chairman of the Board; (ii) Jock Patton; (iii) three members selected by Contrarian.

Executive Guide to Corporate Bankruptcy

Initial Officers.

Reorganized Stuart's officers immediately before the Effective Date (as set forth in "Current Directors and Executive Officers" above) will serve as the initial officers of Reorganized Stuart on and after the Effective Date. Post-Effective Date base salaries for Reorganized Stuart's officers are as follows:

Description of Other Provisions of the Plan

Disputed Claims.

The Plan provides that with respect to any Disputed Claims and Equity Interests, for the purposes of effectuating the provisions of the Plan and the distributions to holders of Allowed Claims and Equity Interests, the Bankruptcy Court, on or before the Effective Date or another date the Bankruptcy Court may set, may fix or liquidate the amount of such Disputed Claims and Equity Interests under Section 502(c) of the Bankruptcy Code, in which event the amounts so fixed or liquidated will be deemed the maximum amounts of the Disputed Claims and Equity Interests under Section 502(c) of the Bankruptcy Code for purposes of distributions under the Plan.

When a Disputed Claim or Equity Interest becomes an Allowed Claim or Allowed Equity Interest, Reorganized Stuart will distribute to the holder of such Allowed Claim or Allowed Equity Interest the property to be distributed under the applicable provisions of the Plan.

Disputed Payments.

The Plan provides that if any dispute between and among holders of Claims or Equity Interests or holders of a Disputed Claim or Equity Interest as to the right of any Person to receive or retain any payment or distribution to be made to such Person under the Plan, Reorganized Stuart may, in lieu of making such payment or distribution to such Person, instead hold such payment or distribution, without interest, until the Bankruptcy Court or other court with appropriate jurisdiction issues a Final Order resolving such dispute.

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Unclaimed Property.

Any distributions under the Plan that remain unclaimed for a period of one year after the Effective Date will revert and revest in Reorganized Stuart, with any entitlement of any holder of any Claim or Equity Interest to such distributions forever forfeited, extinguished, and barred.

Issuance of New Securities.
Shares of New Common Stock will be issued to holders of Allowed Claims in Class 4, as well as upon the exercise of the Executive Options and the Equity Incentive Options. For a complete description of these securities, see "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ New Common Stock."

Discharge.

Except as provided in the Plan or the Confirmation Order, the rights afforded under the Plan and the treatment of Claims and Equity Interests under the Plan are in exchange for and in complete satisfaction, discharge, and release of, all Claims including any interest accrued on General Unsecured Claims from the Petition Date and termination of all Equity Interests. Except as provided in the Plan or the Confirmation Order, Confirmation: (a) discharges the Debtor and Reorganized Stuart from all Claims or other debts that arose before the Confirmation Date, and all debts of the kind specified in Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (i) a proof of claim based on such debt is filed or deemed filed under Section 501 of the Bankruptcy Code; (ii) a Claim based on such debt is Allowed under Section 502 of the Bankruptcy Code; or (iii) the holder of a Claim based on such debt has accepted the Plan; and (b) terminates all Equity Interests and other rights of Equity Interests in the Debtor except as expressly provided in the Plan. Notwithstanding the foregoing, no Allowed Class 6 Subsidiary Claims are discharged until the later of: (x) the Effective Date; (y) the closing of the Exit Financing Facility; and (z) the payment and satisfaction in full of the Claims of the DIP Lender under the DIP Facility and the DIP Loan Documents in accordance with Section 2.7 of the Plan.

Termination of Subordination Rights.

The classification and manner of satisfying all Claims and Equity Interests under the Plan take into consideration all contractual, legal, and equitable subordination rights, whether arising under general principles of equitable subordination, Sections 510(b) and (c) of the Bankruptcy Code or otherwise, that a holder of a Claim or Equity Interest may have against other Claim or Equity Interest holders with respect to any distribution made in accordance with the Plan. As of the Effective Date, all contractual, legal, or equitable subordination rights that a holder of a Claim or Equity Interest may have with respect to any distribution to be made in accordance with the Plan is discharged and terminated, and all actions related to the enforcement of

Executive Guide to Corporate Bankruptcy

such subordination rights are permanently enjoined and distributions under the Plan are not subject to payment to a beneficiaries of such terminated subordination rights, or to levy, garnishment, attachment, or other legal process by any beneficiary of such terminated subordination rights. Under Bankruptcy Rule 9019 and in consideration of the distributions and other benefits provided under the Plan, the provisions of Section 5.15 of the Plan constitute a good faith compromise and settlement of all claims or controversies relating to the termination of all contractual, legal, and equitable subordination rights that a holder of a Claim or Equity Interest may have with respect to any Allowed Claim or Allowed Equity Interest, or any distribution to be made on account of an Allowed Claim or an Allowed Equity Interest. The entry of the Confirmation Order constitutes the Bankruptcy Court's approval of the compromise and settlement of all such claims and controversies, and the Bankruptcy Court's finding that such compromise or settlement is in the best interests of the Debtor, Reorganized Stuart, and their respective property and holders of Claims and Equity Interests and is fair, equitable, and reasonable.

Injunctions.

Except as provided in the Plan or the Confirmation Order, as of the Confirmation Date, all entities that have held, currently hold or may hold a Claim or other debt or liability that is discharged or an Equity Interest, Equity Related Claim, or other right of an equity security holder that is terminated under the Plan are permanently enjoined from taking any of the following actions on account of any such discharged Claims, debts, liabilities, or terminated Equity Interests or rights: (a) commencing or continuing in any manner any action or other proceeding against Stuart or Reorganized Stuart (including any officer or director acting as a representative of Stuart or Reorganized Stuart); (b) enforcing, attaching, collecting or recovering in any manner any judgment, award, decree, or order against Stuart, Reorganized Stuart, or their respective property; (c) creating, perfecting, or enforcing any lien or encumbrance against Stuart, Reorganized Stuart, or their respective property; (d) asserting a setoff, right of subrogation or recoupment of any kind against any debt, liability, or obligation due to Stuart, Reorganized Stuart, or their respective property; and (e) commencing or continuing any action, in any manner, in any place, that does not comply with or is inconsistent with the provisions of the Plan or the Bankruptcy Code.

Exculpation.

None of the Debtor, Reorganized Stuart, the Indenture Trustee, or Contrarian, or any of their respective officers, directors, employees, advisors, attorneys, or agents, have or may incur any liability to any holder of a Claim or Equity Interest, including the holder of any Equity Related Claim, or any other party in interest, or any of their respective members or former members, agents, employees, representatives, financial advisors, attorneys, or affiliates,

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or any of their successors or assigns, for any act or omission in connection with, relating to, or arising out of, the Chapter 11 Case, the negotiation and execution of the prepetition Restructuring Agreement, the negotiation and pursuit of Confirmation of the Plan, or the consummation of the Plan, or the administration of the Plan except for their acts or omissions constituting willful misconduct, as finally determined by a court of competent jurisdiction and in all respects are entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under the Plan or in the context of the Chapter 11 Case. No holder of a Claim, Equity Interest, or Equity Related Claim, or any other party in interest, including their respective agents, employees, representatives, financial advisors, attorneys, or affiliates, have any right of action against the Debtor, Reorganized Stuart, the Indenture Trustee, Contrarian, or any of their respective officers, directors, employees, advisors, attorneys, or agents, for any act or omission in connection with, relating to, or arising out of, the Chapter 11 Case, the negotiation and execution of the prepetition Restructuring Agreement, the negotiation and pursuit of Confirmation of the Plan, the consummation of the Plan, or the administration of the Plan, except for their acts or omissions constituting willful misconduct as finally determined by a court of competent jurisdiction. In addition, as of the Effective Date, the Debtor shall be deemed to have released its current and prior directors and officers from any claims or causes of action the Debtor may have against such parties, unless such claims or causes of action arise out of acts or omissions by such parties constituting willful misconduct.

Section 1146 Exemption.

In accordance with Section 1146(c) of the Bankruptcy Code: (a) the issuance, distribution, transfer, or exchange of the New Common Stock or other Estate property; (b) the creation, modification, consolidation, or recording of any deed of trust or other security interest, the securing of additional indebtedness by such means or by other means in furtherance of, or connection with, this Plan or the Confirmation Order; (c) the making, assignment, modification, or recording of any lease or sublease; or (d) the making, delivery, or recording of a deed or other instrument of transfer under, in furtherance of, or in connection with, this Plan, the Confirmation Order, or any transaction contemplated above, or any transactions arising out of, contemplated by, or in any way related to, the foregoing are not subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act or real estate transfer tax, mortgage recording tax or other similar tax or governmental assessment and the appropriate state or local government officials or agents are directed to forego the collection of any such tax or assessment and to accept for filing or recordation any of the foregoing instruments or other documents without the payment of any such tax or assessment.

