AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 2004
Registration No. 333-118149
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7990 20-0573058
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7990 20-0572981
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
----------------------
2000 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NV 89104
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
----------------------
DENISE BARTON
CHIEF FINANCIAL OFFICER
2000 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NV 89104
TELEPHONE: (702) 383-5242
FACSIMILE: (702) 380-4738
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
STEVEN L. WASSERMAN, ESQ.
JAMES T. SEERY, ESQ.
PIPER RUDNICK LLP
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
TELEPHONE: (212) 835-6000
FACSIMILE: (212) 835-6001
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
TABLE OF ADDITIONAL REGISTRANTS
State or other jurisdiction Principal Standard I.R.S. Employer
of incorporation or Industrial Classification Identification
Name of Additional Registrant formation Code Number Number
- ----------------------------- --------------------------- ------------------------- ---------------
Stratosphere Corporation Delaware 7999 88-0292318
Stratosphere Gaming Corp. Nevada 7999 88-0320164
Arizona Charlie's, LLC Nevada 7999 90-0160341
Fresca, LLC Nevada 7999 88-0452576
Charlie's Holding LLC Delaware 7999 11-3716851
Stratosphere Advertising Agency Nevada 7311 88-0357430
Stratosphere Land Corporation Nevada 6519 88-0357732
Stratosphere Development LLC Delaware 1541 88-0466636
Stratosphere Leasing, LLC Delaware 6519 88-0473554
The information in this Preliminary Prospectus is not complete and may be
changed. We may not exchange these securities until the Registration Statement
filed with the Securities and Exchange Commission is effective. This Preliminary
Prospectus is not an offer to exchange these securities and is not soliciting
offers to exchange these securities in any State where the exchange is not
permitted.
PROSPECTUS SUBJECT TO COMPLETION DATED OCTOBER 12, 2004
--------------------------------------------
$215,000,000
AMERICAN CASINO & ENTERTAINMENT
PROPERTIES LLC
AMERICAN CASINO & ENTERTAINMENT
PROPERTIES FINANCE CORP.
OFFER TO EXCHANGE OUR 7.85% SENIOR SECURED
NOTES DUE 2012, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, FOR ANY AND
ALL OF OUR OUTSTANDING 7.85% SENIOR
SECURED NOTES DUE 2012
--------------------------------------------
MATERIAL TERMS OF THE EXCHANGE OFFER
- The terms of the new notes are substantially identical to the
outstanding notes, except that the transfer restrictions and
registration rights relating to the outstanding notes will not apply
to the new notes and the new notes will not provide for the payment
of liquidated damages under circumstances related to the timing and
completion of the exchange offer.
- Expires 5:00 p.m., New York City time, on __________________, 2004,
unless extended.
- We will exchange your validly tendered unregistered notes for an
equal principal amount of a new series of notes which have been
registered under the Securities Act of 1933.
- The exchange offer is not subject to any condition other than that
the exchange offer not violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange
Commission and other customary conditions.
- You may withdraw your tender of notes at any time before the
exchange offer expires.
- The exchange of notes should not be a taxable exchange for U.S.
federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
- The new notes will not be traded on any national securities exchange
and, therefore, we do not anticipate that an active public market in
the new notes will develop.
----------------------------------------
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS DOCUMENT FOR CERTAIN
IMPORTANT INFORMATION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE ISSUED IN THE EXCHANGE
OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS -, 2004
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.......................................................................... 1
RISK FACTORS................................................................................ 14
FORWARD-LOOKING STATEMENTS.................................................................. 33
INDUSTRY DATA............................................................................... 34
USE OF PROCEEDS............................................................................. 35
THE EXCHANGE OFFER.......................................................................... 36
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................. 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION....... 49
BUSINESS.................................................................................... 64
REGULATION.................................................................................. 77
MANAGEMENT.................................................................................. 84
OUR SOLE STOCKHOLDER........................................................................ 87
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS........................................ 88
DESCRIPTION OF SENIOR SECURED REVOLVING CREDIT FACILITY..................................... 91
DESCRIPTION OF INTERCREDITOR AGREEMENT...................................................... 92
DESCRIPTION OF NOTES........................................................................ 95
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES................................................ 157
PLAN OF DISTRIBUTION........................................................................ 162
LEGAL MATTERS............................................................................... 163
EXPERTS..................................................................................... 163
WHERE YOU CAN FIND MORE INFORMATION......................................................... 163
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................................. F-1
-i-
We have not authorized any dealer, salesperson or other person to give any
information or to make any representations to you other than the information
contained in this prospectus. You must not rely on any information or
representations not contained in this prospectus as if we had authorized it.
This prospectus does not offer to sell or solicit any offer to buy any
securities other than the registered notes to which it relates, nor does it
offer to buy any of these notes in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
The information contained in this prospectus is current only as of the
date on the cover page of this prospectus, and may change after that date. We do
not imply that there has been no change in the information contained in this
prospectus or in our affairs since that date by delivering this prospectus.
-ii-
PROSPECTUS SUMMARY
You should read the entire prospectus, including "Risk Factors" and the
financial statements and related notes, before making an investment decision.
Unless the context indicates otherwise, all references to "American Casino &
Entertainment Properties LLC," "we," "our," "ours" and "us" refer to American
Casino & Entertainment Properties LLC and include our subsidiaries. American
Real Estate Partners, L.P., our indirect parent company, is referred to in this
prospectus as "AREP."
OUR COMPANY
We own and operate three gaming and entertainment properties in the Las
Vegas metropolitan area. The three properties are the Stratosphere Casino Hotel
& Tower, or the Stratosphere, which is located on the Las Vegas Strip and caters
to visitors to Las Vegas, and two off-Strip casinos, Arizona Charlie's Decatur
and Arizona Charlie's Boulder, which cater primarily to residents of Las Vegas
and the surrounding communities. The Stratosphere is one of the most recognized
landmarks in Las Vegas and our two Arizona Charlie's branded properties are
well-recognized casinos in their respective marketplaces. Each of our properties
offers customers a value-oriented experience by providing competitive odds in
our casinos, high-quality rooms in our hotels, award-winning dining facilities
and, at the Stratosphere, an offering of entertainment attractions found nowhere
else in Las Vegas. We believe the value we offer our patrons, together with a
strong focus on customer service, will enable us to continue to attract customer
traffic to our properties.
OUR PROPERTIES
The following table sets forth certain information for each of our
properties:
AT JUNE 30, 2004
CASINO ----------------
YEAR CUSTOMER SQUARE SLOT TABLE HOTEL
PROPERTY OPENED ORIENTATION FEET MACHINES GAMES ROOMS
-------- ------ ----------- ------- -------- ----- -----
Stratosphere.................. 1996 Tourist 80,000 1,366 47 2,444
Arizona Charlie's Decatur..... 1988 Local 52,000 1,504 15 258
Arizona Charlie's Boulder..... 2000(1) Local 41,000 844 14 303
------- ----- -- -----
173,000 3,714 76 3,005
======= ===== == =====
- ----------
(1) Prior to 2000, Arizona Charlie's Boulder operated as a stand-alone hotel
and recreational vehicle, or RV, park.
STRATOSPHERE
The Stratosphere, which offers the tallest free-standing observation tower
in the United States, is situated on approximately 31 acres of land located at
the northern end of the Las Vegas Strip. The facility is a tourist- oriented
gaming and entertainment destination property, which has approximately 80,000
square feet of gaming space, 2,444 hotel rooms, eight restaurants and
approximately 110,000 square feet of developed retail space. The Stratosphere
features three of the most visited amusement rides in Las Vegas:
- the Big Shot, a 16-seat ride that catapults passengers up a 160-foot
mast in approximately 2.5 seconds with the force of approximately
four G's;
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- the High Roller, a 28-seat roller coaster that takes passengers on a
34-mile-per-hour ride around the Stratosphere at a height of more
than 900 feet; and
- the X Scream, an eight-seat thrill ride which launches passengers
approximately 30 feet over the side of the Stratosphere, giving
riders the sensation that they are about to fall off the top of the
building.
In 2001, we completed an approximate $86 million expansion of the
Stratosphere, which included the addition of a 1,000-room hotel tower and a
67,000 square foot pool and recreation deck. The property also includes
approximately eight acres of undeveloped land, providing us with the flexibility
for additional expansion, if warranted. Within the existing property, we have
approximately 112,000 square feet of undeveloped interior space. We are
currently in discussions to design and develop additional entertainment
amenities within this space.
ARIZONA CHARLIE'S DECATUR
Arizona Charlie's Decatur is located on approximately 17 acres of land,
four miles west of the Las Vegas Strip in the heavily-populated west Las Vegas
area. The property is easily accessible from Route 95, a major highway in Las
Vegas. The property is located on Decatur Boulevard, and an estimated 500,000
people live within a five-mile radius of the property. Arizona Charlie's Decatur
contains approximately 52,000 square feet of gaming space, 258 hotel rooms, four
restaurants and three bars. The property targets repeat customers from the
surrounding communities. At June 30, 2004, we had approximately 117,000 members
registered with our Ultimate Rewards Club at Arizona Charlie's Decatur, and
approximately 38,000 of them are active members who visited the property at
least once during the previous 90 days. Approximately 43% of our active Ultimate
Rewards Club members frequented Arizona Charlie's Decatur, on average, more than
four times per month during that 90 day period.
Since one of our affiliates purchased Arizona Charlie's Decatur in 1998,
there has been a number of improvements to the property: in 2001, the slot floor
was expanded; in 2002, the interior design of the casino was upgraded; and, in
October 2003, the new Frisco Market Buffet, a 260-seat San Francisco- themed
eatery was opened. The Frisco Market Buffet and Sourdough Cafe, our two primary
restaurants at Arizona Charlie's Decatur, currently serve a combined average of
more than 3,000 customers per day.
ARIZONA CHARLIE'S BOULDER
Arizona Charlie's Boulder is located on approximately 24 acres of land,
seven miles east of the Las Vegas Strip, near an I-515 interchange. I-515 is the
most heavily traveled east/west highway in Las Vegas. The property is located on
Boulder Highway, and an estimated 423,000 people live within a five-mile radius
of the property. Arizona Charlie's Boulder contains approximately 41,000 square
feet of gaming space, 303 hotel rooms, four restaurants and a 202-space RV park.
As with our Arizona Charlie's Decatur property, the property targets repeat
customers from the surrounding communities. At June 30, 2004, we had
approximately 125,000 members registered with our Ultimate Rewards Club at
Arizona Charlie's Boulder, and approximately 27,000 of them are active members
who visited the property at least once during the previous 90 days.
Approximately 38% of our active Ultimate Rewards Club members frequented Arizona
Charlie's Boulder, on average, more than four times per month during that 90 day
period.
Since one of our affiliates purchased Arizona Charlie's Boulder in 2000,
there has been a number of improvements to the property. In 2002, there was
completed a $5.1 million expansion project, which provided for an additional,
approximate 18,000 square feet of slot floor space, a 500-seat bingo hall and a
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43-seat race and sports book. We recently completed renovating the interiors of
the hotel rooms.
BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
We intend to grow the revenues and profitability of our business through
the continued execution of a number of key operating strategies:
VALUE-ORIENTED EXPERIENCE
We target primarily middle-market customers who focus on obtaining value
in their gaming, lodging, dining and entertainment experiences. We strive to
deliver value to our gaming customers at our Arizona Charlie's locations by
offering payout ratios on our slot and video poker machines that we believe are
among the highest payout ratios in Las Vegas. Similarly, at the Stratosphere, we
offer attractive table games, including Single Zero Roulette and Ten Times Odds
Craps, that provide patrons with odds that are better than the standard odds for
these games at other Las Vegas Strip casinos.
We also provide our customers with attractive offerings in the areas of
lodging and food and beverage service. Our product offerings in each of these
categories are reasonably priced and of consistently high quality. In addition,
we believe our Ultimate Rewards Club, which enables customers to receive and
redeem rewards at all three of our properties, offers our customers some of the
most generous complimentary policies in Las Vegas, rewarding and further
encouraging frequent visits by our customers.
CUSTOMER SERVICE
We are committed to providing our patrons a high level of customer
service. Our employees participate in regular and intensive customer service
training programs and are rewarded and incentivized, in part, based upon the
quality of service they provide to customers. We routinely conduct comprehensive
customer surveys at all of our properties, and we pursue a process of continuous
improvement at our properties based on the information gathered from our
surveys.
THE STRATOSPHERE AS A DESTINATION PROPERTY FOR VISITORS TO LAS VEGAS
We believe the Stratosphere is one of the most recognized landmarks in Las
Vegas. The Stratosphere offers the tallest free-standing observation tower in
the United States and, at 1,149 feet, it is the tallest building west of the
Mississippi River. The Stratosphere Tower boasts some of the most unique
amenities in Las Vegas, including an award-winning, 380-seat revolving
restaurant with unparalleled views of Las Vegas, known as the Top of the World,
the highest indoor/outdoor observation deck in Las Vegas, and the three highest
amusement rides in the world: the Big Shot, the High Roller and the recently
launched X Scream. The Stratosphere Tower also has a 175-seat cocktail lounge, a
wedding chapel and 6,200 square feet of event space.
We believe that the distinctive amenities of the Stratosphere, together
with our dedication to providing a high-quality, value-oriented experience, have
significantly contributed to the over 1.4 million visits to the Stratosphere
Tower in the twelve months ended June 30, 2004. We believe our attractions, as
well as the introduction of additional entertainment-driven amenities, will
enable us to continue to market the Stratosphere as a "must see" destination
property in Las Vegas.
RECENT SUCCESSFUL INITIATIVES
Our management team has improved operating performance by repositioning
each of our
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properties to better target their respective markets, expanding and improving
our existing facilities, focusing on customer service and implementing a
targeted cost reduction program. We believe there are a number of additional
initiatives which should contribute to a further improvement in our operating
performance, including the conversion of 100% of the slot floor space at each of
our properties from coin-operated to Ticket-In/Ticket-Out, the introduction of
new entertainment attractions and other amenities into our casinos, further
refinements to our Ultimate Rewards Club and the continued execution of our
integration strategy and cost savings initiatives.
EMPHASIS ON SLOT PLAY
We have focused our marketing efforts on attracting customers with an
affinity for playing slot and video poker machines. Similarly, we have
intentionally avoided competing for the attention of high-stakes table game
customers. We believe slot machine players are a more consistently profitable
customer type, and our properties are specifically oriented to this type of
customer. We have invested in outfitting our casinos with the latest in slot and
video poker machine technology and game brands. We regularly modify our mix of
slot machine product to maximize the profitability of our casinos, while also
providing our customers with the most current product offerings. We completed
the conversion to the 100% Ticket-In/Ticket-Out format at the end of the second
quarter of 2004. We anticipate this format will yield meaningful operating
efficiencies for us, while also increasing the rate of customer play, as patrons
will be able to enjoy a gaming experience uninterrupted by the machine servicing
requirements typically necessary for coin-operated slot machines.
STRONG OWNERSHIP AND EXPERIENCED MANAGEMENT TEAM
We are a subsidiary of AREP, a New York Stock Exchange-listed limited
partnership which had over $2.0 billion in assets at March 31, 2004 and after
giving effect to an offering by it of 8-1/8% of Senior Notes due 2012, which was
completed on May 12, 2004, and the acquisitions of Arizona Charlie's Decatur and
Arizona Charlie's Boulder and related transactions. Carl C. Icahn, through
affiliates, owns 100% of AREP's general partner and over 86% of AREP's
outstanding depositary units and preferred units.
Our senior management team, which collectively has over 100 years of
operating experience in the gaming industry, has successfully managed a
significant improvement in the operating performance of our properties. Our
executive and property-level management teams have an established record of
developing, integrating and operating gaming and entertainment properties. Our
management team is focused on controlling costs in an effort to increase
operating cash flow.
4
SUMMARY OF THE EXCHANGE OFFER
The Offering of the Private Notes..... On January 29, 2004, we issued $215
million aggregate principal amount of
our private notes in an offering not
registered under the Securities Act of
1933. At the time we issued the private
notes, we entered into a registration
rights agreement in which we agreed to
offer to exchange the private notes for
new notes which have been registered
under the Securities Act of 1933. This
exchange offer is intended to satisfy
that obligation.
The Exchange Offer.................... We are offering to exchange the new
notes which have been registered under
the Securities Act of 1933 for the
private notes.
As of this date, there is $215 million
aggregate principal amount of private
notes outstanding.