Executive Guide to Corporate Bankruptcy

Full and Final Satisfaction.

In accordance with the Plan, all payments and all distributions are in full and final satisfaction, settlement, release, and discharge or all Claims and Equity Interests, except as otherwise provided in the Plan.

Cramdown.

If any impaired Class entitled to vote does not accept the Plan by the requisite majorities provided in Section 1126(c) or 1126(d) of the Bankruptcy Code as applicable (see "Acceptance or Rejection of the Plan" above), or if any impaired Class is deemed to have rejected the Plan, Stuart reserves the right to undertake to have the Bankruptcy Court confirm the Plan under Section 1129(b) of the Bankruptcy Code (see "ACCEPTANCE AND CONFIRMATION OF THE PLAN" below) and to amend the Plan, in accordance with the applicable provisions of the Plan governing amendments or modifications, to the extent necessary to obtain entry of the Confirmation Order.

Disbursement of Funds and Delivery of Distribution.

Subject to Bankruptcy Rule 9010, all distributions under the Plan are to be made by Reorganized Stuart or the Disbursing Agent to the holder of each Allowed Claim at the address of such holder as listed on the Schedules as of the Distribution Record Date, unless Stuart or Reorganized Stuart has been notified in writing of a change of address, including without limitation, by the filing of a proof of claim or notice of transfer of claim filed by such holder that provides an address for such holder different from the address reflected on the Schedules.

Any payment of Cash made by Reorganized Stuart or the Disbursing Agent under the Plan will be made by check drawn on a domestic bank. Any payment or distribution required to be made under the Plan on a day other than a Business Day will be made on the next succeeding Business Day.

Whenever any payment of a fraction of a cent would otherwise be required, the actual payment will reflect a rounding of such fraction to the nearest whole cent (rounding down for any amount less than one-half of one cent and rounding up for any amount one-half or more of one cent). No fractional shares of New Common Stock will be distributed under the Plan. Factional interests will be combined into as many whole shares of New Common Stock as possible and will be redistributed to holders of Claims and Equity Interests (as applicable) with fractional interests, in descending order, until all such whole shares of New Common Stock are distributed.

At the close of business on the Distribution Record Date, the claims register (for Claims) and the transfer ledgers (for Equity Interests) will be closed, and there will be no further changes in the record holders of any Claims or Equity Interests. Stuart, Reorganized Stuart, and the Indenture

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Trustee will have no obligation to recognize any transfer of any Claim or Equity Interest occurring after the close of business on the Distribution Record Date, and will instead by entitled to recognize and deal for all purposes under the Plan (except as to voting on the Plan) with only those holders of record as of the close of business on the Distribution Record Date.

Except as to applications for allowances of compensation and reimbursement of expenses under Sections 330 and 503 of the Bankruptcy Code, Stuart or Reorganized Stuart has the exclusive right to make and file objections to Administrative Expense Claims, Claims, and Equity Interests after the Confirmation Date. All objections will be litigated to Final Order, provided, however, that Reorganized Stuart retains the authority to compromise, settle, otherwise resolve, or withdraw any objections without authority of the Bankruptcy Court.

Retention of Jurisdiction.

Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, the Bankruptcy Court will, under the Plan, retain such jurisdiction over the Chapter 11 Case after the Effective Date as is legally permissible including, without limitation, jurisdiction to:
· Allow, disallow, determine, liquidate, classify, estimate, or establish the priority or secured or unsecured status of any Claim, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the allowance or priority of Claims;

· Grant or deny any applications for allowance of compensation or reimbursement of expenses authorized under the Bankruptcy Code or the Plan;

· Resolve any matters related to the assumption, assumption and assignment, or rejection of any executory contract or unexpired lease to which the Debtor is a party and to hear, determine and, if necessary, liquidate, any Claims arising from, or cure amounts related to, such assumption or rejection;

· Ensure that distributions to holders of Allowed Claims are accomplished in accordance with the Plan;

· Decide or resolve any motions, adversary proceedings, contested or litigated matters, and any other matters and grant or deny any applications or motions involving the Debtor that may be pending on the Effective Date;

· 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, except as

Executive Guide to Corporate Bankruptcy

otherwise provided in the Plan;

· Resolve any cases, controversies, suits or disputes that may arise in connection with the consummation, interpretation or enforcement of the Plan or any Person's obligations incurred in connection with the Plan;

· Modify the Plan before or after the Effective Date under Section 1127 of the Bankruptcy Code or modify the Disclosure Statement or any contract, instrument, release, or other agreement or document created in connection with 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, the Plan Supplement, or any contract, instrument, release, or other agreement or document created in connection with the Plan, the Disclosure Statement, or the Plan Supplement, in such manner as may be necessary or appropriate to consummate the Plan, to the extent authorized by the Bankruptcy Code;

· 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, except as otherwise provided in the Plan;

· Enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked, or vacated;

· Determine any other matters that may arise in connection with or relate 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, the Disclosure Statement or the Confirmation Order except as otherwise provided in the Plan;

· Enter an order closing the Chapter 11 Case; and

· Adjudicate the Avoidance Actions, the Litigation Claims (including those to be initiated and prosecuted by Reorganized Stuart as the Estate's representative under Section 1123(b)(3)(B) of the Bankruptcy Code), and any other cause of action or claims of the Debtor.

Executory Contracts and Unexpired Leases; Bar Date.

All executory contracts and unexpired leases that exist between the Debtors and any Person and are either set forth on the schedule of rejected executory contracts and unexpired leases filed with the Bankruptcy Court as part of the Plan Supplement, or which do not appear in the Plan Supplement shall be deemed rejected as of the Effective Date, except for any executory contract or unexpired lease that has been assumed or rejected pursuant to an order of the Bankruptcy Court entered prior to the Confirmation Date.

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Entry of the Confirmation Order constitutes: (a) the approval under Section 365(a) of the Bankruptcy Code of the assumption of the executory contracts and unexpired leases assumed under the Plan or otherwise during the Chapter 11 Case; and (b) the approval under Section 365(a) of the Bankruptcy Code of the rejection of the executory contracts and unexpired leases rejected under the Plan or otherwise during the Chapter 11 Cases. Notwithstanding anything contained in this section to the contrary, as part of the Plan Supplement, the Debtor retains the right to add to, or delete from, the list of rejected executory contracts and unexpired leases any executory contract or unexpired lease that is initially an assumed executory contract or an assumed unexpired lease on the Schedules.

On the Effective Date or as soon thereafter as practicable, Reorganized Stuart will Cure any defaults under any executory contract or unexpired lease assumed under this Plan in accordance with Section 365(b)(1) of the Bankruptcy Code.

Executory contracts and unexpired leases entered into, and other obligations incurred, after the Petition Date by the Debtor, will be performed by the Debtor or Reorganized Stuart, as applicable, in the ordinary course of business.

All proofs of claims relating to Claims arising from the rejection of any executory contract or unexpired lease under the Plan must be filed with the Bankruptcy Court no later than thirty (30) days after the Confirmation Date. Any such Claim not filed within that time is forever barred. With respect to any executory contract or unexpired lease rejected by the Debtor before the Confirmation Date, the deadline for filing such Claims will be as set forth in the Bar Date Order.
Indemnification Claims.

Any obligations of the Debtor to indemnify any Person serving as a fiduciary of any employee benefit plan or employee benefit program of the Debtor, under charter, by-laws, contract, or applicable state law is deemed to be, and will be treated as, an executory contract and assumed by Reorganized Stuart on the Confirmation Date. Any obligation of the Debtor to indemnify, reimburse, or limit the liability of any Person, including but not limited to any officer or director of the Debtor or any of its Subsidiaries, or any agent, professional, financial advisor, or underwriter of any securities issued by the Debtor related to any acts or omissions occurring before the Petition Date: (a) are rejected, canceled, and discharged under the Plan as of the Confirmation Date; and (b) any and all Claims resulting from such obligations are disallowed under Section 502(e) of the Bankruptcy Code. Notwithstanding any of the foregoing, nothing contained in the Plan impacts, impairs or prejudices the rights of any Person covered by any applicable D&O Policy with respect to such policy or policies. Moreover, Reorganized Stuart will maintain in force for a period of three years following the Effective Date

Executive Guide to Corporate Bankruptcy

appropriate D&O Policies covering pre-Effective Date directors and officers of the Debtor and containing substantially the same provisions and limits of coverage as the policies that were in force on the Petition Date, and Reorganized Stuart will also be responsible for paying the deductible or retention amounts under such policies for such three-year period. No securities litigation is currently pending against Stuart or its present or past officers or directors.