Required Representations.............. In order to participate in this exchange
offer, you will be required to make
certain representations to us in a
letter of transmittal, including that:
- any new notes will be acquired by
you in the ordinary course of your
business;
- you have not engaged in, do not
intend to engage in, and do not
have an arrangement or
understanding with any person to
participate in a distribution of
the new notes; and
- you are not an affiliate of our
company.
Resale of New Notes................... We believe that, subject to limited
exceptions, the new notes may be freely
traded by you without compliance with
the registration and prospectus delivery
provisions of the Securities Act of
1933, provided that:
- you are acquiring new notes in the
ordinary course of your business;
- you are not participating, do not
intend to participate and have no
arrangement or understanding with
any person to participate in the
distribution of the new notes; and
- you are not an affiliate of our
company.
If our belief is inaccurate and you
transfer any new note issued to you in
the exchange offer without delivering a
prospectus meeting the requirements of
the Securities Act of 1933 or without an
exemption from registration of your new
notes from such requirements, you may
incur liability under the Securities Act
of 1933. We do not assume, or indemnify
you against, such liability.
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Each broker-dealer that is issued new
notes for its own account in exchange
for private notes which were acquired by
such broker-dealer as a result of
market-making or other trading
activities also must acknowledge that it
has not entered into any arrangement or
understanding with us or any of our
affiliates to distribute the new notes
and will deliver a prospectus meeting
the requirements of the Securities Act
of 1933 in connection with any resale of
the new notes issued in the exchange
offer.
We have agreed in the registration
rights agreement that a broker-dealer
may use this prospectus for an offer to
resell, resale or other retransfer of
the new notes issued to it in the
exchange offer.
Expiration Date....................... The exchange offer will expire at 5:00
p.m., New York City time, on __________,
2004, unless extended, in which case the
term "expiration date" shall mean the
latest date and time to which we extend
the exchange offer.
Conditions to the Exchange Offer...... The exchange offer is subject to certain
customary conditions, which may be
waived by us. The exchange offer is not
conditioned upon any minimum principal
amount of private notes being tendered.
Procedures for Tendering
Private Notes......................... If you wish to tender your private notes
for exchange, you must transmit to
Wilmington Trust Company, as exchange
agent, at the address set forth in this
prospectus under the heading "The
Exchange Offer - Exchange Agent," and on
the front cover of the letter of
transmittal, on or before the expiration
date, a properly completed and duly
executed letter of transmittal, which
accompanies this prospectus, or a
facsimile of the letter of transmittal
and either:
- the private notes and any other
required documentation, to the
exchange agent; or
- a computer generated message
transmitted by means of The
Depository Trust Company's
Automated Tender Offer Program
system and received by the exchange
agent and forming a part of a
confirmation of book entry transfer
in which you acknowledge and agree
to be bound by the terms of the
letter of transmittal.
If either of these procedures cannot be
satisfied on a timely basis, then you
should comply with the guaranteed
delivery procedures described below. By
executing the letter of transmittal,
each holder of private notes will make
certain representations to us described
under "The Exchange Offer - Procedures
for Tendering."
6
Special Procedures for Beneficial
Owners................................ If you are a beneficial owner whose
private notes are registered in the name
of a broker, dealer, commercial bank,
trust company or other nominee and you
wish to tender your private notes in the
exchange offer, you should contact such
registered holder promptly and instruct
such registered holder to tender on your
behalf. If you wish to tender on your
own behalf, you must, prior to
completing and executing the letter of
transmittal and delivering your private
notes, either make appropriate
arrangements to register ownership of
the private notes in your name or obtain
a properly completed bond power from the
registered holder. The transfer of
registered ownership may take
considerable time and may not be able to
be completed prior to the expiration
date.
Guaranteed Delivery Procedures........ If you wish to tender private notes and
time will not permit the documents
required by the letter of transmittal to
reach the exchange agent prior to the
expiration date, or the procedure for
book-entry transfer cannot be completed
on a timely basis, you must tender your
private notes according to the
guaranteed delivery procedures described
under "The Exchange Offer - Guaranteed
Delivery Procedures."
Acceptance of Private Notes and
Delivery of New Notes................. Subject to the conditions described
under "The Exchange Offer - Conditions,"
we will accept for exchange any and all
private notes which are validly tendered
in the exchange offer and not withdrawn,
prior to 5:00 p.m., New York City time,
on the expiration date.
Withdrawal Rights..................... You may withdraw your tender of private
notes at any time prior to 5:00 p.m.,
New York City time, on the expiration
date, subject to compliance with the
procedures for withdrawal described in
this prospectus under heading "The
Exchange Offer - Withdrawal of Tenders."
Federal Income Tax Considerations..... For a discussion of the material federal
income tax considerations relating to
the exchange of private notes for the
new notes, see "Certain U.S. Federal
Income Tax Consequences."
Exchange Agent........................ Wilmington Trust Company is serving as
the exchange agent. The address,
telephone number and facsimile number of
the exchange agent are set forth in this
prospectus under the heading "The
Exchange Offer -- Exchange Agent."
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Consequences of Failure to Exchange
Private Notes......................... If you do not exchange private notes for
new notes, you will continue to be
subject to the restrictions on transfer
provided in the private notes and in the
indenture governing the private notes.
In general, the unregistered private
notes may not be offered or sold, unless
they are registered under the Securities
Act of 1933, except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act of 1933
and applicable state securities laws.
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THE NEW NOTES
The terms of the new notes we are issuing in this exchange offer and the
private notes that are outstanding are identical in all material respects,
except:
- the new notes will be registered under the Securities Act of 1933;
and
- the new notes will not contain transfer restrictions and
registration rights that relate to the private notes.
The new notes will evidence the same debt as the old notes and will be
governed by the same indenture. References to notes include both private notes
and new notes.
Issuer............................... American Casino & Entertainment
Properties LLC is a holding company.
Operations are conducted through its
subsidiaries, and the assets of the
holding company consist of the capital
stock and limited liability company
interests of the subsidiaries. Other
than the guarantees of the notes and of
indebtedness under a senior secured
revolving credit facility and certain
capital leases, the subsidiaries will
not have any indebtedness and the
ability of American Casino &
Entertainment Properties LLC and the
subsidiaries to incur indebtedness is
restricted.
Co-Issuer............................ American Casino & Entertainment
Properties Finance Corp. is a
wholly-owned subsidiary of American
Casino & Entertainment Properties LLC.
American Casino & Entertainment
Properties Finance Corp. was formed
solely for the purpose of serving as a
co-issuer of debt securities of American
Casino & Entertainment Properties LLC in
order to facilitate the offering of the
debt securities. Other than as a
co-issuer of the notes, American Casino
& Entertainment Properties Finance Corp.
does not and will not have any
operations or assets and will not have
any revenues. As a result, holders of
the notes should not expect American
Casino & Entertainment Properties
Finance Corp. to participate in
servicing the interest and principal
obligations on the new notes.
Notes Offered........................ $215.0 million in aggregate principal
amount of 7.85% Senior Secured Notes due
2012.
Maturity............................. February 1, 2012.
Interest Payment Dates............... February 1 and August 1 of each year,
commencing August 1, 2004.
Security............................. The new notes and the guarantees will be
secured by a second- priority security
interest, subject to certain customary
exceptions, in substantially all of our
and the guarantors' assets, including
the capital stock or other
9
equity interests of the subsidiaries
that own the Stratosphere, Arizona
Charlie's Decatur and Arizona Charlie's
Boulder.
Guarantees........................... The new notes will be jointly, severally
and unconditionally guaranteed by
certain of our restricted subsidiaries
and will be guaranteed by certain future
restricted subsidiaries. Stratosphere
Corporation, which owns and operates the
Stratosphere, Stratosphere Gaming
Corporation, which holds the
Stratosphere's gaming license, Arizona
Charlie's, LLC, which owns and operates
Arizona Charlie's Decatur, Fresca, LLC,
which owns and operates Arizona
Charlie's Boulder, and Charlie's Holding
LLC, which owns the membership interests
of each of Arizona Charlie's, LLC and
Fresca, LLC, among other subsidiaries,
each is a guarantor.
Ranking.............................. The new notes and the guarantees will be
our and the guarantors' senior secured
debt and will rank equally with all of
our and the guarantors' existing and
future senior secured debt, except that
the new notes and the guarantees will be
effectively subordinated to all of our
and the guarantors' first-priority lien
debt, including borrowings under our
senior secured revolving credit
facility, which is secured by a
first-priority security interest in
substantially all of our and the
guarantors' assets. The new notes and
the guarantees will be effectively
senior to any of our and the guarantors'
future unsecured senior debt. The new
notes and the guarantees will be senior
in right of payment to any of our and
the guarantors' future subordinated
debt. The new notes and the guarantees
will be effectively subordinated to any
liabilities of any non-guarantor
subsidiaries.
Intercreditor Agreement.............. Under an intercreditor agreement, the
liens securing the new notes and the
guarantees of our subsidiaries will be
second-priority liens to the
first-priority liens that secure (1)
obligations under our senior secured
revolving credit facility, (2) future
first-priority lien secured indebtedness
permitted to be incurred under the
indenture governing the notes and (3)
our hedging obligations. The parties to
the intercreditor agreement, including
the trustee under the indenture, have
agreed to certain standstill periods
prior to the exercise of any remedies.
Any release of the first-priority liens
on the note collateral will also release
the second-priority liens securing the
new notes on the same collateral;
provided, that after giving effect to
that release, the aggregate book value
of all of the assets released does not
exceed 10% of our total combined assets
as of the date of issuance of the notes.
In addition, the holders of the
first-priority liens will receive all
proceeds from any realization
10
on the note collateral until the
obligations secured by the
first-priority liens are paid in full
and the commitments with respect thereto
are terminated.
Optional Redemption.................. We may, at our option, redeem some or
all of the new notes at any time on or
after February 1, 2008, at the
redemption prices listed under
"Description of Notes -- Optional
Redemption."
In addition, prior to February 1, 2007,
we may, at our option, redeem up to 35%
of the new notes with the proceeds of
certain sales of our equity, equity
contributions or the issuance of
permitted affiliate subordinated debt at
the redemption price listed under
"Description of Notes -- Optional
Redemption." We may make the redemption
only if, after the redemption, at least
65% of the aggregate principal amount of
the new notes issued remains
outstanding.
Redemption Based on Gaming Laws...... The new notes are subject to mandatory
disposition and redemption requirements
following certain determinations by
applicable gaming authorities.
Mandatory Repurchase Offer........... If we sell certain assets or experience
specific kinds of changes in control, we
must offer to repurchase the new notes
at the prices listed under "Description
of Notes -- Repurchase at the Option of
Holders."
Certain Covenants.................... We will issue the new notes under an
indenture with the guarantors and
Wilmington Trust Company, as trustee
acting on your behalf. The indenture,
among other things, restricts our
ability and the ability of our
restricted subsidiaries to:
- incur additional debt;
- pay dividends and make
distributions;
- make certain investments;
- repurchase stock;
- create liens;
- enter into transactions with
affiliates;
- enter into sale and leaseback
transactions;
- merge or consolidate; and
11
- transfer, lease or sell assets.
Absence of Established Market
for Notes............................ The new notes will be new securities for
which there is currently no market. A
liquid market for new notes may not
develop or be maintained.
12
CORPORATE INFORMATION
American Casino & Entertainment Properties LLC was formed under the laws
of the State of Delaware on December 29, 2003. Our executive offices are located
at 2000 Las Vegas Boulevard South, Las Vegas, Nevada 89104 and our telephone
number is (702) 380-7777.
We are a holding company that was formed for the purpose of acquiring the
entities that own and operate the Stratosphere, Arizona Charlie's Decatur and
Arizona Charlie's Boulder in Las Vegas, Nevada. Stratosphere has been owned by a
subsidiary of parent, American Real Estate Holdings Limited Partnership or AREH.
Arizona Charlie's Decatur and Arizona Charlie's Boulder have been owned by Mr.
Icahn and one of his affiliated entities. Our management team has been
responsible for the management of all three properties since 2002.
On January 5, 2004, we entered into a membership interest purchase
agreement with Mr. Icahn and one of his affiliated entities in which we agreed
to purchase all of the membership interests in Charlie's Holding LLC, a
newly-formed entity that owns indirectly Arizona Charlie's Decatur and Arizona
Charlie's Boulder, for $125.9 million, subject to reduction based on a
post-closing working capital adjustment.
On January 5, 2004, we also entered into a contribution agreement with our
direct parent, American Entertainment Properties Corp., and our indirect parent
or AREH, in which AREH agreed to contribute to us 100% of the outstanding
capital stock of Stratosphere Corporation.
We received approvals for these transactions by the Nevada Gaming
Commission upon the recommendation of the Nevada State Gaming Control Board on
May 20, 2004 and closed these transactions on May 26, 2004. We refer to the
transactions described in the membership interest purchase agreement and
contribution agreement as the "acquisitions."
American Casino & Entertainment Properties Finance Corp., a Delaware
corporation, is a wholly-owned subsidiary of American Casino & Entertainment
Properties LLC. American Casino & Entertainment Properties Finance Corp. was
formed solely for the purpose of serving as a co-issuer of debt securities of
American Casino & Entertainment Properties LLC in order to facilitate offerings
of such debt securities. Other than as a co-issuer of the notes, American Casino
& Entertainment Properties Finance Corp. will not have any operations or assets
and will not have any revenues. As a result, holders of the notes should not
expect American Casino & Entertainment Properties Finance Corp. to participate
in servicing the interest and principal obligations on the notes.
Action Cash, Arizona Charlie's Boulder, Arizona Charlie's Decatur, Arizona
Charlie's, Inc., Arizona Charlie's Hotel Casino, Big Shot, Crazy Armadillo,
Frisco Market Buffet, High Roller, Lucky's Cafe, Nobody Offers You More!, Roxy's
Diner, Stratosphere, Stratosphere Casino Hotel & Tower, Stratosphere Gaming
Corporation, Stratosphere Tower, Top of the World, Ultimate Action Cash,
Ultimate Rewards, X Scream and Yukon Grille are certain of our material
trademarks, trade names and service marks. Certain other trademarks, trade names
and service marks used in this prospectus are the property of third parties.
13
RISK FACTORS
You should consider carefully each of the following risks and all other
information contained in this prospectus before deciding to invest in the notes.
RISKS RELATING TO OUR INDEBTEDNESS
OUR SUBSTANTIAL INDEBTEDNESS COULD REDUCE OUR CASH FLOW AND PREVENT US FROM
FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We are highly leveraged and have substantial debt service obligations. As
of June 30, 2004, we had approximately $219.0 million in aggregate principal
amount of indebtedness, including the private notes. We will also be able to
incur additional indebtedness in the future, subject to compliance with the
terms of the agreements governing our indebtedness at the time, including the
indenture governing the notes. If we incur additional indebtedness following the
date of this prospectus, it could increase the risks that we face.
Our substantial indebtedness could have important consequences for you.
For example, it could:
- make it difficult for us to satisfy our obligations under the notes;
- limit our ability to obtain additional financing in the future for
working capital, capital expenditures, general corporate or other
purposes;
- limit our ability to use operating cash flow in other areas of our
business because we must dedicate a significant portion of these
funds to make mandatory payments on our indebtedness;
- make us vulnerable to economic downturns and reduce our flexibility
in responding to changing business, regulatory and economic
conditions; and
- limit our ability to compete with others who are not as highly
leveraged, including our ability to explore business opportunities.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not prohibit us or our
subsidiaries from doing so. Our senior secured revolving credit facility permits
additional borrowing of up to $20.0 million and all of those borrowings would
rank senior to the notes and the guarantees. Furthermore, under the indenture
governing the notes, we are permitted to incur up to $60.0 million of
indebtedness that is secured by first- priority liens on the note collateral. We
may incur additional indebtedness that ranks equally with the notes if we comply
with certain financial tests. We may also issue additional equally ranked notes
in an aggregate principal amount not to exceed two times the net cash proceeds
received by us from certain equity offerings, equity contributions or permitted
affiliate subordinated debt, so long as the proceeds from the additional notes
and equity offerings are used for property improvements to our gaming and
entertainment properties. The intercreditor agreement also permits the lenders
under the senior secured revolving credit facility and any other first-priority
lien secured indebtedness to make certain "protective advances" in order to
protect, preserve, repair and maintain their collateral. Any amounts so advanced
will be included in the amounts secured by the first-priority liens in favor of
the first-priority lenders. These advances therefore could
14
increase the aggregate first-priority senior secured claims on the collateral,
even beyond the maximum commitments of these lenders, thereby potentially
disadvantaging the holders of the notes. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a change of control under the indenture.
THE TERMS OF THE SENIOR SECURED REVOLVING CREDIT FACILITY AND OTHER AGREEMENTS
WE MAY ENTER INTO MAY RESTRICT OUR CURRENT AND FUTURE OPERATIONS, PARTICULARLY
OUR ABILITY TO RESPOND TO CHANGES OR TO TAKE SOME ACTIONS.
The senior secured revolving credit facility contains, and any future
refinancing of this facility likely would contain, a number of restrictive
covenants that impose significant operating and financial restrictions on us.
The senior secured revolving credit facility includes covenants restricting,
among other things, our ability to:
- incur additional debt, including guarantees;
- incur liens;
- dispose of assets;
- make certain acquisitions;
- make certain capital expenditures;
- pay dividends and make other restricted payments;
- enter into sale and leaseback transactions;
- engage in any new businesses;
- issue preferred stock; and
- enter into transactions with our stockholders and our affiliates.
Our senior secured revolving credit facility also includes financial
covenants which will require that we meet certain financial tests. In addition,
our other debt and future debt or other contracts could contain financial or
other covenants more restrictive than those applicable to the notes.
OUR FAILURE TO COMPLY WITH THE COVENANTS CONTAINED IN THE SENIOR SECURED
REVOLVING CREDIT FACILITY, THE INDENTURE GOVERNING THE NOTES OR ANY OTHER
AGREEMENT GOVERNING OUR FIRST-PRIORITY LIEN DEBT, INCLUDING OUR FAILURE AS A
RESULT OF EVENTS BEYOND OUR CONTROL, COULD RESULT IN AN EVENT OF DEFAULT, WHICH
WOULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL CONDITION.
If there were an event of default under one of our debt instruments, the
holders of the defaulted debt could cause all amounts outstanding with respect
to that debt to be due and payable immediately. In addition, any event of
default or declaration of acceleration under one debt instrument could result in
an event of default under one or more of our other debt instruments, including
the notes. It is likely that, if the defaulted debt is accelerated, our assets
and cash flow will not be sufficient to fully repay borrowings under our
outstanding debt instruments and we cannot assure you that we would be able to
refinance or restructure the payments on those debt securities. Further, if we
are unable to repay, refinance or
15
restructure our indebtedness under our first-priority lien debt, including the
senior secured revolving credit facility, the lenders under those facilities
could proceed against the collateral securing that indebtedness. In that event,
any proceeds received upon a realization of the collateral would be applied
first to amounts due under our first-priority lien debt, including the senior
secured revolving credit facility, before any proceeds would be available to
make payments on the notes.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness,
including the notes, and to fund planned capital expenditures and the expansion
of our operations will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, regulatory and other factors that are beyond our control.
Our business may not be able to generate sufficient cash flow from
operations or future borrowings may not be available to us under the senior
secured revolving credit facility or otherwise in an amount sufficient to enable
us to service our indebtedness, including the notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We may not be able to refinance any
of our indebtedness, including the senior secured revolving credit facility and
the notes, on commercially reasonable terms or at all.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes at 101% of
their principal amount plus accrued and unpaid interest and liquidated damages,
if any, to the date of repurchase. Mr. Icahn, through certain related entities,
currently owns 100% of the general partner of AREP and over 86% of AREP's
outstanding depositary units and preferred units, and if he were to sell or
otherwise transfer some or all of his interests in AREP to unrelated parties, a
change of control could be deemed to have occurred under the terms of the
indenture governing the notes. However, it is possible that we will not have
sufficient funds at the time of the change of control to make the required
repurchase of notes or that restrictions in our senior secured revolving credit
facility or in our other first-priority lien indebtedness will not allow such
repurchases.
RISKS RELATING TO THE NOTES
THE COLLATERAL SECURING THE NOTES WILL BE SUBJECT TO CONTROL BY CREDITORS WITH
FIRST-PRIORITY LIENS THAT RANK AHEAD OF THE LIENS SECURING THE NOTES. IF THERE
IS A DEFAULT, THE VALUE OF THE COLLATERAL MAY NOT BE SUFFICIENT TO REPAY BOTH
THE FIRST-PRIORITY CREDITORS AND THE HOLDERS OF THE NOTES AND ANY PARI PASSU
NOTES.
The notes and the guarantees of the notes are secured on a second-priority
basis, subject to permitted liens, by a lien on substantially all assets now
owned or hereafter acquired by us and our subsidiaries that guarantee the notes.
The first-priority liens on the collateral secure our obligations under the
senior secured revolving credit facility, certain other future indebtedness
permitted by the senior secured revolving credit facility and the indenture to
be incurred by us or certain of our subsidiaries that guarantee the notes and
that is designated by us, at the time of such incurrence, as first-priority lien
secured indebtedness. Although the holders of obligations secured by
first-priority liens on the collateral and the holders of the notes and any
issued in the future that are equally ranked notes will share in the proceeds of
this collateral, the holders of obligations secured by the first-priority liens
on the collateral
16
will be effectively entitled to receive proceeds from any realization of the
collateral to repay their obligations in full before the holders of the notes
and the other obligations secured by second-priority liens receive any portion
of those proceeds.
The value of the collateral in the event of liquidation will depend on
market and economic conditions, the availability of buyers of our assets and
other factors beyond our control. The proceeds from the sale or sales of all of
such collateral may not be sufficient to satisfy the amounts outstanding under
the notes and other obligations secured by the second-priority liens, if any,
after payment in full of all obligations secured by the first-priority liens on
the collateral. If these proceeds were not sufficient to repay amounts
outstanding under the notes, then holders of the notes, to the extent not repaid
from the proceeds of the sale of the collateral, would only have an unsecured
claim against our remaining assets. As of June 30, 2004, on a pro forma basis
after giving effect to the acquisitions, $20.0 million would have been available
for borrowing under our senior secured revolving credit facility. Under the
indenture governing the notes, we are permitted to incur up to $60.0 million of
indebtedness that is secured by first-priority liens on the note collateral. In
addition, we are permitted to issue additional notes under the indenture that
are secured on a equal basis with the notes if we meet certain financial tests
or if we raise cash through equity offerings, equity contributions or permitted
affiliate subordinated debt, so long as the proceeds are used for property
improvements to our gaming and entertainment properties. The intercreditor
agreement also permits the lenders under the senior secured revolving credit
facility and any other first-priority lien secured indebtedness to make certain
"protective advances" in order to protect, preserve, repair and maintain their
collateral. Any amounts so advanced will be included in the amounts secured by
the first-priority liens in favor of the first-priority lenders. Such advances
therefore could increase the aggregate first-priority senior secured claims on
the collateral, even beyond the maximum commitments of such lender, thereby
potentially disadvantaging the holders of the notes.
The rights of the holders of the notes with respect to the collateral
securing the notes and the note guarantees are limited pursuant to the terms of
the intercreditor agreement. Under the intercreditor agreement, subject to
certain standstill periods, the holders of the notes may foreclose on the
collateral prior to the lenders under the senior secured revolving credit
facility and any other first-priority lien secured indebtedness, provided that
the purchaser at the foreclosure sale, including the holders of the notes, if
applicable, is required to concurrently pay all obligations under the senior
secured revolving credit facility and any other first-priority lien secured
indebtedness in full. Funds may not be available to the holders of the notes at
that time to pay the amounts due under the senior secured revolving credit
facility and any other first-priority lien secured indebtedness. In addition,
any release of the first-priority liens upon any collateral approved by the
holders of the first-priority liens also will release the second-priority liens
securing the notes on the same collateral; provided, that after giving effect to
such release, the aggregate book value of all of the assets released does not
exceed 10% of our total combined assets as of the date of issuance of the
private notes. Additional releases of collateral from the second-priority lien
securing the notes are permitted under some circumstances.
THE NOTES ARE EFFECTIVELY SUBORDINATED TO THE INDEBTEDNESS OF OUR SUBSIDIARIES
THAT DO NOT GUARANTEE THE NOTES.
The notes will also be effectively subordinated to any of our indebtedness
secured by assets other than the collateral securing the notes or the note
guarantees, to the extent of these assets, and to indebtedness of any of our
subsidiaries that are not guarantors of the notes. In the event of a bankruptcy,
liquidation or reorganization of any of our non-guarantor subsidiaries, holders
of their indebtedness and their trade creditors generally will be entitled to
payment of their claims from the assets of those subsidiaries before any assets
are made available for distribution to us. All of our subsidiaries are
guarantors other than Jetset Tours, LLC. In addition, the indenture allows us to
form new subsidiaries and those subsidiaries will be permitted to incur debt and
may not be required to become guarantors.
17
WE ARE A HOLDING COMPANY AND WILL DEPEND ON THE BUSINESS OF OUR SUBSIDIARIES TO
SATISFY OUR OBLIGATIONS UNDER THE NOTES.
We are a holding company and our assets consist solely of investments in
our subsidiaries. We conduct substantially all our operations and own
substantially all our assets through our subsidiaries. Consequently, our cash
flow and our ability to meet our debt service obligations depend on the cash
flow of our subsidiaries and the payment of funds to us by our subsidiaries in
the form of loans, dividends or otherwise.
The operating results of our subsidiaries may not be sufficient to make
distributions to us. In addition, our subsidiaries are not obligated to make
funds available to us for payment on the notes or otherwise, and distributions
and intercompany transfers from our subsidiaries to us may be restricted by
applicable law or covenants contained in debt agreements and other agreements to
which these subsidiaries may be subject or enter into in the future. To the
degree any such distributions and transfers are impaired or prohibited, our
ability to make payments on the notes will be harmed.
YOUR INTEREST IN THE COLLATERAL MAY BE ADVERSELY AFFECTED BY THE FAILURE TO
RECORD OR PERFECT SECURITY INTERESTS IN CERTAIN COLLATERAL.
The collateral securing the notes and the note guarantees consists of
certain assets and properties of ours and our subsidiaries which guarantee the
notes whether now owned or acquired or owned or acquired in the future. Under
applicable law, a security interest in certain property and rights acquired
after the initial grant of a general security interest can only be perfected at
the time that property and rights are acquired and identified. Although the
indenture and the collateral documents contain customary covenants requiring us
and our subsidiaries which will guarantee the notes to grant security interests
in the future, the trustee will not monitor the future acquisition of property
and rights that constitute collateral, or independently take any action to
perfect the security interest in that acquired collateral. Our failure to comply
with these covenants regarding future security interests may result in a default
under the indenture and neither the notes nor the note guarantees would be
secured by such future assets.
THERE ARE CERTAIN LIENS, RESTRICTIONS AND EXCEPTIONS TO THE TITLE OF OUR REAL
PROPERTY THAT WILL HAVE PRIORITY OVER THE LIENS THAT WILL BE GRANTED UNDER THE
DEEDS OF TRUST IN FAVOR OF THE TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF THE
NOTES, WHICH MAY NOT BE BENEFICIAL FOR THE HOLDERS OF THE NOTES.
The Stratosphere Corporation and certain of our affiliates are currently
involved in a lawsuit with two contractors who have filed mechanics' liens and
commenced a foreclosure action against real property held by the Stratosphere
Corporation. The lawsuit arises out of certain improvements of the Stratosphere
Corporation and commenced in December 2001. Nevada law provides contractors,
subcontractors and materials suppliers with a lien on the real property being
improved by their services or supplies in order to secure their right to be
paid. Such parties may foreclose on their liens if they are not paid in full. In
connection with the lawsuit, certain mechanics' liens have been recorded by the
two contractors against the title to the Stratosphere Corporation's real
property and a foreclosure on the liens has been commenced. Accordingly, these
mechanics' liens will have priority over the lien of the deed of trust that has
been granted by the Stratosphere Corporation in favor of the trustee for the
benefit of the holders of the notes. The title insurance that we obtained for
the trustee for the benefit of the holders of the notes will not provide
coverage for the mechanics' liens that are the subject of the lawsuit. Although
the Stratosphere Corporation and our other affiliates that are defendants in the
lawsuit intend to vigorously defend the action and have segregated approximately
$450,000 in a separate interest bearing account to pay amounts that may be owing
to the contractors, they may not prevail with respect to the claims brought by
the contractors.
18
In addition, the title insurance that we obtained for the trustee for the
benefit of the holders of the notes for the real property owned by the
guarantors contains exceptions to title relating to certain documents currently
in the public record that may limit our ability to construct improvements on
certain real property and may require us in the future to construct certain
off-site improvements, such as a bridge, drainage, curbs, sidewalks and gutters.
The title insurance that we obtained for the trustee for the benefit of the
holders of the notes does not provide coverage for these exceptions to title.
We have also not yet received a completed survey for the land owned by the
Stratosphere Corporation and the land owned by the Stratosphere Land
Corporation, which land secures the obligations of those guarantors under their
guarantees of the notes. This survey might show defects to the title to such
properties of which we are not yet aware. The trustee accepted title policies
for the real property of the Stratosphere Corporation and the Stratosphere Land
Corporation that contain the same exceptions that the agent on behalf of the
lenders under our senior secured revolving credit facility accepted for its
title policies for such real property with respect to any issues that may arise
out of the completed survey. The interests of the lenders under our senior
secured revolving credit facility may not be aligned with yours. However, any
determination or final approval of such exceptions by the agent on behalf of
lenders will be binding on you.
ANY ADDITIONAL GUARANTEES OR LIENS ON THE NOTE COLLATERAL PROVIDED AFTER THE
NOTES ARE ISSUED COULD BE AVOIDED AS PREFERENTIAL TRANSFERS.
We and the subsidiaries which guarantee the notes did not grant the liens
on certain of the note collateral concurrently with the issuance of the notes.
Instead, such liens were granted at a later time upon the closing of the
acquisitions. In addition, the indenture for the notes provides that certain
future restricted subsidiaries will guarantee the notes and secure their
guarantees with liens on their assets. The indenture also requires us to grant
liens on certain assets that we acquire after the notes are issued. If at the
time we or any guarantor of the notes grant any liens or provide any guarantee,
we are, or such guarantor is, insolvent or anticipates insolvency, the guarantee
or lien, as applicable, could be avoided as a preferential transfer.
THERE MAY NOT BE SUFFICIENT COLLATERAL TO PAY ALL OR ANY PORTION OF THE NOTES OR
ANY EQUALLY RANKED NOTES.
No appraisals of any collateral have been prepared. The value of the
collateral at any time will depend on market and other economic conditions,
including the availability of suitable buyers for the collateral. By their
nature, some or all of the pledged assets may be illiquid and may have no
readily ascertainable market value. The value of the assets pledged as
collateral for the notes and the guarantees of the notes could be impaired in
the future as a result of changing economic conditions, our failure to implement
our business strategy, competition or other future trends or uncertainties. In
the event of a foreclosure, liquidation, bankruptcy or similar proceeding, no
assurance can be given that the proceeds from any sale or liquidation of the
collateral will be sufficient to pay all or any of our obligations under the
notes.
THE TRUSTEE'S ABILITY TO BRING AN ACTION FOR A MONETARY JUDGMENT AS A RESULT OF
A DEFAULT UNDER THE NOTES MAY BE LIMITED BY THE APPLICATION OF NEVADA'S "ONE
ACTION RULE."
Under Nevada law, certain remedies available to the trustee that may be
provided for under the collateral documents may be limited by the application of
Nevada's "One Action Rule," codified in Nevada Revised Statutes. Generally, the
One Action Rule requires a creditor whose debt is secured by a deed of trust
encumbering the debtor's real property to first foreclose upon the deed of trust
before seeking a money judgment against the debtor. Pursuant to the Nevada
Revised Statutes, a guarantor, other
19
than a debtor under a deed of trust, may waive the provisions of the One Action
Rule but will still be entitled to assert any legal or equitable defenses
provided pursuant to the provisions of the statutes relating to foreclosure
sales and deficiency judgments, including the limiting of any deficiency
judgment to the difference between the amount owed and the fair market value of
the property should a foreclosure sale occur. Additionally, the Nevada Revised
Statutes provides that a guarantor's rights of subrogation against a debtor
under a deed of trust upon payment of the indebtedness may be waived by the
guarantor only after default. Accordingly, upon the occurrence of a default
under the indenture governing the notes, the trustee's remedies will be limited
in various respects, may require additional time to complete and may yield less
proceeds from the note collateral than would otherwise be the case.
THE TRUSTEE'S ABILITY TO REALIZE ON THE NOTE COLLATERAL THAT CONSISTS OF OUR
GAMING BUSINESS IS LIMITED BY NEVADA GAMING LAWS.