Retiree Benefits.

Payment of any Retiree Benefits are to be continued solely to the extent, and for the duration of the period, Stuart is contractually or legally obligated to provide such benefits, subject to any rights Stuart has under applicable law.

Fees and Expenses of Indenture Trustee and Contrarian.

All unpaid reasonable fees, costs, charges, and any other expenses incurred under the Indenture or by Contrarian from and after the Petition Date, including any reasonable fees and expenses of Professionals retained by the Indenture Trustee or Contrarian as of the Effective Date, shall be paid by Reorganized Stuart as administrative expenses under Bankruptcy Code § 503(b)(3)(D). After the Effective Date, all reasonable fees, costs, charges and expenses payable to the Indenture Trustee or Contrarian (if any) including any such items incurred by the Indenture Trustee in its capacity as Disbursing Agent under the Plan, shall be paid by Reorganized Stuart without further Bankruptcy Court approval. The Indenture Trustee shall be compensated by Reorganized Stuart for services rendered during the period up to, but not including, the Effective Date, including the reasonable compensation, disbursements, and expenses of the agents and legal counsel of the Indenture Trustee in connection with the performance of their duties under the Indenture and under the Plan upon presentation of invoices without application by or on behalf of the Indenture Trustee to the Bankruptcy Court and without notice and hearing unless specifically requested by a party in interest. The Debtor and Reorganized Stuart shall indemnify the Indenture Trustee for any loss, liability, or expense incurred by the Indenture Trustee in connection with the performance of such duties to the same extent and in the same manner as provided in the Indenture. Upon payment in full of the fees and expenses of the Indenture Trustee, the Indenture Trustee's liens on the distributions to the holders of the Notes shall be released and extinguished. If Reorganized Stuart or the Indenture Trustee cannot agree upon the amount of fees and expenses to be paid, such fees and expenses shall be determined by the Bankruptcy Court.

Post-Confirmation Fees; Final Decree.

Reorganized Stuart will be responsible for the payment of any post-Confirmation fees due to the U.S. Trustee under 28 U.S.C. § 1930(a)(6) and the filing of post-Confirmation reports, until a final decree is entered. A final

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decree will be entered as soon as practicable after distributions have commenced under the Plan.

Revesting of Assets.

Subject to the provisions of the Plan, the property of the Estate vests in Reorganized Stuart on the Effective Date. As of the Effective Date, all such property is free and clear of all liens, Claims, and Equity Interests, except as otherwise provided in the Plan. From and after the Effective Date, Reorganized Stuart may operate its business, and may use, acquire, and dispose of its property free of any restrictions of the Bankruptcy Code, including the employment of, and payment to, Professionals, except as otherwise provided in the Plan or the Confirmation Order.

Limited Releases.
Except as otherwise specifically provided in the Plan, for good and valuable consideration, including without limitation the Indenture Trustee's facilitating the expeditious reorganization of the Debtor and implementation of the Plan, the Indenture Trustee, on and after the Effective Date, is released by the Debtor and Reorganized Stuart from any and all claims (as defined in Section 101(5) of the Bankruptcy Code), obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that the Debtor would have been legally entitled to assert in its own right or on behalf of the holder of any Claim or Equity Interest or other Person, based in whole or in part upon any act or omission, transaction, agreement, event or other occurrences taking place on or before the Effective Date.

General Release of Liens.

Except as otherwise provided in the Plan in connection with the Exit Financing Facility, or in any contract, instrument, indenture, or other agreement or document created in connection with the Plan, on the Effective Date, all mortgages, deeds of trust, liens, or other security interests against property of the Estate are released and extinguished, and all the right, title, and interest of any holder of such mortgages, deeds of trust, liens, or other security interests will revert to Reorganized Stuart and its successors and assigns.

Conditions to Confirmation and Effective Date.

Conditions To Confirmation. The following are conditions precedent to confirmation of the Plan:

(a) The Bankruptcy Court enters a Final Order approving the Disclosure Statement with respect to this Plan;

(b) The Confirmation Order has been entered in form and substance reasonably acceptable to the Debtor. If the Debtor is unable to reach an agreement with regard to the form and substance of the Confirmation Or

Executive Guide to Corporate Bankruptcy

der, the Bankruptcy Court will resolve all such disputes between the parties;

(c) The Confirmation Order contains the following:

· The provisions of the Confirmation Order are nonseverable and mutually dependent;

· All executory contracts or unexpired leases assumed by Reorganized Stuart during the Chapter 11 Cases or under this Plan will remain in full force and effect for the benefit of Reorganized Stuart notwithstanding any provision in such contract or lease (including those described in Sections 365(b)(2) and (f) of the Bankruptcy Code) that prohibits such assignment or transfer or that enables, permits or requires termination of such contract or lease;

· Except as expressly provided in this Plan, the Debtor is discharged as of the Confirmation Date from all Claims and any "debt" (as that term in defined in Section 101(12) of the Bankruptcy Code) that arose on or before the Confirmation Date, and the Debtor's liability in respect of such Claims and debts is extinguished completely, whether reduced to judgment or not, liquidated or unliquidated, contingent or noncontingent, asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or undisputed, legal or equitable, or known or unknown, or that arose from any agreement of the Debtor that has either been assumed or rejected in the Chapter 11 Cases or under this Plan, or obligation of the Debtor incurred before the Confirmation Date, or from the Debtor's conduct before the Confirmation Date, or that otherwise arose before the Confirmation Date including, without limitation, all interest, if any, on any such debts, whether such interest accrued before or after the Petition Date;

· The Plan does not provide for the liquidation of all or substantially all of the Debtor's property and Confirmation is not likely to be followed by the liquidation of Reorganized Stuart or the need for further financial reorganizations; and

· The Confirmation Order, in accordance with Section 1123(b)(3)(B) of the Bankruptcy Code, specifically appoints Reorganized Stuart as a representative and agent of the Debtor to prosecute, compromise, or abandon the Litigation Claims in accordance with the Plan.

(d) The Bankruptcy Court enters a Final Order approving the Standby Funding Commitment.

Conditions To Effectiveness. The following are conditions precedent to the occurrence of the Effective Date:

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(a) The Confirmation Date has occurred;

(b) The Confirmation Order is a Final Order, except that the Debtor reserves the right to cause the Effective Date to occur notwithstanding the pendency of an appeal of the Confirmation Order, under circumstances that would moot such appeal;

(c) No request for revocation of the Confirmation Order under Section 1144 of the Bankruptcy Code has been made, or, if made, remains pending;

(d) The Bankruptcy Court in the Confirmation Order has approved the retention of jurisdiction provisions in Article 13 of the Plan;
(e) All documents necessary to implement the transactions contemplated by this Plan are made in form and substance reasonably acceptable to the Debtor and the Committee;

(f) Reorganized Stuart retains sufficient Cash on the Effective Date to make required distributions to holders of Allowed Claims on the Distribution Date; and

(g) Reorganized Stuart receives all regulatory approvals including, without limitation, all approvals by applicable gaming authorities, which have become final and nonappealable or any period of objection by regulatory authorities has expired, as applicable, and all other material approvals, permits, authorization, consents, licenses, and agreements from other third parties necessary or appropriate to permit the transactions contemplated by the Plan and any related agreements and to permit Reorganized Stuart to carry on its business after the Effective Date in a manner consistent in all material respects with the manner in which it was carried on before the Effective Date (collectively, the "Approvals"). The Approvals must not contain any condition or restriction that materially impairs Reorganized Stuart's ability to carry on its business in a manner consistent in all respects with the manner as proposed to be carried on by Reorganized Stuart under the Plan.

Waiver Of Conditions. The conditions to Confirmation and the Effective Date may be waived in whole or in part by the Debtor at any time without notice, an order of the Bankruptcy Court, or any further action other than proceeding to Confirmation and consummation of the Plan.

ACCEPTANCE AND CONFIRMATION OF THE PLAN

The following is a brief summary of the provisions of the Bankruptcy Code relevant to acceptance and confirmation of a plan of reorganization. Holders of Claims and Equity Interests are encouraged to review the relevant provisions of the Bankruptcy Code with their own attorneys.

Acceptance of the Plan

This Disclosure Statement is provided in connection with the solicitation of acceptances of the Plan. The Bankruptcy Code defines acceptance of a plan of reorganization by a class of Claims as acceptance by holders of a

Executive Guide to Corporate Bankruptcy

least two-thirds in dollar amount, and more than one-half in number, of the Allowed Claims of that Class that have actually voted or are deemed to have voted to accept or reject a plan. The Bankruptcy Code defines acceptance of a plan of reorganization by a class of interests as acceptance by at least two-thirds in amount of the allowed interests of that class that have actually voted or are deemed to have voted to accept or reject a plan.

If one or more impaired Classes rejects the Plan, Stuart may, in its discretion, nevertheless seek confirmation of the Plan if Stuart believes that it will be able to meet the requirements of Section 1129(b) of the Bankruptcy Code for Confirmation of the Plan (which are summarized below), despite the lack of acceptance by all Impaired Classes.

Confirmation

Confirmation Hearing.

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on confirmation of a plan. Notice of the Confirmation Hearing regarding the Plan has been provided to all known holders of Claims and Equity Interests or their respective representatives along with this Disclosure Statement. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing or any subsequent adjourned Confirmation Hearing.

Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to confirmation of a plan. Any objection to Confirmation of the Plan must be in writing, must conform with the Bankruptcy Rules and the Local Rules of the Bankruptcy Court, must set forth the name of the objecting party, the nature and amount of Claims or Equity Interests held or asserted by that party against Stuart's Estate or property, and the specific basis for the objection. Such objection must be filed with the Bankruptcy Court, with a copy forwarded directly to the chambers of the Honorable Mary F. Walrath, together with a proof of service, and served on all parties and by the date set forth on the notice of the Confirmation Hearing.

Statutory Requirements for Confirmation of the Plan.

At the Confirmation Hearing, Stuart will request that the Bankruptcy Court determine that the Plan satisfies the requirements of Section 1129 of the Bankruptcy Code. If the Bankruptcy Court so determines, the Bankruptcy Court will enter an order confirming the Plan. The applicable requirements of Section 1129 of the Bankruptcy Code are as follows:

(a) The Plan must comply with the applicable provisions of the Bank- ruptcy Code;

(b) Stuart must have complied with the applicable provisions of the

Bankruptcy Code;

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(c) The Plan must have been proposed in good faith and not by any
means forbidden by law;

(d) Any payment made or promised to be made by Stuart under thePlan

for services or for costs and expenses in, or in connection
with, the Chapter 11 Case, or in connection with the Plan, must

have been disclosed to the Bankruptcy Court, and any such pay-
ment made before Confirmation of the Plan must be reasonable,

or if such payment is to be fixed after Confirmation of the Plan,
such payment must be subject to the approval of the Bankruptcy
Court as reasonable;
(e) Stuart must have disclosed the identity and affiliates of any
indvidual proposed to serve, after Confirmation of the Plan, as a
director, officer, or voting trustee of Stuart under the Plan. Moreo-
ver, the appointment to, or continuance in, such office of such
individual, must be consistent with the interests of holders of

Claimsand Equity Interests and with public policy, and Stuart must
have disclosed the identity of any insider that Reorganized Stuart will employ or retain, and the nature of any compensation for such insider;
(f) Best Interests of Creditors Test: With respect to each Class of
Impaired Claims or Equity Interests, either each holder of a Claim or Equity Interest of such Class must have accepted the Plan, or
must receive or retain under the Plan on account of such Claim or Equity Interest, property of a value, as of the Effective Date of the Plan, that is not less than the amount that such holder would re-
ceive or retain if Stuart were liquidated on such date under Chap-
ter 7 of the Bankruptcy Code. In a Chapter 7 liquidation, creditors and interest holders of a debtor are paid from available assets gen- erally in the following order, with no lower class receiving any

payments until all amounts due to senior classes have either been paid in full or payment in full is provided for: (i) first to secured
creditors (to the extent of the value of their collateral), (ii) next to priority creditors, (iii) next to unsecured creditors, (iv) next to debt expressly subordinated by its terms or by order of the Bankruptcy Court, and (v) last to holder of equity interests. Attached as Ex-
hibit 4 to this Disclosure Statement is a liquidation analysis pre-
pared by Stuart, which indicates that, in light of the foregoing pri-
ority scheme, if the Chapter 11 Case were converted to a Chapter 7 liquidation, holders of Allowed Claims and Equity Interests would receive less than they will receive under the Plan;
(g) Each Class of Claims or Equity Interests must have either accepted the Plan or not be Impaired under the Plan;
(h) Except to the extent that the holder of a particular Claim has agreed

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to a different treatment of such Claim, the Plan provides that Al-

lowed Administrative and Priority Claims (other than Allowed

Priority Tax Claims) will be paid in full on the Effective Date and

that Allowed Priority Tax Claims will receive on account of such

Claims deferred Cash payment, over a period not exceeding six

years after the date of assessment of such Claim, of a value, as of
the Effective Date, equal to the Allowed amount of such Claim;
(i) At lease one impaired Class of Claim must have accepted the Plan, determined without including any acceptance of the Plan by any
insider holding a Claim of such Class;
(j) Feasibility: Confirmation of the Plan must not be likely followed by the liquidation, or the need for further financial reorganization of Stuart or any successor to Stuart under the Plan. Attached as
Exhibit 5 to this Disclosure Statement are projections for approxi- mately 30 months following Confirmation and a pro forma bal-
ance sheet as of the Effective Date that demonstrates that, given

estimated expenses and income, and taking into account cash re-
serves, Reorganized Stuart will be able to satisfy its obligations

under the Plan, as well as its obligations arising in connection with its ongoing business operations.
Confirmation Without Acceptance by All Impaired Classes.
Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to confirm a plan, even if such plan has not been accepted by all impaired classes entitled to vote on such plan, provided that such plan has been accepted by at least one impaired class. If any impaired classes reject or are deemed to have rejected the Plan, Stuart reserves its right to seek the application of the requirements set forth in Section 1129(b) of the Bankruptcy Code for Confirmation of the Plan despite the lack of acceptance by all impaired classes.
Section 1129(b) of the Bankruptcy Code provides that notwithstanding the failure of an impaired class to accept a plan or reorganization, the plan must be confirmed, on request of the plan proponent, in a procedure commonly known as "cramdown," so long as the plan does not "discriminate unfairly" and is "fair and equitable" with respect to each class of impaired Claims or Interests that has not accepted the plan.
The condition that a plan by "fair and equitable" with respect to a rejecting class of secured Claims includes the requirements that (a) the holders of such secured Claims retain the liens securing such Claims to the extent of the allowed amount of the Claims, whether the property subject to the liens is retained by the debtor or transferred to another entity under the plan, and (b) each holder of a secured Claim in the class receives deferred cash payments totaling at least the allowed amount of such Claim with a

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present value, as of the effective date of the plan, at lease equivalent to the value of the secured claimant's interest in the debtor's property subject to the liens.

The condition that a plan be "fair and equitable" with respect to a rejecting class of unsecured Claims includes the requirement that either (a) such class receive or retain under the plan property of a value as of the effective date of the plan equal to the allowed amount of such Claim or (b) if the class does not receive such amount, no class junior to the non-accepting class will receive a distribution under the plan.

The condition that a plan by "fair and equitable" with respect to a rejecting class of equity interests includes the requirements that either (a) the plan provides that each holder of an equity interest in such class receive or retain under the plan, on account of such equity interest, property of a value, as of the effective date of the plan, equal to the greater of (i) the allowed amount of any fixed liquidation preference to which such holder is entitled, (ii) any fixed redemption price to which such holder is entitled, or (iii) the value of such equity interest, or (b) if the class does not receive such amount, no class of equity interests junior to the rejecting class will receive a distribution under the plan.

VALUATION AND FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires that, in order for the Court to confirm a plan of reorganization, the Court must determine that the plan is feasible _ that is, that confirmation of the plan in not likely to be followed by liquidation or by the need for further financial structuring, unless such is specifically provided for in the plan. For purposes of determining whether the Plan meets this requirement, Stuart has analyzed Reorganized Stuart's future prospects and its ability to meet its obligations under the Plan.

Included as part of Exhibit 5 to this Disclosure Statement are: (a) a projected balance sheet as of the Effective Date of the Plan (assumed to be December 31, 1999) (Exhibit 5-A); (b) a valuation analysis (Exhibit 5-B); and (c) a projected cash flow and EBITDA statement (Exhibit 5-C). These projections were prepared by Stuart and include projections of the expected results of operations of Reorganized Stuart.