The trustee's ability to foreclose on the pledged equity and other
collateral comprising our gaming businesses is limited by applicable gaming
laws. Regulations of the gaming authorities in Nevada provide that no person may
acquire an interest in a gaming licensee or enforce a security interest in the
equity of an entity that is the holder of a gaming license or that owns stock in
such a corporation without the prior approval of the gaming authorities. As
such, neither the trustee nor any holder is permitted to operate or manage any
gaming business or assets unless that person has been licensed under applicable
law for that purpose.
Nevada gaming laws require that any person who proposes to own shares of
licensed corporations or of registered holding corporations must be found
suitable as a stockholder of such corporations by the applicable gaming
authority before acquiring ownership of those interests. Consequently, it would
be necessary for the trustee to file an application with the gaming authorities
requesting approval to enforce the security interest in any pledged equity and
obtain that approval before it may take any steps to enforce the security
interest. Additionally, the trustee must file applications with the gaming
authorities requesting approval to enforce a security interest in our gaming
assets before it may take steps to enforce the security interest. Moreover, it
would be necessary for a prospective purchaser of the pledged equity or of the
gaming assets to file the necessary applications, be investigated, and be found
suitable by the gaming authorities before acquiring the gaming assets or the
pledged equity through the foreclosure sale. These requirements may therefore
limit the number of potential bidders who would participate in any foreclosure
sale and may materially delay the sale of any pledged equity or other gaming
assets, either of which could have an adverse effect on the proceeds received
from those sales.
In addition, the trustee's ability to foreclose on and sell the collateral
will be subject to, among other things, the procedural restrictions of state
real estate law, including the One Action Rule discussed above, and the Uniform
Commercial Code.
THE INTERCREDITOR AGREEMENT WILL LIMIT THE NOTEHOLDERS' ABILITY TO CONTROL
DECISIONS REGARDING THE COLLATERAL AND TO TAKE ENFORCEMENT ACTION AND WILL LIMIT
OUR ABILITY TO PAY INTEREST AND PRINCIPAL ON THE NOTES.
The intercreditor agreement provides the holders of the notes certain
rights with respect to, among other things, the note collateral. However, the
intercreditor agreement limits certain rights of the noteholders and grants
certain other rights to other parties and thus could subject the noteholders to
certain risks. For example, the intercreditor agreement provides for a
standstill period before the trustee can exercise its remedies. And even then,
the trustee cannot complete the exercise of any of its remedies until it
provides the agent for the first-lien lenders reasonable assurances that the
exercise of remedies will result in all first-lien obligations being paid in
full. We cannot assure you that such limitations will align with the interests
of the holders of the notes.
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UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THE LENDERS UNDER THE SENIOR SECURED
REVOLVING CREDIT FACILITY OR UNDER OTHER FIRST-PRIORITY LIEN SECURED
INDEBTEDNESS MAY PETITION THE COURT TO ENFORCE THEIR SECURITY INTERESTS AND MAY
INITIATE THE EXERCISE OF OTHER REMEDIES AGAINST THE NOTE COLLATERAL.
The intercreditor agreement provides that upon the occurrence of an event
of default under the senior secured revolving credit facility, under other
first-priority lien secured indebtedness or under the indenture governing the
notes, subject to certain limitations, either the lenders under such
first-priority lien debt or the noteholders can instruct the agent for such
lenders or the trustee, as applicable, to petition the court to enforce their
security interests or may initiate the exercise of other remedies against the
note collateral. Given that the amount of loans advanced by the lenders under
the senior secured revolving credit facility or the amount advanced by lenders
under other first-priority lien secured indebtedness may be substantially
smaller than the outstanding amount of the notes, such lenders' interests may
not be aligned with yours and may have different motives or strategies to
protect their investment. As such, the lenders under the senior secured
revolving credit facility or under other first-priority lien secured
indebtedness may choose to petition the court to enforce their security
interests or may initiate the exercise of other remedies against the note
collateral at a given time even though, from your perspective, allowing us
additional time to resolve any issues or taking any other path would increase
the likelihood that your investment will be fully repaid.
WE ARE PERMITTED TO CREATE UNRESTRICTED SUBSIDIARIES, WHICH GENERALLY WILL NOT
BE SUBJECT TO ANY OF THE COVENANTS IN THE INDENTURE FOR THE NOTES AND WILL NOT
GUARANTEE THE NOTES, AND WE MAY NOT BE ABLE TO RELY ON THE CASH FLOW OR ASSETS
OF THOSE UNRESTRICTED SUBSIDIARIES TO PAY OUR INDEBTEDNESS.
We may form additional subsidiaries which may be unrestricted under the
indenture for the notes. Unrestricted subsidiaries will generally not be subject
to the covenants under the indenture for the notes, will not guarantee the notes
and their assets will not be available as security for the notes. Unrestricted
subsidiaries may enter into financing arrangements that limit their ability to
make loans or other payments to fund payments in respect of the notes.
Accordingly, we may not be able to rely on the cash flow or assets of
unrestricted subsidiaries to pay any of our indebtedness, including the notes.
NOTEHOLDERS' RIGHTS IN THE COLLATERAL MAY BE ADVERSELY AFFECTED BY BANKRUPTCY
PROCEEDINGS.
The right of the trustee to repossess and dispose of the collateral
securing the notes upon acceleration is likely to be significantly impaired by
federal bankruptcy law if bankruptcy proceedings are commenced by or against us
or our guarantors prior to or possibly even after the trustee has repossessed
and disposed of the collateral. Under the U.S. Bankruptcy Code, a secured
creditor, such as the trustee, is prohibited from repossessing its security from
a debtor in a bankruptcy case, or from disposing of security repossessed from a
debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the
debtor to continue to retain and to use collateral and the proceeds, products,
rents or profits of the collateral, even though the debtor is in default under
the applicable debt instruments, provided that the secured creditor is given
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such time as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case.
In view of the broad discretionary powers of a bankruptcy court, it is
impossible to predict how long payments under the notes could be delayed
following commencement of a bankruptcy case, whether or when the trustee would
repossess or dispose of the collateral, or whether or to what extent holders of
the notes would be compensated for any delay in payment of loss of value of the
collateral through the
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requirements of "adequate protection." Furthermore, in the event a bankruptcy
court determines that the value of the collateral is not sufficient to repay all
amounts due on the notes, the holders of the notes would have "undersecured
claims" as to the difference. Federal bankruptcy laws do not permit the payment
or accrual of interest, costs and attorneys' fees for "undersecured claims"
during the debtor's bankruptcy case. Finally, the perfection of any security
interest securing either the first-priority lien obligations, the notes or any
additional notes after the closing of the acquisitions could result in that
security interest being avoided as a preference under the U.S. Bankruptcy Code.
AS A NOTEHOLDER YOU MAY BE REQUIRED TO COMPLY WITH LICENSING, QUALIFICATION OR
OTHER REQUIREMENTS UNDER GAMING LAWS AND COULD BE REQUIRED TO DISPOSE OF THE
NOTES.
We may be required to disclose the identities of the holders of the notes
to the Nevada gaming authorities upon request. The Nevada Gaming Commission, in
its discretion, may require a holder of the notes to file an application, be
investigated and be found suitable to hold the notes. In addition, the Nevada
Gaming Commission may, in its discretion, require the holder of any debt
security of a company registered by the Nevada Gaming Commission as a
publicly-traded corporation to file an application, be investigated and be found
suitable to own such debt security.
If a record or beneficial holder of a note is required by the Nevada
Gaming Commission to be found suitable, such owner will be required to apply for
a finding of suitability within 30 days after request of such gaming authority
or within such earlier time prescribed by such gaming authority. The applicant
for a finding of suitability must pay all costs of the application and
investigation for such finding of suitability. If the Nevada Gaming Commission
determines that a person is unsuitable to own such security, then, pursuant to
the Nevada Gaming Control Act, we can be sanctioned, including the loss of our
approvals, if, without the prior approval of the Nevada Gaming Commission, we:
- pay to the unsuitable person any dividend, interest, or any
distribution whatsoever;
- recognize any voting right of the unsuitable person with respect to
such securities;
- pay the unsuitable person remuneration in any form; or
- make any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar
transaction.
Each holder of the notes will be deemed to have agreed, to the extent
permitted by law, that if the Nevada gaming authorities determines that a holder
or beneficial owner of the notes must be found suitable (whether as a result of
a foreclosure of the casino or for any other reason), and if that holder or
beneficial owner either refuses to file an application or is found unsuitable,
that holder shall, upon our request, dispose of its notes within 30 days after
receipt of our request, or earlier as may be ordered by the Nevada gaming
authorities. We will also have the right to call for the redemption of notes of
any holder at any time to prevent the loss or material impairment of a gaming
license or an application for a gaming license at a redemption price equal to:
- the lesser of (1) the cost paid by the holder or (2) the fair market
value of the notes, in each case, plus accrued and unpaid interest
and liquidated damages, if any, to the date of redemption, or
earlier as may be required by the Nevada gaming authorities or the
date of finding of unsuitability by the Nevada gaming authorities;
or
- such other lesser amount as may be ordered by the Nevada gaming
authorities.
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We will notify the trustee under the indenture in writing of any
redemption as soon as practicable. We will not be responsible for any costs or
expenses any holder may incur in connection with its application for a license,
qualification or a finding of suitability, or its compliance with any other
requirement of a gaming authority. The indenture also provides that as soon as a
gaming authority requires a holder to sell its notes, it will, to the extent
required by applicable gaming laws, have no further right:
- to exercise, directly or indirectly, any right conferred by the
notes or the indenture; or
- to receive from us any interest, dividends or any other
distributions or payments, or any remuneration in any form, relating
to the notes, except the redemption price we refer to above.
THE OWNERSHIP OF OUR PROPERTIES MAY BE IMPAIRED BY BANKRUPTCY PROCEEDINGS OF OUR
AFFILIATES.
In the event of a bankruptcy filing by one of our affiliated entities
which owned, prior to the acquisitions, either directly or indirectly, the
Stratosphere, Arizona Charlie's Boulder or Arizona Charlie's Decatur, the
transfer of any of those properties to us by our affiliates would be subject to
review under relevant federal and state fraudulent conveyance statutes. In
connection with that review, a bankruptcy court may examine our transfer of any
of the proceeds of the offering of the notes used (1) in connection with the
acquisitions, (2) to repay intercompany indebtedness of the entities we
acquired, and/or (3) to pay any cash dividend to our affiliated entities. Such
examination may be done to determine whether any such transfers constituted
reasonably equivalent value in exchange for the transfer of the respective
property. If a bankruptcy court finds that reasonably equivalent value or fair
consideration was not exchanged and that the bankrupt entity was insolvent at
the time of transfer or was rendered insolvent by the transfer, it is possible
that the court may unwind the transaction pursuant to which the transfer of the
respective property was made. If all or any of the acquisitions were undone, we
may be deprived of the ownership of some or all of the Stratosphere, Arizona
Charlie's Decatur and Arizona Charlie's Boulder.
BECAUSE A PORTION OF THE NET PROCEEDS FROM THE NOTES WAS DISTRIBUTED TO OUR
EQUITYHOLDER, A COURT COULD DEEM THE OBLIGATIONS EVIDENCED BY THE NOTES TO BE A
FRAUDULENT CONVEYANCE.
A portion of the net proceeds from the notes was distributed to our
equityholder. The incurrence of the indebtedness evidenced by the notes and the
making of the distribution are subject to review under relevant federal and
state fraudulent conveyance statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of our creditors. Under these statutes, if a court were
to find that at the time the notes were issued:
- we issued the notes with the intent to hinder, delay or defraud any
present or future creditor; or
- we did not receive fair consideration or reasonably equivalent value
for issuing the notes and, at the time we issued the notes, we:
- were insolvent or became insolvent as a result of issuing the
notes;
- were engaged or about to engage in a business or transaction
for which our remaining assets constituted unreasonably small
capital; or
- intended to incur, or believed that we would incur, debts
beyond our ability to pay those debts as they matured or
became due
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(as all of the foregoing terms are defined or interpreted under the relevant
fraudulent transfer or conveyance statutes), the court could void or subordinate
the obligations evidenced by the notes in favor of our other obligations.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the applicable jurisdiction. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they mature. We believe that, after giving effect to the notes offering and the
distribution to our equityholder of a portion of the net proceeds from the notes
offering, we were not insolvent or rendered insolvent as a result of issuing the
notes; that we were and will be in possession of sufficient capital to run our
business effectively; and we have incurred debts within our ability to pay as
the same mature or become due. There can be no assurance, however, as to what
standard a court would apply to evaluate our intent or to determine whether we
were insolvent at the time of, or rendered insolvent upon, the consummation of
the notes offering and the making of the distribution or that, regardless of the
standard, a court would not determine that we were insolvent at the time of, or
rendered insolvent upon, the consummation of the notes offering and the making
of the distribution.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets;
- if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
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- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of the notes, will not be insolvent, will not have unreasonably small
capital for the business in which it is engaged and will not have incurred debts
beyond its ability to pay such debts as they mature. We cannot assure you,
however, as to what standard a court would apply in making these determinations
or that a court would agree with our conclusions in this regard.
RISKS RELATING TO THE EXCHANGE OFFER
HOLDERS WHO FAIL TO EXCHANGE THEIR PRIVATE NOTES WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFER.
If you do not exchange your private notes for new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
private notes described in the legend on your private notes. The restrictions on
transfer of your private notes arise because we issued the private notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act of 1933 and applicable state securities laws.
In general, you may only offer or sell the private notes if they are registered
under the Securities Act and applicable state securities laws, or are offered
and sold under an exemption from these requirements. We do not plan to register
the private notes under the Securities Act.
BROKER-DEALERS OR HOLDERS OF NOTES MAY BE COME SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
Any broker-dealer that:
- exchanges its private notes in the exchange offer for the purpose of
participating in a distribution of the new notes, or
- resells new notes that were received by it for its own account in
the exchange offer,
may be deemed to have received restricted securities and may be required to
comply with the registration and prospectus delivery requirements of the
Securities Act of 1933 in connection with any resale transaction by that
broker-dealer. Any profit on the resale of the new notes and any commission or
concessions received by a broker-dealer may be deemed to be underwriting
compensation under the Securities Act. In addition to broker-dealers, any holder
of notes that exchanges its private notes in the exchange offer for the purpose
of participating in a distribution of the new notes may be deemed to have
received restricted securities and may be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction by that holder.
WE CANNOT GUARANTEE THAT THERE WILL BE A TRADING MARKET FOR THE NEW NOTES.
The new notes are a new issue of securities and currently there is no
market for them. We do not intend to apply to have the new notes listed or
quoted on any exchange or quotation system. Accordingly, we cannot assure you
that a liquid market will develop for the new notes.
The liquidity of any market for the new notes will depend on a variety of
factors, including:
- the number of holders of the new notes;
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- our performance; and
- the market for similar securities and the interest of securities
dealers in making a market in the new notes.
A liquid trading market may not develop for the new notes.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the new notes. The market, if any, for the new notes may experience
similar disruptions may adversely affect the prices at which you may sell your
new notes. If our active trading market does not develop or is not maintained,
the market price and liquidity of the new notes may be adversely affected.
To the extent private notes are tendered and accepted in the exchange
offer, the trading market, if any, for the private notes that are not so
tendered would be adversely affected.
RISKS RELATING TO OUR BUSINESS AND THE GAMING INDUSTRY
WE FACE SUBSTANTIAL COMPETITION IN THE HOTEL AND CASINO INDUSTRY.
The hotel and casino industry in general, and the markets in which we
compete in particular, are highly competitive. The Las Vegas market includes
many world class destination resorts, with numerous tourist attractions.
Numerous Las Vegas hotel-casino resorts are themselves tourist attractions. The
Stratosphere is located on the northern end of the Las Vegas Strip. However,
most of the established and newer destination hotel-casino resorts are located
in the central or southern portions of the Las Vegas Strip.
Arizona Charlie's Decatur and Arizona Charlie's Boulder compete primarily
with other Las Vegas hotels and casinos located outside of the Las Vegas Strip.
The Arizona Charlie's properties compete for local customers with other hotels
and casinos targeting this group and that are located nearby. The Arizona
Charlie's properties compete with local casinos based on a mix of casino games,
personal service, payout ratios, location, price of hotel rooms, restaurant
value and promotions.
Future visits to our properties may be negatively affected as customers
who have previously visited our properties may choose to experience other Las
Vegas casinos and hotels with greater name recognition, different attractions,
amenities and entertainment options. Our ability to expand our target market may
be limited due to the lack of meeting, convention and spa facilities at our
properties. If other hotels or casinos operate more successfully, if existing
hotels and casinos are enhanced or expanded, or if additional hotels and casinos
are established in and around the locations in which our hotels and casinos
conduct business, competition will further increase and our operating results
may suffer.
Many of our competitors have greater financial, selling and marketing,
technical and other resources than we do. We must continually attract customers
to our properties, which requires us to maintain a high level of investment in
marketing and customer service. We may not be able to compete effectively with
our competitors. We also face competition from all other types of entertainment,
recreational activities and other attractions in and near Las Vegas.
WE COMPETE WITH THE CONTINUED GROWTH OF GAMING ON NATIVE AMERICAN TRIBAL LANDS,
PARTICULARLY IN CALIFORNIA.
Many Native American tribes conduct casino gaming operations throughout
the United States.
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Other Native American tribes are either in the process of establishing, or are
considering establishing, gaming operations at additional locations, including
sites in California and Arizona. The competitive impact on Nevada gaming
establishments, including our properties, from the continued growth of gaming in
jurisdictions outside Nevada cannot be determined at this time but, depending on
the nature, location and extent of the growth of those operations, the impact
could be material. In some instances, Native American gaming facilities operate
under regulatory requirements and tax environments that are less stringent than
those imposed on state-licensed casinos, which could provide them with a
competitive advantage. Our operations could adversely be affected by the growth
of Native American gaming in California and other states. The continued growth
of Native American gaming establishments in California and other states could
reduce the number of our visitors and also our revenue.
THE EXISTENCE OF LEGALIZED GAMBLING IN OTHER JURISDICTIONS MAY REDUCE THE NUMBER
OF VISITORS TO LAS VEGAS.
Certain states have legalized, and others may legalize, casino gaming in
specific venues, including race tracks and/or in specific areas, including
metropolitan areas from which we traditionally attract customers, including Los
Angeles and San Francisco. The proliferation of gaming venues, by luring
customers close to home and away from Las Vegas, could significantly and
adversely affect our financial condition, results of operations or cash flows.
Our properties also compete and will in the future compete with all forms of
legalized gambling. These ventures could divert customers from our properties
and reduce our revenue and cash flow.
THE GAMING INDUSTRY IS HIGHLY REGULATED AND THE NEVADA GAMING AUTHORITIES AND
STATE AND MUNICIPAL LICENSING AUTHORITIES HAVE SIGNIFICANT CONTROL OVER OUR
OPERATIONS.
Our properties currently conduct licensed gaming operations in Nevada, and
various regulatory authorities, including the Nevada State Gaming Control Board
and the Nevada Gaming Commission, require our properties to hold various
licenses and registrations, findings of suitability, permits and approvals to
engage in gaming operations and to meet requirements of suitability. These
gaming authorities also control approval of ownership interests in gaming
operations. These gaming authorities may deny, limit, condition, suspend or
revoke our gaming licenses, registrations, findings of suitability or the
approval of any of our ownership interests in any of the licensed gaming
operations conducted in Nevada, any of which could have a significant adverse
effect on our business, financial condition and results of operations, for any
cause they may deem reasonable. If we violate gaming laws or regulations that
are applicable to us, we may have to pay substantial fines or forfeit assets.
If, in the future, we operate or have an ownership interest in casino gaming
facilities located outside of Nevada, we may also be subject to the gaming laws
and regulations of those other jurisdictions.
The sale of alcoholic beverages at our properties is subject to licensing
and regulation by the City of Las Vegas and Clark County, Nevada. The City of
Las Vegas and Clark County have full power to limit, condition, suspend or
revoke any such license, and any such disciplinary action may (and revocation
would) reduce the number of visitors to our casinos to the extent the
availability of alcoholic beverages is important to them. If our alcohol
licenses become in any way impaired, it would reduce the number of visitors. Any
reduction in our number of visitors will reduce our revenue and cash flow.
POTENTIAL CHANGES IN THE TAX OR REGULATORY ENVIRONMENT COULD INCREASE OUR
EXPENSES AND REDUCE OUR CASH FLOW.
If additional regulations are adopted or existing ones are modified, those
regulations could impose significant restrictions or costs that could have a
significant adverse effect on us. From time to
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time, various proposals are introduced in the federal and Nevada state and local
legislatures that, if enacted, could adversely affect the tax, regulatory,
operational or other aspects of the gaming industry and our business.
Legislation of this type may be enacted in the future. For example, pursuant to
legislation signed into law by the Governor of Nevada on July 23, 2003, the
license fees on the number of gaming devices operated and on gross revenues were
increased and the range of events covered by the former casino entertainment tax
was expanded. This expansion has been continued in a new live entertainment tax.
In October 2003, we also became subject to a state payroll tax based on the
wages we pay employees. If there is a material increase in federal, state or
local taxes and fees, our cash flow would be reduced.
We are subject to a variety of other rules and regulations, including
environmental, zoning, health and public safety, construction and land-use laws.
Any changes to these laws, rules and regulations or adoption of additional laws,
rules and regulations applicable to us could also increase our costs and reduce
our cash position.
ECONOMIC DOWNTURNS, TERRORISM AND THE UNCERTAINTY OF WAR, AS WELL AS OTHER
FACTORS AFFECTING DISCRETIONARY CONSUMER SPENDING, COULD REDUCE THE NUMBER OF
OUR VISITORS OR THE AMOUNT OF MONEY VISITORS SPEND AT OUR CASINOS.
The strength and profitability of our business depends on consumer demand
for hotel-casino resorts and gaming in general and for the type of amenities we
offer. Changes in consumer preferences or discretionary consumer spending could
harm our business.
During periods of economic contraction, our revenues may decrease while
some of our costs remain fixed, resulting in decreased earnings. This is because
the gaming and other leisure activities we offer at our properties are
discretionary expenditures, and participation in these activities may decline
during economic downturns because consumers have less disposable income. Even an
uncertain economic outlook may adversely affect consumer spending in our gaming
operations and related facilities, as consumers spend less in anticipation of a
potential economic downturn.
The terrorist attacks which occurred on September 11, 2001, the potential
for future terrorist attacks and wars in Afghanistan and Iraq have had a
negative impact on travel and leisure expenditures, including lodging, gaming
and tourism. Leisure and business travel, especially travel by air, remain
particularly susceptible to global geopolitical events. Many of the customers of
our properties travel by air, and the cost and availability of air service can
affect our business. Furthermore, insurance coverage against loss or business
interruption resulting from war and some forms of terrorism may be unavailable
or not available on terms that we consider reasonable. We cannot predict the
extent to which war, future security alerts or additional terrorist attacks may
interfere with our operations.
OUR PROPERTIES RELY EXCLUSIVELY ON THE LAS VEGAS ECONOMIC MARKET, AND CHANGES
ADVERSELY IMPACTING THAT MARKET COULD REDUCE OUR REVENUE AND CASH FLOW.
Our properties are all located in Las Vegas, Nevada and, as a result, our
business will be subject to greater risks than a more diversified gaming
company. These risks include, but are not limited to, risks related to local
economic and competitive conditions, changes in local and state governmental
laws and regulations (including changes in laws and regulations affecting gaming
operations and taxes) and natural and other disasters. Any economic downturn in
Nevada or any terrorist activities or disasters in or around Nevada could reduce
the number of visitors to our properties and the amounts spent by our visitors.
In addition, gaming industry revenues in, or leisure travel to and throughout,
Nevada or the surrounding local markets may not continue to grow at their
historical growth rates or may decline.
Our properties, particularly the Stratosphere, draw a substantial number
of customers from
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Southern California, Arizona and the Midwest. A recession or downturn in any
region constituting a significant source of customers for our properties could
result in fewer customers visiting, or customers spending less at, our
properties, which would adversely affect our results of operations.
Additionally, the one principal interstate highway between Las Vegas and
Southern California, where a large number of customers of our properties reside,
has experienced significant traffic delays during peak periods. Capacity
restraints of that highway or any other traffic disruptions may affect the
number of customers who visit our properties.
OUR PROPERTIES USE SIGNIFICANT AMOUNTS OF ELECTRICITY, NATURAL GAS AND OTHER
FORMS OF ENERGY, AND ENERGY PRICE INCREASES MAY REDUCE OUR WORKING CAPITAL.
Our properties use significant amounts of electricity, natural gas and
other forms of energy. While no shortages of energy have been experienced, any
substantial increases in the cost of electricity and natural gas in the United
States, such as those increases recently experienced in Nevada, may increase our
cost of operations, which would negatively affect our cash flow from operations.
The extent of the impact is subject to the magnitude and duration of the energy
price increases, but this impact could be material. In addition, higher energy
and gasoline prices affecting our customers may increase their cost of travel
and result in reduced visits to our properties and a reduction in our revenues.
OUR PROPERTIES USE SIGNIFICANT AMOUNTS OF WATER AND A WATER SHORTAGE MAY
ADVERSELY AFFECT OUR OPERATIONS.
The rapid population growth and continued expansion of housing and casino
development in Nevada over the last century have placed tremendous pressure on
the water supply. Nevada, which shares water rights to the Colorado River with
six other states, was apportioned its share in the early 1900s, before major
expansion and growth were anticipated. In order to meet projected demand,
alternate sources of supply will need to be located and/or captured and treated
in order to be usable. The costs associated with obtaining such alternative
sources of supply could increase our costs, which would negatively affect our
cash flow from operations.
THE LOSS OF MANAGEMENT AND OTHER KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR
BUSINESS, AND THE QUALITY OF INDIVIDUALS HIRED FOR POSITIONS IN THE HOTEL AND
GAMING OPERATIONS WILL BE CRITICAL TO THE SUCCESS OF OUR BUSINESS.
Our ability to maintain our competitive position depends to a large degree
on the efforts and skills of our senior management team. It may also be
difficult to attract, retain and train qualified employees due to the
competition for employees with other gaming companies and their facilities in
Nevada. We may not be successful in retaining our current personnel or in hiring
or retaining qualified personnel in the future. If we lose the services of any
members of our management team, or fail to attract or retain qualified
management and personnel at all levels, our business may be significantly
disrupted and impaired.
Our officers, directors and key employees also are required to file
applications with the gaming authorities in the State of Nevada, Clark County
and the City of Las Vegas, and are required to be licensed or found suitable by
these gaming authorities. If any of these gaming authorities were to find an
officer, director or key employee unsuitable for licensing or unsuitable to
continue having a relationship with us, we would have to sever all relationships
with that person. Furthermore, the gaming authorities may require us to
terminate the employment of any person who refuses to file the appropriate
applications. Either result could significantly impair our gaming operations.
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Our management team may devote a portion of their time to the management
of other gaming and entertainment properties owned by AREP or others and not
owned by us, which would divert their focus from our properties. Specifically,
Richard P. Brown serves as our President and Chief Executive Officer and Denise
Barton serves as our Chief Financial Officer. These individuals also serve as
the Chief Executive Officer and, subject to the approval of the New Jersey
Casino Control Commission, interim Chief Financial Officer, respectively, of the
parent company of the Sands in Atlantic City, New Jersey. Additionally, we are
in the process of seeking approval from the New Jersey Casino Control Commission
to provide certain additional services to the Sands, including information
technology and accounting services.
THE OPENING OF THE LAS VEGAS MONORAIL MAY DIVERT CUSTOMERS FROM OUR PROPERTIES
TO OTHER COMPETITORS WHOSE PROPERTIES ARE MORE CONVENIENTLY ACCESSED BY THE
MONORAIL SYSTEM.
The Robert N. Broadbent Las Vegas Monorail, a driverless, state-of-the-art
urban public transportation system, operates on a route approximately four miles
long along the east side of the Las Vegas Strip. It directly connects to eight
major resorts, with more than 24,000 hotel rooms, and nine convention
facilities, including the world's largest convention center. The monorail has
station stops joining the Sahara at the monorail's northern endpoint to the MGM
Grand at the monorail's southern endpoint.
The Sahara station stop on the monorail is the closest station to the
Stratosphere and will be located on the opposite side of the Las Vegas Strip
approximately a quarter mile from the Stratosphere. Visitors to the Stratosphere
depending upon the monorail to access our property are required to exit through
the Sahara hotel and casino then cross over both Las Vegas Boulevard and Sahara
Avenue, each a multi-lane boulevard, to access our facility. If visitors to Las
Vegas select the monorail as their preferred mode of transportation, the
inaccessibility of the Stratosphere from the monorail station may adversely
affect the number of visitors to our property.
AN INCREASE IN THE COST OF HEALTH CARE BENEFITS COULD HAVE A NEGATIVE IMPACT ON
OUR PROFITABILITY.
We provide health insurance to our employees, retirees and their
dependents through health maintenance organizations and preferred provider
organizations. These benefits comprise a significant portion of our operating
expenses. It is possible that healthcare costs could continue to increase,
either forcing us to make changes to our benefits program or negatively
impacting our future profitability.
WE MAY INCUR HIGHER COSTS OR WORK SLOW-DOWNS OR STOPPAGES DUE TO UNION
ACTIVITIES IN LAS VEGAS.
Our employees at the Stratosphere are currently covered by collective
bargaining agreements with unions including the Local 226 (Culinary Workers
Union), the Local 165 (Bartenders Union), the Local 501 (Operating Engineers)
and the Local 995 (Teamsters). A major work stoppage or strike affecting the
Stratosphere's employees could reduce our revenue and increase our expenses. In
addition, a strike by unions representing employees of other casinos could
adversely affect Las Vegas business and visitation levels generally by
generating negative publicity. As a result, our business may be adversely
affected if such a strike were to occur. Our employees at Arizona Charlie's
Decatur and Arizona Charlie's Boulder are not covered by collective bargaining
agreements. Most major casino resorts in Las Vegas have collective bargaining
agreements with unions. In the event that our employees at Arizona Charlie's
Decatur and Arizona Charlie's Boulder decide to organize themselves in a similar
arrangement to the Stratosphere employees, we may incur higher costs and/or
related work stoppages or slow-downs.
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OUR STOCKHOLDER AND ITS CONTROL PERSON COULD EXERCISE ITS INFLUENCE OVER US TO
YOUR DETRIMENT.
Mr. Icahn, including certain entities related to him, is actively involved
in the gaming industry and, through certain affiliates, currently owns 100% of
the general partner of AREP and AREH and over 86% of AREP's outstanding
depositary units and preferred units. As a result, he has the ability to appoint
the board of directors of API which in turn will have the power to appoint our
parent's board of directors, which will control many aspects of our operations
and affairs. Mr. Icahn is the beneficial owner, through AREP and other
affiliates, of 77.5% of the stock of GB Holdings, Inc., the sole shareholder of
Atlantic Coast Entertainment Holdings, Inc., or Atlantic Holdings, which owns
the Sands Hotel and Casino in Atlantic City, New Jersey, a gaming and
entertainment property which may directly or indirectly compete with us. Mr.
Icahn and affiliates, including AREP, own approximately 96.5% of new debt of
Atlantic Holdings. In addition, AREP or Mr. Icahn may pursue other business
opportunities in the gaming and entertainment industry and there is no
requirement that any additional business opportunities be presented to us.
The interests of AREP and of Mr. Icahn may differ from your interests as a
noteholder and, as such, they may take actions that may not be in your interest.
For example, if we encounter financial difficulties or are unable to pay our
debts as they mature, the interests of our stockholder might conflict with your
interests as a noteholder. In addition, our stockholder may have an interest in
pursuing acquisitions, divestitures, financings or other transactions that, in
its judgment, could enhance its equity investment, even though those
transactions might involve risks to you as a noteholder.
Affiliates of AREP are also engaged in real estate, including gaming and
entertainment properties, and other business activities that may compete
directly with us. Furthermore, three of our parent's directors, Messrs.
Leidesdorf, Nelson and Wasserman, are also directors of API, the general partner
of AREP, and one of our parent's directors, Keith A. Meister, is the president
and chief executive officer of API. Conflicts of interest may arise in the
future as such affiliates and we may compete for the same assets, purchasers and
sellers of assets, lessees or financings.
In addition, if Mr. Icahn were to sell, or otherwise transfer, some or all
of his interests in AREP to an unrelated party or group, a change of control
could be deemed to have occurred under the terms of the indenture governing the
notes which would require us to offer to repurchase all outstanding notes at
101% of their principal amount plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase.