Based on the projected results of operations, cash flows, and income, Stuart believes that the Plan complies with the financial feasibility standards for confirmation of the Plan set forth in Section 1129(a)(11) of the Bankruptcy Code. Stuart believes that the assumptions set forth in the various projections are reasonable, that the projections are attainable by Reorganized Stuart on an operational basis, and that Reorganized Stuart will have sufficient funds available to meet its obligations under the Plan.

Executive Guide to Corporate Bankruptcy

THE PROJECTIONS AND ANALYSES CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY STUART, REORGANIZED STUART, OR ANY OTHER PERSON, INCLUDING ANY PROFESSIONAL EMPLOYED BY, OR ANY OFFICERS, DIRECTORS, EMPLOYEES, OR OTHER REPRESENTATIVES OF, SUCH PARTIES, THAT ANY PROJECTED RESULTS OF OPERATIONS OR RECOVERIES WILL BE REALIZED. ACTUAL RESULTS ACHIEVED BY REORGANIZED STUART MAY VARY MATERIALLY FROM THE PROJECTED RESULTS. HOLDERS OF CLAIMS AND EQUITY INTERESTS MUST MAKE THEIR OWN DETERMINATION AS TO THE REASONABLENESS OF THE ASSUMPTIONS UNDERLYING THE PROJECTIONS IN REACHING THEIR DECISIONS TO ACCEPT OR REJECT THE PLAN.

Key Assumptions Underlying the Projections

The projections set forth in Exhibit 5 to this Disclosure Statement assume: (a) an Effective Date of the Plan of December 31, 1999; and (b) from and after the Effective Date, Reorganized Stuart will operate its businesses in substantially the same manner as immediately before the Effective Date and described in this Disclosure Statement. Any other assumptions underlying particular projections are set forth in Exhibit 5 to this Disclosure Statement.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

OF THE PLAN

The following discussion sets forth the material federal income tax consequences of the Plan to Reorganized Stuart and certain holders of Claims. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Tax Code"), final, temporary, and proposed Treasury regulations thereunder, and administrative and judicial interpretations thereof, all as in effect as of this Disclosure Statement. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service or opinion of counsel has been or will be sought as to the federal income tax consequences of the Plan.

The description that follows does not include all matters that may be relevant to any particular holder and could be affected by the specific facts and circumstances pertaining to such holder. Certain holders, including financial institutions, broker-dealers, tax-exempt entities, insurance companies, and foreign persons may be subject to special rules not discussed below.

ALL HOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS AS TO THEIR PARTICULAR TAX CONSEQUENCES ASSOCIATED WITH THE PLAN, INCLUDING THE AP

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PLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, OR ANY PROPOSED LEGISLATION. FURTHER, THERE CAN BE NO ASSURANCE THAT THE TAX CONSEQUENCES TO REORGANIZED STUART WILL BE AS DISCUSSED, SINCE SUCH TAX CONSEQUENCES WILL BE SUBJECT TO FUTURE EVENTS THAT CANNOT BE PREDICTED WITH CERTAINTY.

Consequences to Holders of Certain Claims

Importance of Whether Certain Debt Instruments Constitute "Securities."

As discussed below, the federal income tax consequences to the Claim holders of the exchanges provided for by the Plan will depend, in part, on whether such exchanges qualify as a recapitalization or other "reorganization" as defined in the Tax Code. This, in turn, will depend, in part, on whether the Notes constitute "securities" for federal income tax purposes ("Securities" or "Security"). The term "security" is not defined in the Tax Code or in the regulations, and has not been clearly defined in court decisions. Although there are a number of factors that may affect the determination of whether a debt instrument is a Security, one of the most important factors is the original term of the instrument, i.e., the length of time between the issuance of the instrument and its maturity. In general, instruments with an original term of more than ten (10) years are likely to be treated as Securities and instruments with a term of less than five (5) years are likely not to be treated as Securities. Stuart is not rendering federal income tax advice as to whether the Notes are, or are not, Securities. ACCORDINGLY, STUART RECOMMENDS THAT THE CLAIM HOLDERS CONSULT WITH THEIR TAX ADVISORS AS TO THE PROPER TREATMENT OF THEIR RESPECTIVE DEBT INSTRUMENTS.
Class 4 _ Allowed Notes Claims

Under the Plan, holders of Allowed Notes Claims will receive New Common Stock. Gain or loss will be realized to the extent that the fair market value of the New Common Stock (other than any portion of consideration allocable to accrued but unpaid interest) received by the Claim holder exceeds (or is less than) the adjusted basis of the Notes (other than any portion of the basis in such Claim allocable to accrued but unpaid interest). However, the amount of gain recognized, if any, for federal income tax purposes depends (in part) on whether the Notes constitute Securities.

If the holder's Note constitutes a Security, then the exchange of such Note for New Common Stock should constitute a "recapitalization," which is a tax-free reorganization exchange under Sections 354(a) and 368(a) of the Tax Code. If so, the holder will not recognize gain or loss on the ex

Executive Guide to Corporate Bankruptcy

change. If the Note is not a Security, then the holder of such Note will recognize gain or loss on the exchange of such Note for New Common Stock equal to the amount of gain or loss realized.

Class 5 _ General Unsecured Claims

Under the Plan, holders of Allowed General Unsecured Claims will receive Cash in full satisfaction of their claims. Gain or loss generally will be recognized to such holder in an amount equal to the difference between the amount of Cash received and the holder's adjusted basis in their Claim.

Class 7 _ Equity Interests and Equity Related Claims

Under the Plan, the holders of Old Common Stock will receive Cash in exchange for the Old Common Stock. Gain or loss generally will be recognized to such holder in an amount equal to the difference between the amount of Cash received and the holder's adjusted basis in the Old Common Stock.

Character of Gain, Basis, and Holding Period.

The character of the potential gain or loss described above as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors. These factors include whether the particular Claim constitutes a capital asset in the hands of the Claim holder, whether the Claim has been held for more than one year, whether the Claim was purchased at a discount, and whether and to what extent the Claim holder has previously claimed a bad debt deduction with respect to such Claim.

In general, any recognized gain will be treated as capital gain and will be long-term capital gain if the holder held the Note or Old Common Stock as a capital asset, and if such holder held the Note or Old Common Stock for more than 12 months. In the case of a Note holder, if the holder purchased the Note at a market discount within the meaning of section 1278 of the Tax Code, any gain recognized will be treated as ordinary income to the extent of the accrued market discount on the Note.

In the case of any exchange described above that constitutes a reorganization, the Claim holder's basis in the New Common Stock received will equal the Note holder's adjusted tax basis in the Note surrendered. The Note holder's holding period for the stock received will include the Note holder's holding period for the Note surrendered, provided such Note was held as a capital asset.

In the case of any exchange described above that does not constitute a reorganization, the Note holder's basis in the stock received will be equal to the fair market value of such stock. The Note holder's holding period of such stock will begin on the day after receipt thereof.

Treatment of Accrued But Unpaid Interest.

Holders of Notes that have not previously included in their taxable income accrued but unpaid interest on a Note may be treated as receiving taxable

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interest to the extent any consideration they receive under the Plan is allocable to such accrued but unpaid interest. Holders of Notes that have previously included in their taxable income accrued but unpaid interest on a Note may be entitled to recognize a deductible loss to the extent such accrued but unpaid interest is not satisfied under the Plan. The proper allocation between principal and interest of amounts received in exchange for a Note is unclear and may be affected by, among other things, the rules in the Tax Code relating to imputed interest, original issue discount, market discount, and bond issuance premium. Thus, it is possible that the Service may take the position that a pro rata portion of the consideration received by a holder of a Note must be allocated to interest, or that consideration must be allocated first to accrued but unpaid interest and then to principal. In this regard, holders of Notes should consult their own tax advisors.

Backup Withholding.

All distributions under the Plan are subject to applicable withholding. Under the Tax Code, interest, dividends and other reportable payments may, under certain circumstances, be subject to backup withholding at a 31% rate. Backup withholding generally applies if the holder (a) fails to furnish its social security number or other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c) fails properly to report interest or dividends, or (d) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN is provided its correct number and that it is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons are exempt from backup withholding, including corporations and financial institutions.

Consequences to Debtors
Discharge of Indebtedness and Reduction of Tax Attributes.

The principal amount of Stuart's aggregate outstanding indebtedness will be substantially reduced under the Plan. Generally, the cancellation or other discharge of indebtedness triggers ordinary income to a debtor unless payment of the liability would have given rise to a deduction. The amount of such discharge of indebtedness income generally will be equal to the excess of the principal amount (as determined for federal income tax purposes) of the indebtedness discharged over the aggregate value of cash and other property (including stock of Stuart) transferred in satisfaction of the debt. If debt is discharged in a case under the Bankruptcy Code, however, no ordinary income to the debtor generally results. Instead, certain tax attributes otherwise available to the debtor are reduced, in most cases by the amount that would otherwise be included as ordinary income.