WE ARE HEAVILY DEPENDENT ON THE STRATOSPHERE FOR A LARGE PERCENTAGE OF OUR
OPERATING CASH FLOW AND ARIZONA CHARLIE'S BOULDER HAS A HISTORY OF NEGATIVE
OPERATING CASH FLOW.
We derive a substantial portion of our cash flow from operations from the
Stratosphere. For the years ended December 31, 2002 and 2003, the Stratosphere's
cash flow from operations accounted for 71.4% and 65.2% of our combined cash
flow from operations. We will rely heavily on the Stratosphere's cash flow to
meet our debt service obligations.
Arizona Charlie's Boulder is a relatively new company and its operations
have generated negative cash flow from operations since inception through
December 31, 2003. For the years ended December 31, 2002 and 2003, it had
negative cash flow from operations of $3.6 million and $3.5 million. The
property may not improve its results in the future.
OUR RELIANCE ON SLOT MACHINE REVENUES AND THE CONCENTRATION OF MANUFACTURING OF
SLOT MACHINES IN CERTAIN COMPANIES COULD IMPOSE ADDITIONAL COSTS ON US.
A majority of our revenues are attributable to slot machines operated by
us at our casinos. It is important, for competitive reasons, that we offer the
most popular and up-to-date slot machine games
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with the latest technology to our customers.
We believe that a substantial majority of the slot machines sold in the
United States in 2003 were manufactured by a few companies. In addition, we
believe that one company provided a majority of all slot machines sold in the
United States in 2003.
In recent years, the prices of new slot machines have escalated faster
than the rate of inflation. Furthermore, in recent years, slot machine
manufacturers have frequently refused to sell slot machines featuring the most
popular games, instead requiring participating lease arrangements in order to
acquire the machines. Generally, a participating lease requires a payment of a
percentage of the revenues generated and is substantially more expensive over
the long-term than the cost to purchase a new machine.
For competitive reasons, we may be forced to purchase new slot machines or
enter into participating lease arrangements that are more expensive than our
current costs associated with the continued operation of our existing slot
machines. If the newer slot machines do not result in sufficient incremental
revenues to offset the increased investment and participating lease costs, it
could hurt our profitability.
WE MAY BE SUBJECT TO THE PENSION LIABILITIES OF OUR AFFILIATES.
Mr. Icahn, through certain affiliates, currently owns 100% of AREP's
general partner and over 86% of AREP's outstanding depositary units and
preferred units. AREP owns a 99% limited partner interest in AREH, which
indirectly owns 100% of American Casino & Entertainment Properties LLC.
Applicable pension and tax laws make each member of a "controlled group" of
entities, generally defined as entities in which there is at least an 80% common
ownership interest, jointly and severally liable for certain pension plan
obligations of any member of the controlled group. These pension obligations
include ongoing contributions to fund the plan, as well as liability for any
unfunded liabilities that may exist at the time the plan is terminated. In
addition, the failure to pay these pension obligations when due may result in
the creation of liens in favor of the pension plan or the Pension Benefit
Guaranty Corporation, or the PBGC, against the assets of each member of the
controlled group.
As a result of the more than 80% ownership interest in AREP by Mr. Icahn's
affiliates, AREP and its subsidiaries, including AREH and us, are subject to the
pension liabilities of all entities in which Mr. Icahn has a direct or indirect
ownership interest of at least 80%. One such entity, ACF Industries LLC, or ACF,
is the sponsor of several pension plans that are underfunded by a total of
approximately $28 million on an ongoing actuarial basis and $131 million if
those plans were terminated, as most recently reported for the 2003 plan year by
the plans' actuaries. These liabilities could increase or decrease, depending on
a number of factors, including future changes in promised benefits, investment
returns, and the assumptions used to calculate the liability. As members of the
ACF controlled group, AREP, AREH and we would be liable for any failure of ACF
to make ongoing pension contributions or to pay the unfunded liabilities upon a
termination of the ACF pension plans. In addition, other entities now or in the
future within the controlled group that includes us may have pension plan
obligations that are, or may become, underfunded and we would be liable for any
failure of such entities to make ongoing pension contributions or to pay the
unfunded liabilities upon a termination of such plans.
The current underfunded status of the ACF pension plans requires ACF to
notify the PBGC of certain "reportable events," such as if AREP, AREH or we
cease to be a member of the ACF controlled group, or if AREP, AREH or we make
certain extraordinary dividends or stock redemptions. The obligation to report
could cause us to seek to delay or reconsider the occurrence of such reportable
events.
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Starfire, which is 100% owned by Mr. Icahn, has undertaken to indemnify us
and our subsidiaries from losses resulting from any imposition of pension
funding or termination liabilities that may be imposed on us and our
subsidiaries or our assets as result of being a member of the Ichan controlled
group. The Starfire indemnity provides, among other things, that so long as such
contingent liabilities exist and could be imposed on us, Starfire will not make
any distributions to is stockholders that would reduce its net worth to below
$250 million. Nonetheless, Starfire may not be able to fund its indemnification
obligations to us.
OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO COVER ALL POSSIBLE LOSSES THAT THE
STRATOSPHERE, ARIZONA CHARLIE'S DECATUR AND ARIZONA CHARLIE'S BOULDER COULD
SUFFER. IN ADDITION, OUR INSURANCE COSTS MAY INCREASE AND WE MAY NOT BE ABLE TO
OBTAIN THE SAME INSURANCE COVERAGE IN THE FUTURE.
Our insurance coverage may not be adequate to cover a catastrophic loss at
our three locations, the Stratosphere, Arizona Charlie's Decatur and Arizona
Charlie's Boulder. In addition, our insurance costs may increase and we may not
be able to obtain the same insurance coverage in the future. The September 11,
2001 terrorist attacks have substantially affected the availability of insurance
coverage for certain types of damages or occurrences. In addition, insurance
premiums have increased on available coverage. We last renewed our property and
casualty insurance policies on April 25, 2004. We were able to renew insurance
coverage with a decrease in premium. Our current insurance policies include
coverage with respect to occurrences of terrorist acts and any losses that could
result from these acts in all levels of our coverages.
If there is a catastrophic act of terrorism that affects the Stratosphere,
Arizona Charlie's Decatur and/or Arizona Charlie's Boulder, there may not be
sufficient insurance proceeds to cover the costs of restoring the note
collateral. Therefore, we could be exposed to heavy losses in the event that any
damages occur, directly or indirectly, as a result of terrorist acts that do not
qualify by definition of the Terrorism Risk Insurance Act of 2002.
In addition to the damage caused to our property by a casualty loss,
including fire, natural disasters, acts of war or terrorism, we may suffer
disruption of our business in such event or be subject to claims by third
parties injured or harmed. While we carry business interruption insurance and
general liability insurance, such insurance may not be adequate to cover all
losses.
Our current insurance policies terminate in April 2005. The cost of
coverage is expected to increase significantly for substantially similar
coverage for the upcoming policy year. Premiums can be adjusted as a function of
change in limits or definition of assets to be covered.
FORWARD-LOOKING STATEMENTS
Some statements in this prospectus are known as "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements may relate to, among other things, future
performance generally, business development activities, future capital
expenditures, financing sources and availability and the effects of regulation
and competition.
When we use the words "believe," "intend," "expect," "may," "will,"
"should," "anticipate," "could," "estimate," "plan," "predict," "project," or
their negatives, or other similar expressions, the statements which include
those words are usually forward-looking statements. When we describe strategy
that involves risks or uncertainties, we are making forward-looking statements.
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We warn you that forward-looking statements are only predictions. Actual
events or results may differ as a result of risks that we face, including those
set forth in the section of this prospectus called "Risk Factors." Those risks
are representative of factors that could affect the outcome of the
forward-looking statements. These and the other factors discussed elsewhere in
this prospectus are not necessarily all of the important factors that could
cause our results to differ materially from those expressed in our
forward-looking statements. Forward-looking statements speak only as of the date
they were made and we undertake no obligation to update them.
INDUSTRY DATA
We refer to market and industry data throughout this prospectus that we
have obtained from publicly available information and industry publications and
other data that is based on the good faith estimates of our management, which
estimates are based upon their review of internal surveys, independent industry
publications and other publicly available information. Although we believe that
these sources are reliable, we have not verified the accuracy or completeness of
this information. We are not aware of any misstatements regarding the market and
industry data presented in this prospectus, however, our estimates involve risks
and uncertainties and are subject to change based on various factors, including
those discussed under the heading "Risk Factors."
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USE OF PROCEEDS
We will not receive any proceeds from the exchange of the new notes for
the private notes pursuant to the exchange offer. On January 29, 2004, we issued
and sold the old notes in a private placement, receiving net proceeds of
approximately $205.6 million, after deducting selling and offering expenses. The
net proceeds of the offering of the private notes were used to finance the
purchase price for the acquisitions, to repay intercompany indebtedness, to fund
distributions to our parent, American Entertainment Properties Corp., and to pay
fees and expenses of the notes offering.
35
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the private notes, we and the initial
purchaser of the private notes entered into a registration rights agreement in
which we and the note guarantors agreed to:
- file a registration statement with the Securities and Exchange
Commission with respect to the exchange of the private notes for new
notes, or the exchange offer registration statement, no later than
90 days after the date of our acquisition, or the acquisition date,
of Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's
Boulder, which occurred on May 26, 2004;
- use all commercially reasonable efforts to have the exchange offer
registration statement declared effective by the SEC on or prior to
180 days after the acquisition date; and
- commence the offer to exchange new notes for the private notes and
use all commercially reasonable efforts to issue on or prior to 30
business days, or longer if required by the federal securities laws,
after the date on which the exchange offer registration statement
was declared effective by the SEC, new notes in exchange for all
private notes tendered prior to that date in the exchange offer.
We are making the exchange offer to satisfy certain of our obligations
under the registration rights agreement. We filed a copy of the registration
rights agreement as an exhibit to the exchange offer registration statement.
RESALE OF NEW NOTES
Under existing interpretations of the Securities Act of 1933 by the staff
of the SEC contained in several no-action letters to third parties, we believe
that the new notes will generally be freely transferable by holders who have
validly participated in the exchange offer without further registration under
the Securities Act of 1933 (assuming the truth of certain representations
required to be made by each holder of notes, as set forth below). For additional
information on the staff's position, we refer you to the following no-action
letters: Exxon Capital Holdings Corporation, available April 13, 1988; Morgan
Stanley & Co. Incorporated, available June 5, 1991; and Shearman & Sterling,
available July 2, 1993. However, any purchaser of private notes who is one of
our "affiliates" or who intends to participate in the exchange offer for the
purpose of distributing the new notes or who is a broker-dealer who purchased
private notes from us to resell pursuant to Rule 144A or any other available
exemption under the Securities Act of 1933:
- will not be able to tender its private notes in the exchange offer;
- will not be able to rely on the interpretations of the staff of the
SEC; and
- must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with any
sale or transfer of the private notes unless such sale or transfer
is made pursuant to an exemption from these requirements.
If you wish to exchange private notes for new notes in the exchange offer,
you will be required to make representations in a letter of transmittal which
accompanies this prospectus, including that:
36
- you are not our "affiliate" (as defined in Rule 405 under the
Securities Act of 1933);
- any new notes to be received by you will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person to
participate in the distribution of the new notes in violation of the
provisions of the Securities Act of 1933;
- if you are not a broker-dealer, you are not engaged in, and do not
intend to engage in, a distribution of new notes; and
- if you are a broker-dealer, you acquired the private notes for your
own account as a result of market-making or other trading activities
(and as such, you are a "participating broker-dealer"), you have not
entered into any arrangement or understanding with American Casino &
Entertainment Properties LLC or an affiliate of American Casino &
Entertainment Properties LLC to distribute the new notes and you
will deliver a prospectus meeting the requirements of the Securities
Act of 1933 in connection with any resale of the new notes.
Rule 405 under the Securities Act of 1933 provides that an "affiliate" of,
or person "affiliated" with, a specified person, is a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with the person specified.
The SEC has taken the position that participating broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and accordingly may fulfill their prospectus delivery requirements with respect
to the new notes, other than a resale of an unsold allotment from the original
sale of the notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement, we have agreed
to use commercially reasonable efforts to allow participating broker-dealers and
other persons, if any, subject to similar prospectus delivery requirements, to
use the prospectus contained in the exchange offer registration statement in
connection with the resale of the new notes for a period of 270 days from the
issuance of the new notes.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal, we will accept for exchange all private notes which are properly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
expiration date. After authentication of the new notes by the trustee or an
authentication agent, we will issue and deliver $1,000 principal amount of new
notes in exchange for each $1,000 principal amount of outstanding private notes
accepted in the exchange offer. Holders may tender some or all of their private
notes in the exchange offer in denominations of $1,000 and integral multiples
thereof.
The form and terms of the new notes are identical in all material respects
to the form and terms of the private notes, except that:
(1) the offering of the new notes has been registered under the
Securities Act of 1933;
(2) the new notes generally will not be subject to transfer restrictions
or have registration rights; and
(3) certain provisions relating to liquidated damages on the private
notes provided for under certain circumstances will be eliminated.
37
The new notes will evidence the same debt as the private notes. The new
notes will be issued under and entitled to the benefits of the indenture.
As of the date of this prospectus, $215 million aggregate principal amount
of the private notes is outstanding. In connection with the issuance of the
private notes, we made arrangements for the private notes to be issued and
transferable in book-entry form through the facilities of the Depository Trust
Company acting as a depositary. The new notes will also be issuable and
transferable in book-entry form through the Depository Trust Company.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of private notes being tendered. However, our obligation to accept
private notes for exchange pursuant to the exchange offer is subject to certain
customary conditions that we describe under "-- Conditions" below.
Holders who tender private notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
private notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "-- Solicitation of Tenders; Fees and Expenses" for more detailed
information regarding the expenses of the exchange offer.
By executing or otherwise becoming bound by the letter of transmittal, you
will be making the representations described under "--Procedures for Tendering"
below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" will mean 5:00 p.m., New York City time, on
________, 2004, unless we, in our sole discretion, extend the exchange offer, in
which case the term "expiration date" will mean the latest date and time to
which we extend the exchange offer.
To extend the exchange offer, we will:
- notify the exchange agent of any extension orally or in writing; and
- notify the registered holders of the private notes by means of a
press release or other public announcement, each before 9:00 a.m.,
New York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our reasonable discretion:
- to delay accepting any private notes;
- to extend the exchange offer; or
- if any conditions listed below under "--Conditions" are not
satisfied, to terminate the exchange offer by giving oral or written
notice of the delay, extension or termination to the exchange agent.
We will follow any delay in acceptance, extension or termination as
promptly as practicable by oral or written notice to the registered holders. If
we amend the exchange offer in a manner we determine constitutes a material
change, we will promptly disclose the amendment in a prospectus supplement that
we will distribute to the registered holders.
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INTEREST ON THE NEW NOTES
Interest on the new notes will accrue from the last interest payment date
on which interest was paid on the private notes surrendered in exchange for new
notes or, if no interest has been paid on the private notes, from the issue date
of the private notes, January 29, 2004. Interest on the new notes will be
payable semi-annually on February 1 and August 1 of each year, commencing on the
first such date following the completion of the exchange offer.
PROCEDURES FOR TENDERING
You may tender your private notes in the exchange offer only if you are a
registered holder of private notes. To tender in the exchange offer, you must:
- complete, sign and date the letter of transmittal or a facsimile of
the letter of transmittal;
- have the signatures thereof guaranteed if required by the letter of
transmittal; and
- mail or otherwise deliver the letter of transmittal or such
facsimile to the exchange agent, at the address listed below under "
-- Exchange Agent" for receipt prior to the expiration date.
In addition, either:
- the exchange agent must receive certificates for the private notes
along with the letter of transmittal into its account at the
Depository Trust Company pursuant to the procedure described under "
-- Book-Entry Transfer" before the expiration date;
- the exchange agent must receive a timely confirmation of a
book-entry transfer, if the procedure is available, into its account
at the Depository Trust Company pursuant to the procedure described
under " -- Book-Entry Transfer" before the expiration date; or
- you must comply with the procedures described under "Guaranteed
Delivery Procedures."
Your tender, if not withdrawn before the expiration date, will constitute
an agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
The method of delivery of private notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
We recommend that, instead of delivery by mail, you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to ensure
delivery to the exchange agent prior to the expiration date. You should not send
letters of transmittal or private notes to us. You may request that your
respective brokers, dealers, commercial banks, trust companies or nominees
effect the transactions described above for you.