Tax attributes are subject to reduction generally in the following order: (i) net operating losses ("NOLs") from prior taxable years or from the year

Executive Guide to Corporate Bankruptcy

in which the discharge occurs; (ii) general business credit carryovers; (iii) minimum tax credits; (iv) capital losses and capital loss carryovers; (v) the tax basis of the debtor's depreciable and non-depreciable assets, including inventory; (vi) passive activity loss and credit carryovers; and (vii) foreign tax credit carryovers. Attribute reduction is calculated only after the tax for the year of discharge has been determined, and asset basis reduction applies to property held by the debtor at the beginning of the taxable year following the taxable year in which the discharge occurs. Asset basis reduction is generally not required in an amount greater than the excess of the aggregate tax bases of the property held by the debtor immediately after the discharge over the aggregate of the debtor's liabilities immediately after the discharge. In very general terms, the basis of property other than inventory and notes and accounts receivable is reduced before the basis of inventory and notes and accounts receivable.

Stuart believes that the amount of the discharge of indebtedness income realized as a result of the Plan will result in a substantial reduction of Stuart's tax attributes. It is anticipated that Stuart's NOLs will be eliminated and that Stuart will be required to reduce the basis in its assets to a significant extent. These attribute reductions may have the effect of subjecting Stuart to greater federal income tax liabilities in taxable years subsequent to the year in which the discharge occurs than would occur absent the attribute reductions.

Limitation on Use of NOLs.

Stuart will very likely experience an "ownership change" for purposes of Section 382 of the Tax Code upon consummation of the Plan. In general, a corporation experiences an ownership change if the percentage of stock of the corporation owned by one or more stockholders that each own at least five percent of the stock of such corporation (or certain specified groups of stockholders) increases by more than 50 percentage points within a prescribed time period. In general, after a corporation experiences an ownership change, the amount of NOLs (and "built-in losses," if any, as defined for this purpose) arising before the ownership change that the corporation is permitted to use each year after the ownership change may not exceed a specified amount, referred to as the "Section 382 Limitation" and described below.

Assuming that Stuart experiences an ownership change, it may qualify for the so-called "Bankruptcy Exception" from the Section 382 Limitation under Tax Code Section 382(1)(5); however, the effect on the NOLs required under the Bankruptcy Exception may impose a greater tax burden on Stuart than the alternative of being subject to the Section 382 Limitation. This might be the case, for example, if, within two years after the ownership change resulting from consummation of the Plan, Stuart experiences another ownership change. If the Bankruptcy Exception is utilized and another

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ownership change occurs within the two-year period referred to above, then Stuart's Section 382 Limitation for any year thereafter would be zero and Stuart would not be permitted to reduce otherwise taxable income by any NOLs attributable to pre-ownership change years.

If Stuart anticipates that the Bankruptcy Exception will impose a tax burden on it greater than that resulting from application of the Section 382 Limitation, Stuart will likely elect not to have the Bankruptcy Exception apply. Stuart would then be subject to the Section 382 Limitation, which, pursuant to Tax Code Section 382(1)(6), would be calculated by multiplying the ""long-term tax-exempt rate" (which is a rate announced monthly by the Service and is 5.18% for the month of August 1999) by the sum of (i) the value of the outstanding stock of the Stuart immediately before consummation of the Plan plus (ii) the increase in the value of Stuart resulting from the discharge of creditor claims pursuant to the Plan.

As indicated above, it is anticipated that Stuart's NOLs attributable to the pre-ownership change years will be eliminated as a result of Stuart's realization of discharge of indebtedness income. In that case, Stuart's NOLs attributable to pre-ownership change years will not be impacted by the ownership change rules of Tax Code Section 382.

RISK FACTORS
The restructuring of Stuart involves a degree of risk, and this Disclosure Statement and certain of its Exhibits contain forward-looking statements that involve risks and uncertainty. Reorganized Stuart's actual results could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors, including those set forth in the following risk factors and elsewhere in this Disclosure Statement. Holders of Claims and Equity Interests should consider carefully the following factors, in addition to the other information contained in this Disclosure Statement, before submitting a vote to accept or reject the Plan.

Leverage

Although the Plan will restructure a significant amount of Stuart's indebtedness, Reorganized Stuart will remain leveraged, particularly with respect to the Exit Financing Facility. See "OVERVIEW OF THE PLAN _ Description of Transactions to be Implemented in Connection with the Plan _ Exit Financing Facility." The level of Reorganized Stuart's indebtedness could have important consequences to stockholders, including: (a) a substantial portion of Reorganized Stuart's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (b) Reorganized Stuart's ability to obtain additional debt financing in the future for working capital, capital expenditures, or acquisitions may be limited; and (c) Reorganized Stuart's level of indebtedness could limit its flexibility in

Executive Guide to Corporate Bankruptcy

reacting to changes in the industry and economic conditions generally. Reorganized Stuart's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business, and other factors, certain of which are beyond its control. Reorganized Stuart believes that cash flow from operations, together with its other available sources of liquidity, will be adequate to make required payments of principal and interest on its indebtedness, to fund anticipated capital expenditures, and to meet working capital requirements, although there is no assurance that this will be the case. To the extent that cash flow from operations is insufficient to satisfy Reorganized Stuart's cash requirements, Reorganized Stuart will seek to raise additional cash through debt or equity financing. No assurance can be given that any such financing will be available to Reorganized Stuart, if at all, at the time or times needed or on terms acceptable to Reorganized Stuart, if at all.

Dependence on Key Personnel

Reorganized Stuart's operations depend to a great extent on the efforts of its officers and other key personnel, including Joseph M. Valandra, Lawrence X. Taylor, III, Jimmy D. Helton, Clement Chantiam, and Ernest Marchand, and on Reorganized Stuart's ability to attract new key personnel and retain existing key personnel in the future. There can be no assurance that Reorganized Stuart will be successful in attracting and retaining such personnel, or that it will not incur increased costs in order to do so. Reorganized Stuart's failure to attract additional qualified employees or to retain the services of key personnel could have a material adverse effect on Reorganized Stuart's business, financial condition, and results of operations.

Dependence and Relationships with Customers and Suppliers

The loss of sales to any of Stuart's largest customers would cause a substantial decrease in business and would have a material adverse effect on Reorganized Stuart. Furthermore, the principal raw material used in Stuart's business is paper, which is subject to pricing cycles. Stuart generally does not have written contracts with its suppliers. The cyclical nature of paper pricing may have a material adverse effect on Reorganized Stuart's business. For certain of its electronic products, Reorganized Stuart will continue to depend on suppliers to provide Reorganized Stuart with parts and components in adequate amounts and on a timely basis. The failure of one or more suppliers to meet Reorganized Stuart's performance specifications, quality standards, or delivery schedules could have a material adverse effect on Reorganized Stuart's business, financial condition, and results of operations.

Competition

The markets in which Stuart's products compete are extremely com

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petitive. The principal competitive factors in the bingo paper and pulltab ticket markets are quality, service, and price. Stuart's major competitor in the bingo paper and pulltab markets is Arrow International. Stuart's electronic bingo systems, System 12™ and Power Bingo King™, compete with a number of other manufacturers of electronic bingo systems, none of whom manufacture a full line of bingo and bingo-related products. Stuart also competes with other forms of entertainment such as lotteries, on-line gaming products and the continued expansion of the legalization by the United States, Canada and other foreign jurisdictions of casino gaming. While there can be no assurances that Reorganized Stuart will continue to remain competitive in these or other areas, Stuart believes that through its strong distribution network, manufacturing facilities and technology, Reorganized Stuart will be able to maintain a unique position as a manufacturer of a full line of both consumable and electronic bingo and bingo-related products.

Risks Relating to Intellectual Property

Stuart regards its products as proprietary and relies on a combination of trademark, copyright and trade secret laws and employee and third-party nondisclosure agreements to protect its proprietary rights. Defense of intellectual property rights can be difficult and costly, and there can be no assurance that Reorganized Stuart will be able effectively to protect its technology from competitors. In addition, the protections offered by trademark, copyright and trade secret laws may not prevent a competitor from designing games having an appearance and function that closely resemble Reorganized Stuart's games. As the number of electronic gaming products in the industry increases, and the uses and functions of these products further overlap, electronic gaming developers may increasingly become subject to infringement claims. Stuart is currently a defendant in two patent infringement cases. Stuart or Reorganized Stuart may also become subject to additional infringement claims. Any such claims or litigation could be costly and could result in a diversion of management's attention, which could have a material adverse effect on Reorganized Stuart's business and financial condition. Any settlement of such claims or adverse determinations in such litigation could also have a material adverse effect on Reorganized Stuart's business, financial condition, and results of operations.