If you are a beneficial owner whose private notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your private notes, you should contact such registered holder
promptly and instruct such registered holder to tender on your behalf. If you
wish to tender on your own behalf, prior to completing and executing the letter
of transmittal and delivering your private notes, you must either:
- make appropriate arrangements to register ownership of your private
notes in your name; or
39
- obtain a properly completed bond power from the registered holder.
The transfer of record ownership may take considerable time unless private
notes are tendered
- by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instruction" on
the letter of transmittal; or
- for the account of an "Eligible Institution" which is either:
- a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc.;
- a commercial bank or trust company located or having an office
or correspondent in the United States; or
- otherwise an "eligible guarantor institution" within meaning
of Rule 17Ad-15 under the Securities Exchange Act of 1934,
an Eligible Institution must guarantee the signatures on a letter of transmittal
or a notice of withdrawal described below under " -- Withdrawal of Tenders."
If the letter of transmittal is signed by a person other than the
registered holder, such private notes must be endorsed or accompanied by
appropriate bond powers which authorize such person to tender the private notes
on behalf of the registered holder, in either case signed as the name of the
registered holder or holders appears on the private notes.
If the letter of transmittal or any private notes or bond powers are
signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by us, they must submit evidence satisfactory to us of their
authority to so act with the letter of transmittal.
The letter of transmittal will include representations to us as set forth
under "Resale of Exchange Notes."
You should note that:
- All questions as to the validity, form, eligibility, including time
of receipt, acceptance and withdrawal of the tendered private notes
will be determined by us in our sole discretion, which determination
will be final and binding;
- We reserve the absolute right to reject any and all private notes
not properly tendered or any private notes the acceptance of which
would, in our judgment or the judgment of our counsel, be unlawful;
- We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular private notes. Our
interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of private notes must be
cured within such time as we shall determine;
- Although we intend to notify holders of defects or irregularities
with respect to any tender of
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private notes, neither we, the exchange agent nor any other person
shall be under any duty to give notification of any defect or
irregularity with respect to tenders of private notes, nor shall any
of them incur any liability for failure to give such notification;
and
- Tenders of private notes will not be deemed to have been made until
such irregularities have been cured or waived. Any private notes
received by the exchange agent that we determine are not properly
tendered or the tender of which is otherwise rejected by us and as
to which the defects or irregularities have not been cured or waived
by us will be returned by the exchange agent to the tendering holder
unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
BOOK-ENTRY TRANSFER
The exchange agent will make a request promptly after the date of this
prospectus to establish accounts with respect to the private notes at the
Depository Trust Company for the purpose of facilitating the exchange offer. Any
financial institution that is a participant in the Depository Trust Company's
system may make book-entry delivery of private notes by causing the Depository
Trust Company to transfer such private notes into the exchange agent's account
with respect to the private notes in accordance with the Depository Trust
Company's Automated Tender Offer Program procedures for such transfer. However,
the exchange for the private notes so tendered will only be made after timely
confirmation of such book-entry transfer of private notes into the exchange
agent's account, and timely receipt by the exchange agent of an agent's message
and any other documents required by the letter of transmittal. The term "agent's
message" means a message, transmitted by the Depository Trust Company and
received by the exchange agent and forming a part of the confirmation of a
book-entry transfer, which states that the Depository Trust Company has received
an express acknowledgment from a participant that is tendering private notes
that such participant has received the letter of transmittal and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against the participant.
Although delivery of private notes may be effected through book-entry
transfer into the exchange agent's account at the Depository Trust Company, you
must transmit and the exchange agent must receive, the letter of transmittal (or
facsimile thereof) properly completed and duly executed with any required
signature guarantee and all other required documents prior to the expiration
date, or you must comply with the guaranteed delivery procedures described
below. Delivery of documents to the Depository Trust Company does not constitute
delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your private notes but your private notes are not
immediately available, or time will not permit your private notes or other
required documents to reach the exchange agent before the expiration date, or
the procedure for book-entry transfer cannot be completed on a timely basis, you
may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed notice
of guaranteed delivery, by facsimile transmittal, mail or hand
delivery
- stating the name and address of the holder, the certificate
number or numbers of such holder's private notes and the
principal amount of such private notes tendered;
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- stating that the tender is being made thereby; and
- guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of
transmittal, or a facsimile thereof, together with the
certificate(s) representing the private notes to be tendered
in proper form for transfer, or confirmation of a book-entry
transfer into the exchange agent's account at the Depository
Trust Company of private notes delivered electronically, and
any other documents required by the letter of transmittal,
will be deposited by the Eligible Institution with the
exchange agent; and
(3) such properly completed and executed letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing all
tendered private notes in proper form for transfer, or confirmation
of a book-entry transfer into the exchange agent's account at the
Depository Trust Company of private notes delivered electronically
and all other documents required by the letter of transmittal are
received by the exchange agent within three New York Stock Exchange
trading days after the expiration date.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your private notes according to the guaranteed
delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of private notes at any time prior to the expiration date.
For a withdrawal to be effective, the exchange agent must receive a
written or facsimile transmission notice of withdrawal at its address set forth
this prospectus prior to the expiration date. Any such notice of withdrawal
must:
- specify the name of the person who deposited the private notes to be
withdrawn;
- identify the private notes to be withdrawn, including the
certificate number or number and principal amount of such private
notes or, in the case of private notes transferred by book-entry
transfer, the name and number of the account at the Depository Trust
Company to be credited; and
- be signed in the same manner as the original signature on the letter
of transmittal by which such private notes were tendered, including
any required signature guarantee.
We will determine in our sole discretion all questions as to the validity,
form and eligibility, including time of receipt, of such withdrawal notices, and
our determination shall be final and binding on all parties. We will not deem
any properly withdrawn private notes to have been validly tendered for purposes
of the exchange offer, and we will not issue new notes with respect those
private notes unless you validly retender the withdrawn private notes. You may
retender properly withdrawn private notes following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
expiration date.
42
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the new notes for, any private
notes, and may terminate the exchange offer as provided in this prospectus
before the acceptance of the private notes, if:
- the exchange offer violates applicable law, rules or regulations or
an applicable interpretation of the staff of the SEC;
- an action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair
our or any guarantor's ability to proceed with the exchange offer;
- there has been proposed, adopted or enacted any law, rule or
regulation that, in our reasonable judgment, would impair materially
our ability to consummate the exchange offer; or
- all governmental approvals which we deem necessary for the
completion of the exchange offer have not been obtained.
If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may:
- refuse to accept any private notes and return all tendered private
notes to you;
- extend the exchange offer and retain all private notes tendered
before the exchange offer expires, subject, however, to your rights
to withdraw the private notes; or
- waive the unsatisfied conditions with respect to the exchange offer
and accept all properly tendered private notes that have not been
withdrawn.
If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the private notes.
EXCHANGE AGENT
We have appointed Wilmington Trust Company, as exchange agent for the
exchange offer. You should send all executed letters of transmittal to the
exchange agent at one of the addresses set forth below. In such capacity, the
exchange agent has no fiduciary duties and will be acting solely on the basis of
directions of our company. You should direct questions, requests for assistance
and requests for additional copies of this prospectus or of the letter of
transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
BY CERTIFIED OR REGISTERED MAIL:
Wilmington Trust Company
DC-1626 Processing Unit
P.O. Box 8861
Wilmington, DE 19899-8861
43
BY OVERNIGHT COURIER OR HAND DELIVERY:
Wilmington Trust Company
Corporate Capital Markets
1100 North Market Street
Wilmington, DE 19890-1626
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
(302) 636-4145
CONFIRM BY TELEPHONE:
(302) 636-6470
Delivery to an address or facsimile number other than those listed above
will not constitute a valid delivery.
The trustee does not assume any responsibility for and makes no
representation as to the validity or adequacy of this prospectus or the notes.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We will pay all expenses of soliciting tenders pursuant to the exchange
offer. We are making the principal solicitation by mail. Our officers and
regular employees may make additional solicitations in person or by telephone or
telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
therewith.
We also may pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the private notes and in handling or forwarding tenders for
exchange.
We will pay the expenses to be incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee and
accounting and legal fees and printing costs.
We will pay all transfer taxes, if any, applicable to the exchange of
private notes for new notes pursuant to the exchange offer. If, however,
certificates representing new notes or private notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the private notes tendered, or if tendered private notes are registered in
the name of any person other than the person signing the letter of transmittal,
or if a transfer tax is imposed for any reason other than the exchange of
private notes pursuant to the exchange offer, then the amount of any such
transfer taxes, whether imposed on the registered holder or any other persons,
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of such transfer taxes will be billed by us directly to
such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. We urge you to consult
your financial and tax
44
advisors in making your decisions on what action to take. Private notes that are
not exchanged for new notes pursuant to the exchange offer will remain
restricted securities. Accordingly, those private notes may be resold only:
- to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of
Rule 144A under the Securities Act of 1933;
- in a transaction meeting the requirements of Rule 144 under the
Securities Act of 1933;
- outside the United States to a foreign person in a transaction
meeting the requirements of Rule 903 or 904 of Regulation S under
the Securities Act of 1933;
- in accordance with another exemption from the registration
requirements of the Securities Act of 1933 and based upon an opinion
of counsel if we so request;
- to us; or
- pursuant to an effective registration statement.
In each case, the private notes may be resold only in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
45
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected historical consolidated
financial data of American Casino & Entertainment Properties (see note 1 to the
consolidated financial statements), which you should read in conjunction with
the financial statements and the related notes contained in this prospectus and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." On May 26, 2004, we completed the purchase of Charlie's Holding LLC,
a newly formed entity that acquired Arizona Charlie's Decatur and Arizona
Charlie's Boulder from Mr. Icahn and Starfire Holding Corporation, which is
wholly-owned by Mr. Icahn. Additionally, on that date, AREH contributed to us
100% of the capital stock of Stratosphere Corporation. These transactions
represent a merger of entities under the common control of Carl C. Icahn.
Accordingly, the historical cost basis of the underlying net assets was retained
in the combination for all dates prior to May 26, 2004. Our financial statements
for periods preceding the acquisitions were presented on a combined basis. As a
result of obtaining the formal approval from the Nevada gaming authorities, the
legal presentation now requires consolidation. Accordingly, our financial
statements for all periods (including for periods preceding the acquisitions)
are referred to as consolidated. The selected historical consolidated financial
data as of December 31, 2001, 2002 and 2003, and for the years ended December
31, 2000, 2001, 2002 and 2003, have each been derived from our audited
consolidated financial statements at those dates and for those periods,
contained elsewhere in this prospectus. The selected historical consolidated
financial data (1) as of December 31, 1999, (2) for the year ended December 31,
1999, and (3) as of June 30, 2004 and for the six months ended June 30, 2003 and
2004 are unaudited. For the six month periods ended June 30, 2003 and 2004, all
adjustments, consisting only of normal recurring adjustments, which are, in our
opinion, necessary for a fair presentation of the interim consolidated financial
statements, have been included. Results for the six months ended June 30, 2004
are not necessarily indicative of the results for the full year.
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1999 2000 2001 2002 2003 2003 2004
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
INCOME STATEMENT DATA:
Revenues:
Casino............................... $ 90,679 $ 122,755 $ 142,919 $ 143,057 $ 147,888 $ 73,998 $ 82,391
Hotel................................ 27,041 31,801 38,326 44,263 47,259 23,572 27,723
Food and beverage.................... 43,762 53,477 55,453 56,349 59,583 29,847 33,420
Tower, retail and other income....... 28,144 31,622 29,512 28,247 30,336 14,540 16,580
---------- ---------- ---------- ---------- --------- --------- ----------
Gross revenues...................... 189,626 239,655 266,210 271,916 285,066 141,957 160,114
Less promotional allowances.......... 15,328 19,587 23,737 21,893 22,255 11,404 11,745
---------- ---------- ---------- ---------- --------- --------- ----------
Net revenues........................ 174,298 220,068 242,473 250,023 262,811 130,553 148,369
---------- ---------- ---------- ---------- --------- --------- ----------
Costs and expenses:
Casino............................... 41,914 60,400 60,026 59,879 61,284 30,620 31,182
Hotel................................ 15,016 14,013 17,190 20,142 22,074 10,565 11,536
Food and beverage.................... 36,451 42,571 42,806 43,393 44,990 22,133 23,664
Tower, retail and other operations... 11,964 14,977 15,640 14,934 14,008 7,291 6,566
Selling, general and administrative.. 47,851 63,890 78,692 80,019 74,985 37,787 37,327
Depreciation and amortization........ 10,545 13,106 17,209 20,209 20,222 10,272 12,314
---------- ---------- ---------- ---------- --------- --------- ----------
Total costs and expenses............ 163,741 208,957 231,563 238,576 237,563 118,668 122,589
---------- ---------- ---------- ---------- --------- --------- ----------
Income from operations................. 10,557 11,111 10,910 11,447 25,248 11,885 25,780
---------- ---------- ---------- ---------- --------- --------- ----------
Other income (expense):
Interest income...................... 790 1,968 1,640 667 426 270 955
Interest expense..................... (2,339) (3,294) (5,971) (5,990) (5,389) (2,755) (9,747)
Gain (loss) on disposal of assets.... (12) (4) 23 (354) (1,401) 85 144
---------- ---------- ---------- ----------- --------- --------- ----------
Total other income (expense)........ (1,561) (1,330) (4,308) (5,677) (6,364) (2,400) (8,648)
---------- ---------- ---------- ---------- --------- ---------- ----------
Income before income taxes............. 8,996 9,781 6,602 5,770 18,884 9,485 17,132
Provision for income taxes............. 2,789 5,445 4,908 4,907 (1,798) 4,394 5,944
---------- ---------- ---------- ---------- --------- --------- ----------
46
Net income............................. $ 6,207 $ 4,336 $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188
========== ========== ========== ========== ========= ========= ==========
47
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ---------------
1999 2000 2001 2002 2003 2003 2004
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
OTHER FINANCIAL DATA:
EBITDA(1) ................................ $21,102 $24,217 $28,119 $31,656 $45,470 $22,157 $38,094
EBITDA margin(2) ......................... 12.1% 11.0% 11.6% 12.7% 17.3% 17.0% 25.7%
Capital expenditures ..................... $ 7,459 $99,462 $56,019 $23,223 $33,465 $ 3,837 $ 9,925
Ratio of earnings to fixed charges(3) .... 4.4x 3.4x 1.6x 2.0x 4.4x 4.3x 2.8x
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------------------------------ --------
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents ......... $ 28,030 $ 48,357 $ 48,587 $ 59,343 $ 77,258 $ 49,231
Total assets ...................... 231,887 353,342 386,346 397,835 480,738 461,972
Total debt(4) ..................... 28,937 67,045 96,975 101,655 105,243 218,966
Stockholders' equity .............. 179,075 248,375 255,847 259,953 330,345 201,543
- ---------------
(1) EBITDA consists of net income (loss) plus (a) other income (expense) which
includes interest expense, interest income and gain (loss) on disposal of
property and equipment, (b) income tax provision (or less income tax
benefit) and (c) depreciation and amortization. EBITDA is presented as a
measure of operating and performance because we believe analysts, investors
and others frequently use it in the evaluation of companies in our industry,
in particular for the ability of a company to meet its debt service
requirements. Other companies in our industry may calculate EBITDA,
differently, particularly as it relates to non-recurring, unusual items.
EBITDA is not a measurement of financial performance under GAAP and should
not be considered as an alternative to cash flow from operating activities
or as a measure of liquidity, or as an alternative to net income or as an
indication of operating performance or any other measure of performance
derived in accordance with GAAP.
The following table provides a reconciliation of net income (computed in
accordance with GAAP) to EBITDA:
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- ----------------
1999 2000 2001 2002 2003 2003 2004
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
RECONCILIATION OF NET INCOME:
Net income.......................... $ 6,207 $ 4,336 $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188
Other (income) expense.............. 1,561 1,330 4,308 5,677 6,364 2,400 8,648
Provision for income tax............ 2,789 5,445 4,908 4,907 (1,798) 4,394 5,944
Depreciation and amortization....... 10,545 13,106 17,209 20,209 20,222 10,272 12,314
--------- --------- --------- --------- -------- -------- --------
EBITDA........................... $ 21,102 $ 24,217 $ 28,119 $ 31,656 $ 45,470 $ 22,157 $ 38,094
========= ========= ========= ========= ======== ======== ========
(2) EBITDA margin equals EBITDA divided by net revenues.
(3) For purposes of calculating this ratio, earnings consists of the sum of (a)
pretax income, (b) fixed charges and (c) amortization of capitalized
interest, less the sum of interest capitalized. Fixed charges consists of
(a) interest expensed and capitalized, (b) amortized premiums, discounts and
capitalized expenses related to indebtedness, and (c) our estimate of the
interest within rental expense.