Projected Financial Information
Stuart failed to operate profitably for some time preceding the Chapter 11 filing. The financial projections annexed as Exhibit 5 to this Disclosure Statement depend on the successful implementation of the business plan and the validity of the other assumptions contained in it and in the Plan. These projections reflect numerous assumptions, including Confirmation of the Plan, and consummation of the Plan in accordance with its terms, the anticipated future performance of Reorganized Stuart, industry performance, certain assumptions with respect to Stuart's competitors, general

Executive Guide to Corporate Bankruptcy

business and economic conditions, and other matters, many of which are beyond Reorganized Stuart's control. In addition, unanticipated events and circumstances occurring after the preparation of the projections may affect the actual financial results ultimately achieved. Although Stuart believes that the projections are reasonably attainable, variations between the actual financial results and those projected may occur and be material.

Lack of Market for Securities Issued Under the Plan

There is currently no existing market for the New Common Stock and there can be no assurances with respect to the development of an active trading market or the degree of price volatility in any such particular market. Accordingly, no assurances can be given with respect to a security holder's ability to sell such securities in the future or the price at which any such sale may occur. If such a market were to exist, the liquidity of the market for such securities and the prices at which such securities trade will depend on many factors, including the number of holders, investor expectations for Reorganized Stuart, and other factors beyond Reorganized Stuart's control.

Reliance On Bingo Industry

The future profitability and growth of Reorganized Stuart's business is substantially dependent upon factors beyond Reorganized Stuart's control including, among other things, the continued popularity of bingo as a leisure activity and as a means of charitable fundraising. The bingo industry is a mature industry and there can be no assurance that it will not decline in the future due to an increase in competing forms of entertainment such as lotteries, on-line gaming products, and the continued expansion of the legalization by United States and foreign jurisdictions of casino gaming. In addition, the growth of the use of electronic bingo products could encroach upon the use of pulltabs, bingo paper and ink products, which currently constitute Stuart's core business. There can be no assurance that Reorganized Stuart will be able successfully to adapt its core business to such a change in the bingo industry. As a result of such factors, no assurance can be given of Reorganized Stuart's continued growth or profitability.

Relationships With Distributors

Stuart has enjoyed a history of cooperative relationships with most distributors of its products. Stuart generally does not have written contracts with its distributors. The failure to maintain these relationships on a widespread basis may have a material adverse effect on Reorganized Stuart's business, financial condition, and results of operations.

Government Regulation

Stuart is subject to regulation by authorities in most jurisdictions in which its bingo, bingo-related products and electronic gaming systems are sold or used by persons or entities licensed to conduct gaming activities. The gaming

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regulatory requirements vary from jurisdiction to jurisdiction, and licensing, other approval or finding of suitability processes with respect to Stuart, its personnel and its products can be lengthy and expensive. Many jurisdictions have comprehensive licensing, reporting and operating requirements with respect to the sale and manufacture of bingo and bingo-related products, including bingo paper and electronic bingo hall equipment. These licensing requirements have a direct impact on the conduct of Stuart's day-to-day operations. Generally, gaming regulatory authorities may deny applications for licenses, other approvals or findings of suitability for any cause they may deem reasonable. There can be no assurance that Reorganized Stuart, its products or its personnel will receive or be able to maintain any necessary gaming licenses, other approvals or findings of suitability. The loss of a license in a particular jurisdiction will prohibit Reorganized Stuart from selling products in that jurisdiction. The loss of one or more licenses held by Reorganized Stuart could have an adverse effect on Reorganized Stuart's business. Loss of one or more licenses for an extended period may have a material adverse effect on Reorganized Stuart's business, and the loss of one license could result in the loss of other licenses by Reorganized Stuart. The IGRA defines Class II gaming to include "the game of chance commonly known as bingo, whether or not electronic, computer or other technologic aids are used in connection therewith," and defines Class II gaming devices to include "electronic or electromechanical facsimiles of any game of chance or slot machines of any kind." Stuart believes that Power Bingo King™ and System 12™, which are designed to be played in conjunction with traditional paper bingo products, should properly be classified as Class II games, and has obtained a legal opinion to the effect that System 12™ is a Class II game. Stuart has applied for an advisory opinion from the National Indian Gaming Commission (the "NIGC") that System 12™ is a Class II game, as defined by IGRA, but has not yet received such designation. Stuart has not applied for or received any advisory opinion by the NIGC that Power Bingo King™ is a Class II game. It is possible that one or more regulatory authorities could take the position that Power Bingo King™ or System 12™ should be classified as Class II devices. If either of Reorganized Stuart's electronic gaming systems were classified as Class II devices, these products could not be sold to Indian casinos that did not meet the requirements of IGRA and their host state for carrying Class II devices. Such a result would have a material adverse effect on Reorganized Stuart's sale of its electronic bingo products.

Additionally, state and local laws in the United States, and provincial laws in Canada, which govern the sale and use of gaming products, are widely disparate and continually changing due to legislative and administrative actions and court interpretations. Changes in gaming laws through statutory enactment or amendment, court interpretation or administrative action, so as to restrict the manufacture, distribution or use of some or all of

Executive Guide to Corporate Bankruptcy

Reorganized Stuart's products could have a material adverse effect on Reorganized Stuart's business, financial condition, and results of operations.

New Product Development; Risk of Obsolescence

The market for certain of Reorganized Stuart's products, particularly for its electronic bingo hall equipment and for Video King products, is characterized by changing technology, new legislation, evolving industry standards and product innovations and enhancements. The introduction of products embodying new technology, the adoption of new legislation, or the emergence of new industry standards could render existing products obsolete or unmarketable. Reorganized Stuart's continued ability to anticipate such changes and to develop and introduce or obtain the rights to technological advancements and new products that will gain customer acceptance may be a significant factor in Reorganized Stuart's ability to expand, remain competitive or attract and retain customers. Reorganized Stuart's business may be adversely affected if Reorganized Stuart incurs delays in developing new products or enhancements or if such products or enhancements do not gain market acceptance. In addition, there can be no assurance that products or technologies developed by others will not render Reorganized Stuart's products or technologies noncompetitive or obsolete.

Risk of International Operations

Stuart derived approximately 31.29% and 29.67% of its revenues in the year ended December 31, 1998 and the six months ended June 30, 1999, respectively, from sales occurring in Canada. These revenues are subject to risks normally associated with international operations, including currency conversion risks, slower and more difficult accounts receivable collection, greater difficulty and expense in administering business abroad and complying with foreign laws. Stuart also operates a manufacturing facility in Mexico and is subject to local conditions, including union activities. Reorganized Stuart's success in dealing with these risks will affect the overall success of Reorganized Stuart's operations.

Reorganization Factors

As with any plan of reorganization or other financial transaction, there are certain risk factors that must be considered. All risk factors cannot be anticipated, some events will develop in ways that were not foreseen, and many or all of the assumptions that have been used in connection with this Disclosure Statement and the Plan will not be realized exactly as assumed. Some or all of such variations may be material. While efforts have been made to be reasonable in this regard, there can be no assurance that subsequent events will bear out the analyses set forth in this Disclosure Statement. Holders of Claims and Equity Interests should be aware of some of the principal risks associated with the contemplated reorganized:

u There is a risk that one of more of the required conditions or obliga

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tions under the Plan will not occur, be satisfied or waived, as the case may be, resulting in the inability to confirm the Plan.

u The total amount of all Claims filed in the Chapter 11 Case may be materially in excess of the estimated amounts of Allowed Claims assumed in the development of the Plan and in the valuation estimates provided above. The actual amount of all Allowed Claims in any Class may differ significantly from the estimates provided in this Disclosure Statement. Accordingly, the amount and timing of the distributions that will ultimately be received by any particular holder of an Allowed Claim in any Class may be materially and adversely affected should the estimates be exceeded as to any Class.

u A number of other uncertainties may adversely impact Reorganized Stuart's future operations including, without limitation, economic recession, increased competition, adverse regulatory agency actions, acts of God, or similar circumstances. Many of these factors will be substantially beyond Reorganized Stuart's control, and a change in any factor or combination of factors could have a material adverse effect on Reorganized Stuart's financial condition, cash flows, and results of operations.

u There can be no assurance that Reorganized Stuart will be able to continue to generate sufficient funds to meet its obligations and necessary capital expenditures, notwithstanding the significant improvements in Reorganized Stuart's operations and financial condition. Although Reorganized Stuart's financial projections assume that Reorganized Stuart will generate sufficient funds to meet its working capital needs for the foreseeable future, its ability to gain access to additional capital, if needed, cannot be assured, particularly in view of possible competitive factors and industry conditions.
Certain Bankruptcy-Related Considerations

Risk of Non-Confirmation of the Plan.

Although Stuart believes that the Plan will satisfy all requirements necessary for Confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion. There can also be no assurance that modifications of the Plan will not be required for Confirmation, that such negotiations would not adversely affect the holders of Allowed Claims and Equity Interests, or that such modifications would not necessitate the re-solicitation of votes.

Nonconsensual Confirmation.

If any impaired class of claims or equity interests does not accept a plan of reorganization, a bankruptcy court may nevertheless confirm such a plan of reorganization at the proponent's request if at least one impaired class has accepted the plan of reorganization (without including the acceptance of

Executive Guide to Corporate Bankruptcy

any "insider" in such class) and, as to each impaired class that has not accepted the plan of reorganization, the bankruptcy court determines that the plan of reorganization "does not discriminate unfairly" and is "fair and equitable" with respect to rejecting impaired classes. If any Impaired Class of Claims or Equity Interests fails to accept the Plan in accordance with Section 1129(a)(8) of the Bankruptcy Code, Stuart reserves the right to request nonconsensual Confirmation of the Plan in accordance with Section 1129(b) of the Bankruptcy Code.

Dividends

Reorganized Stuart will be precluded from paying Cash dividends to holders of New Common Stock under the Exit Financing Facility. Reorganized Stuart intends, therefore, to retain earnings, if any, for working capital and to fund capital expenditures. There is no intention to pay Cash dividends on any shares of New Common Stock.

EXEMPTION FROM SECURITIES ACT REGISTRATION

The Plan contemplates the issuance of certain securities to holders of Allowed Claims and Allowed Equity Interests. Section 1145 of the Bankruptcy Code creates certain exemptions from the registration and licensing requirements of federal and state securities laws with respect to the issuance and distribution of securities by a debtor under a plan or reorganization to holders of claims or interests wholly or principally in exchange for those claims or interests.

Issuance of New Securities Under the Plan

With respect to the New Common Stock to be issued on the Effective Date, Stuart intends to rely on the exemption from the registration requirements of the Securities Act (and the equivalent state securities of "blue sky" laws) provided by Section 1145(a)(1) of the Bankruptcy Code. Generally, Section 1145(a)(1) of the Bankruptcy Code exempts the issuance of securities from the requirements of the Securities Act and the equivalent state securities and "blue sky" laws if the following conditions are satisfied: (a) the securities are issued by a debtor, an affiliate participating in a joint plan of reorganization with the debtor, or a successor of the debtor under a plan of reorganization; (b) the recipients of the securities hold a claim against, an interest in, or a claim for an administrative expense against, the debtor; and (iii) the securities are issued entirely in exchange for the recipient's claim against or interest in the debtor, or are issued "principally" in such exchange and "partly" for Cash or property. Stuart believes that the issuance of securities contemplated by the Plan will satisfy the aforementioned requirements and therefore is exempt from federal and state securities laws, although as discussed below, under certain circumstances, subsequent transfers of such securities may be subject to registration requirements under such securities laws.

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Debt to Equity Conversion

Subsequent Transfer of Securities Issued Under the Plan

The securities issued pursuant to the Plan may be resold by the holders of such securities without restriction unless, as more fully described below, any such holder is deemed to be an "underwriter" with respect to such securities, as defined in Section 1145(b)(1) of the Bankruptcy Code. Generally, Section 1145(b)(1) of the Bankruptcy Code defines an "underwriter" as any person who (a) purchases a claim against, or interest in, a bankruptcy case, with a view towards the distribution of any security to be received in exchange for such claim or interest, (b) offers to sell securities issued under a bankruptcy plan on behalf of the holders of such securities, (c) offers to buy securities issued under a bankruptcy plan from persons receiving such securities, if the offer to buy is made with a view towards distribution of such securities, or (d) is an issuer as contemplated by Section 2(11) of the Securities Act. Although the definition of the term "issuer" appears in Section 2(4) of the Securities Act, the reference contained in Section 1145(b)(1) of the Bankruptcy Code to Section 2(11) of the Securities Act purports to include as "underwriters" all persons who, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with, an issuer of securities. "Control" (as such term is defined in Rule 405 of Regulation C under the Securities Act) means the possession, direct or indirect, of the power to direct or cause the direction of the policies of a person, whether through the ownership of voting securities, by contract or otherwise. Accordingly, an officer or director of a reorganized debtor (or its successor) under a plan of reorganization may be deemed to be a "control person," particularly if such management position is coupled with the ownership of a significant percentage of the debtor's (or successor's) voting securities. Moreover, the legislative history of Section 1145 of the Bankruptcy Code suggests that a creditor who owns at least 10% of the voting securities of a reorganized debtor may be presumed to be a "control person."

The foregoing summary discussion is general in nature and has been included in this Disclosure Statement solely for informational purposes. Stuart makes no representations concerning, and does not provide any opinion or advice with respect to, the securities law and bankruptcy law matters described above. In light of the complex and subjectively interpretive nature of whether a particular recipient or securities under the Plan may be deemed to be an "underwriter" within the meaning of Section 1145(b)(1) of the Bankruptcy Code or an "affiliate" or "control person" under applicable federal and state securities laws and, consequently, the uncertainty concerning the availability of exemptions from the registration requirements of the Securities Act and equivalent state securities and "blue sky" laws, Stuart encourages potential recipients of New Common Stock to consider carefully and consult with its own attorneys with respect to

Executive Guide to Corporate Bankruptcy

these (and related) matters.

ALTERNATIVES TO THE PLAN AND

CONSEQUENCES OF REJECTION

Among the possible consequences if the Plan is rejected or if the Bankruptcy Court refuses to confirm the Plan are the following: (1) an alternative plan could be proposed or confirmed; or (2) the Chapter 11 Case could be converted to a liquidation case under Chapter 7 of the Bankruptcy Code.

Alternative Plans

As previously mentioned, with respect to an alternative plan, Stuart and its professional advisors have explored various alternative scenarios and believe that the Plan enables the holders of Claims and Equity Interests to realize the maximum recovery under the circumstances. Stuart believes that the Plan is the best plan that can be proposed and served the best interests of Stuart and other parties in interest.

Chapter 7 Liquidation
For a discussion of a Chapter 7 liquidation, see "ACCEPTANCE AND CONFIRMATION OF THE PLAN _ Confirmation _ Error! Reference source not found."

RECOMMENDATION AND CONCLUSION

Stuart and its professional advisors have analyzed different scenarios and believe that the Plan will provide for a larger distribution to holders of Claims and Equity Interests than would otherwise result if an alternative restructuring plan were proposed or Stuart's assets were liquidated. In addition, any alternative other than Confirmation of the Plan could result in extensive delays and increased administrative expenses resulting in potentially smaller distributions to the holders of Claims and Equity Interests. Accordingly, Stuart recommends confirmation of the Plan and urges all holders of Impaired Claims and Equity Interests to vote to accept the Plan, and to indicate acceptance by returning their Ballots so as to be received by no later than the Voting Deadline.

Date: Wilmington, Delaware

October 11, 1999

STUART ENTERTAINMENT, INC.

By: /s/ Joseph M. Valandra_______
Joseph M. Valandra

Chairman, Chief Executive Officer,

and President

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SQUIRE, SANDERS & DEMPSEY L.L.P.

40 North Central Avenue, Suite 2700

Phoenix, Arizona 85004

(602) 528-4000

By: /s/ Craig D. Hansen______

Craig D. Hansen

Thomas J. Salerno

Jordan A. Kroop

SAUL, EWING, REMICK & SAUL LLP

P.O. Box 1266
222 Delaware Avenue, Suite 1200

Wilmington, Delaware 19899

(302) 421-6800

By: /s/ Norman L. Pernick_____

Norman L. Pernick

J. Kate Stickles

Co-Counsel to Debtor

Executive Guide to Corporate Bankruptcy

Exhibit 1

Plan of Reorganization

(omitted)

Exhibit 2

Form 10-K

(omitted)

Exhibit 3

Form 10-Q

(omitted)

Exhibit 4

Liquidation Analysis

(omitted)

Exhibit 5

Financial Projections

(omitted)

Exhibit 6

Gaming Requirements

(omitted)