(4) Total debt, including current portions, consists of the current and
long-term portions of capital lease obligations and notes payable, including
notes payable to related parties.
48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion contains management's discussion and analysis
of our results of operations and financial condition. On May 26, 2004, we
completed the purchase of Charlie's Holding LLC, a newly formed entity that
acquired Arizona Charlie's Decatur and Arizona Charlie's Boulder from Starfire
Holding Corporation, which is wholly-owned by Mr. Icahn, and Mr. Icahn.
Additionally, on that date, AREH contributed to us 100% of the capital stock of
Stratosphere Corporation. These transactions represent a merger of entities
under the common control of Carl C. Icahn. Accordingly, the historical cost
basis of the underlying net assets was retained in the combination for all dates
prior to May 26, 2004. Our financial statements for periods preceding the
acquisitions were presented on a combined basis. As a result of obtaining the
formal approval from the Nevada gaming authorities, the legal presentation now
requires consolidation. Accordingly, our financial statements for all periods
(including for periods preceding the acquisitions) are referred to as
consolidated. Management's discussion and analysis should be read in conjunction
with, and is qualified in its entirety by reference to, our audited financial
statements and related notes. Except for historical information, the discussions
in this section contain forward-looking statements that involve risks and
uncertainties. Future results could differ materially from those discussed below
for many reasons, including the risks described in "Risk Factors" and elsewhere
in this prospectus.
OVERVIEW
We own and operate three gaming and entertainment properties in the Las
Vegas metropolitan area. The three properties are the Stratosphere, Arizona
Charlie's Decatur and Arizona Charlie's Boulder. Each of our properties offers
customers a value-oriented experience by providing competitive odds in our
casinos, high-quality rooms in our hotels, award-winning dining facilities and,
at the Stratosphere, an offering of entertainment attractions found nowhere else
in Las Vegas.
A majority of our revenues are generated by our casino operations. Two
of our key drivers of gaming revenues are average win per slot machine per day
and average win per table game per day. In order to increase these amounts and,
therefore, our casino revenues, we seek to increase customer traffic to our
properties.
RESULTS OF OPERATIONS
The following table sets forth information derived from our
consolidated statements of income expressed as a percentage of net revenues for
the periods indicated.
CONSOLIDATED STATEMENTS OF INCOME -- PERCENTAGE OF NET REVENUES
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
Revenues:
Casino .............................................. 58.9% 57.2% 56.3% 56.7% 55.5%
Hotel ............................................... 15.8 17.7 18.0 18.0 18.7
Food and beverage ................................... 22.9 22.5 22.7 22.9 22.5
Tower, retail and other income ...................... 12.2 11.3 11.5 11.1 11.2
----- ----- ----- ----- -----
Gross revenues ................................... 109.8 108.7 108.5 108.7 107.9
Less promotional allowances ......................... 9.8 8.7 8.5 8.7 7.9
----- ----- ----- ----- -----
Net revenues ..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Casino .............................................. 24.7 23.9 23.3% 23.5% 21.0%
Hotel ............................................... 7.1 8.0 8.4 8.1 7.8
Food and beverage ................................... 17.7 17.4 17.1 16.9 15.9
Tower, retail and other operations .................. 6.5 6.0 5.3 5.6 4.4
Selling, general and administrative ................. 32.4 32.0 28.6 28.9 25.2
Depreciation and amortization ....................... 7.1 8.1 7.7 7.9 8.6
----- ----- ----- ----- -----
Total costs and expenses ......................... 95.5 95.4 90.4 90.9 82.9
----- ----- ----- ----- -----
49
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ --------------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
Income from operations ........................... 4.5 4.6 9.6 9.1 17.1
Other income (expense):
Interest income ..................................... 0.7 0.2 0.2 0.2 0.6
Interest expense .................................... (2.5) (2.4) (2.1) (2.1) (6.3)
Gain (loss) on disposal of assets ................... 0.0 (0.1) (0.5) 0.1 0.1
----- ----- ----- ----- -----
Total other income (expense) ..................... (1.8) (2.3) (2.4) (1.8) (5.6)
----- ----- ----- ----- -----
Income before income taxes ....................... 2.7 2.3 7.2 7.3 11.5
Provision for income taxes .......................... 2.0 2.0 (0.7) 3.4 4.0
----- ----- ----- ----- -----
Net income ....................................... 0.7% 0.3% 7.9% 3.9% 7.5%
===== ===== ===== ===== =====
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
PROPERTY DATA:
Stratosphere
Average number of slot machines ........... 1,476 1,505 1,459 1,478 1,411
Average win per slot machine per day ...... $ 85.37 $ 90.74 $ 91.73 $ 89.17 $ 102.32
Average number of table games ............. 46 48 50 50 48
Average win per table game per day ........ $ 984.58 $1,022.50 $1,016.50 $1,013.83 $1,157.95
Average number of hotel rooms ............. 1,994 2,444 2,444 2,444 2,444
Average daily room rate ................... $ 48.54 $ 48.28 $ 51.17 $ 51.78 $ 57.03
Average occupancy rate .................... 93.2% 89.6% 89.8% 88.1% 92.4%
Arizona Charlie's Decatur
Average number of slot machines ........... 1,620 1,590 1,539 1,562 1,511
Average win per slot machine per day ...... $ 97.85 $ 92.93 $ 105.61 $ 104.52 $ 123.76
Average number of table games ............. 19 18 14 15 15
Average win per table game per day ........ $ 595.32 $ 486.30 $ 547.78 $ 549.75 $ 605.23
Average number of hotel rooms ............. 258 258 258 258 258
Average daily room rate ................... $ 45.29 $ 43.91 $ 43.17 $ 42.99 $ 49.55
Average occupancy rate .................... 77.3% 74.4% 85.3% 85.0% 90.8%
Arizona Charlie's Boulder
Average number of slot machines ........... 797 812 838 839 844
Average win per slot machine per day ...... $ 61.96 $ 65.53 $ 79.16 $ 76.95 $ 106.22
Average number of table games ............. 13 12 13 13 14
Average win per table game per day ........ $ 472.21 $ 468.20 $ 441.77 $ 463.22 $ 452.71
Average number of hotel rooms ............. 303 303 303 303 303
Average daily room rate ................... $ 39.51 $ 42.97 $ 43.32 $ 42.25 $ 48.44
Average occupancy rate .................... 59.3% 55.2% 55.7% 51.8% 62.8%
50
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
Gross revenues for the six months ended June 30, 2004 were $160.1
million, an increase of $18.2 million, or 12.8% over the six months ended June
30, 2003. Gross revenues at the Stratosphere Casino Hotel & Tower for the six
months ended June 30, 2004 were $97.7 million, or 61.0% of gross revenues, an
increase of $9.5 million, or 10.7% over the six months ended June 30, 2003.
Promotional allowances at the Stratosphere decreased 8.5% resulting in an
increase in net revenues of $10.0 million or 12.3%. Gross revenues at Arizona
Charlie's Decatur for the six months ended June 30, 2004 were $40.9 million, or
25.5% of gross revenues, an increase of $4.0 million, or 10.9%, as compared to
the prior year. This increase was primarily due to an increase in casino
revenues for the six months ended June 30, 2004 compared to the six months ended
June 30, 2003. Gross revenues at Arizona Charlie's Boulder for the six months
ended June 30, 2004 were $21.6 million, or 13.5% of gross revenues, an increase
of $4.6 million, or 27.5% over the prior period. This increase was primarily due
to an increase in slot revenues.
CASINO REVENUES
Casino revenues during the six months ended June 30, 2004 totaled $82.4
million, or 51.5% of total revenues. This is an increase of $8.4 million, or
11.3%, as compared to the six months ended June 30, 2003. Slot machine revenues
were $66.3 million, or 80.5% of total casino revenues, and tables game revenues
were $12.8 million, or 15.5% of casino revenues for the six months ended June
30, 2004 as compared to slot machine revenues of $59.9 million and table games
revenues of $11.8 million for the six months ended June 30, 2003.
Casino revenues at the Stratosphere for the six months ended June 30,
2004 were $36.0 million, an increase of $2.3 million, or 6.9%, over the six
months ended June 30, 2003, of which slot machine revenues were $24.9 million,
or 69.2% of its casino revenues, and table game revenues were $10.1 million, or
27.9% of its casino revenues. For the six months ended June 30, 2003,
Stratosphere had slot machine revenues of $23.7 million and table games revenues
of $9.3 million. Average win per slot machine per day at Stratosphere for the
six months ended June 30, 2004 was $102.32 as compared to $89.17 for the six
months ended June 30, 2003. This was due to a 4.5% decrease in the number of
units compared to the prior period combined with an increase in floor traffic.
Casino revenues at Arizona Charlie's Decatur were $31.5 million for the
six months ended June 30, 2004 as compared to $29.0 million for the six months
ended June 30, 2003. For the six months ended June 30, 2004, slot machine
revenue was $28.2 million, or 89.6% of its casino revenues, and table game
revenues were $1.6 million, or 5.1% of casino revenues. For the six months ended
June 30, 2003, at Arizona Charlie's Decatur slot machine revenue was 90.7% of
casino revenues and table game revenues were 5.0% of casino revenues. Average
win per slot machine per day at Arizona Charlie's Decatur increased from $104.52
for the six months ended June 30, 2003 to $123.76 for the six months ended June
30, 2004 due to a 3.3% decrease in the number of units compared to the prior
period combined with an increase in floor traffic.
Casino revenues at Arizona Charlie's Boulder for the six months ended
June 30, 2004 were $14.8 million, an increase of $3.6 million as compared to
$11.3 million for the six months ended June 30, 2003. Slot revenues were $13.2
million, or 88.6% of its casino revenues and table game revenues were $1.1
million or 7.5% of its casino revenues for the six months ended June 30, 2004 as
compared to $10.0 million and $1.1 million, respectively, for the six months
ended June 30, 2003. Average win per slot machine per day for the six months
ended June 30, 2004 was $106.22, as compared to $76.95 for the prior period due
to an increase in floor traffic.
51
NON-CASINO REVENUES
Hotel revenues for the six months ended June 30, 2004 were $27.7
million or 17.3% of total revenues. This represented an increase of $4.2
million, or 17.6% from hotel revenues for the six months ended June 30, 2003.
Hotel revenues at the Stratosphere totaled $23.4 million for the six months
ended June 30, 2004 as compared to $20.2 million for the six months ended June
30, 2003, an increase of 16.1%. Stratosphere hotel occupancy during the period
was 92.4%, as compared to 88.1% for the six months ended June 30, 2003. Average
daily room rate, or ADR, for the Stratosphere increased from $51.78 for the six
months ended June 30, 2003 to $57.03 for the six months ended June 30, 2004 due
to an increase in room demand. Hotel revenues at Arizona Charlie's Decatur
totaled $2.1 million for the six months ended June 30, 2004, an increase of $0.4
million, or 23.6%,from hotel revenues for the six months ended June 30, 2003.
Occupancy increased from 85.0% for the six months ended June 30, 2003 to 90.8%
for the six months ended June 30, 2004. Average daily rate for Arizona Charlie's
Decatur increased for the six months ended June 30, 2004 by 15.2% to $49.55.
Hotel revenues at Arizona Charlie's Boulder increased $0.5 million, or 29.2%, to
$2.2 million for the six months ended June 30, 2004. Occupancy increased from
51.8% for the six months ended June 30, 2003 to 62.8% for the six months ended
June 30, 2004. Average daily rate at Arizona Charlie's Boulder increased for the
six months ended June 30, 2004 by 14.7% to $48.44.
Food and beverage revenues for the six months ended June 30, 2004
totaled $33.4 million, or 20.9% of total revenues, as compared to $29.8 million
and 21.0% of total revenues for the six months ended June 30, 2003 . Food and
beverage revenues at the Stratosphere increased 10.4% from $21.1 million for the
six months ended June 30, 2003 to $23.3 million for the six months ended June
30, 2004. This was due to a 4.7% increase in food covers and price increases at
several venues at the Stratosphere. Food and beverage revenues at Arizona
Charlie's Decatur increased 18.0% to $6.1 million for the six months ended June
30, 2004. This increase was due to a 7.7% increase in covers and increased
prices. Food and beverage revenues at Arizona Charlie's Boulder increased $0.4
million, or 12.5% to $4.0 million for the six months ended June 30, 2004.
Tower, retail and other revenues increased $2.0 million, or 14.0% for
the six months ended June 30, 2004. Tower, retail and other revenues at
Stratosphere increased 13.0%, from $13.2 million in the six months ended June
30, 2003 to $14.9 million for the six months ended June 30, 2004. Tower revenue
increased $1.8 million, primarily due to the opening of our new thrill ride.
Other operations decreased by $0.1 million due to less entertainment revenue.
Retail and other revenues at Arizona Charlie's Decatur increased $0.2 million to
$1.2 million and retail and other revenues at Arizona Charlie's Boulder
increased $0.1 million to $0.5 million for the six months ended June 30, 2004.
PROMOTIONAL ALLOWANCES
Promotional allowances represent the retail value of rooms, food and
beverage, and other items that are provided to customers on a complimentary
basis. Promotional allowances for the six months ended June 30, 2004 totaled
$11.7 million, or 7.3% of gross revenues as compared to $11.4 million, or 8.0%
of gross revenues for the six months ended June 30, 2003. Promotional allowances
at the Stratosphere were $6.0 million, or 6.2% of its gross revenues, for the
six months ended June 30, 2004, a decrease of 8.5% from $6.6 million, or 7.5% of
its gross revenues for the six months ended June 30, 2003. This decrease was due
primarily to less aggressive promotional policies. Promotional policies at
Arizona Charlie's Decatur were more aggressive for the six months ended June 30,
2004 with an increase of $0.5 million to $3.6 million in allowances, or 8.8% of
its gross revenues as compared to 8.3% of its gross revenues for the six months
ended June 30, 2003. Promotional allowances for the six months ended June 30,
2004 at Arizona Charlie's Boulder were $2.1 million, or 9.9% of gross revenues,
as compared to 10.4% for the six months ended June 30, 2003.
52
OPERATING EXPENSES
Casino expense for the six months ended June 30, 2004 totaled $31.2
million, or 37.8% of total casino revenues as compared to $30.6 million, or
41.4% of total casino revenues, for the six months ended June 30, 2003. Combined
casino operating expenses were primarily comprised of salaries, wages and
benefits, and operating expenses of the casinos. Casino operating expenses at
the Stratosphere were $15.0 million, or 41.5% of its casino revenues, for the
six months ended June 30, 2004 as compared to $14.8 million, or 43.7% of its
casino revenues, for the six months ended June 30, 2003. This increase of $0.2
million, or 1.4%, in casino operating expenses is due primarily to increased
revenue taxes relating to higher gaming revenues. Casino expenses at Arizona
Charlie's Decatur decreased $0.1 million, or 1.7% of its casino revenues for the
six months ended June 30, 2004. Casino expenses at Arizona Charlie's Boulder
increased $0.5 million, or 7.9%, but were only 42.0% of its casino revenues for
the six months ended June 30, 2004 as compared to 51.3% of casino revenues for
the six months ended June 30, 2003. This is primarily due to a reduction in the
cost of employee benefits.
Selling, general and administrative expenses decreased $0.5 million or
1.2% for the six months ended June 30, 2004. Selling, general and administrative
expenses at the Stratosphere were $22.7 million, or 23.3% of its gross revenues,
for the six months ended June 30, 2004 as compared to $22.3 million, or 25.3% of
its gross revenues, for the six months ended June 30, 2003. This decrease of
$0.4 million or 1.8% in selling, general and administrative expenses was due
primarily to a decrease in complimentaries. Selling, general and administrative
expenses at Arizona Charlie's Decatur were $9.1 million, or 22.3% of its gross
revenues for the six months ended June 30, 2004 as compared to $9.4 million, or
25.4% of its gross revenues for the six months ended June 30, 2003. Selling,
general and administrative expenses at Arizona Charlie's Boulder totaled $5.5
million, or 25.4% of gross revenues for the six months ended June 30, 2004 as
compared to $6.1 million or 35.9% of gross revenues, for the six months ended
June 30, 2003.
INCOME FROM OPERATIONS
Income from operations for the six months ended June 30, 2004 was $25.8
million, an increase of $13.9 million, or 116.9%, from the six months ended June
30, 2003. Income from operations at the Stratosphere for the six months ended
June 30, 2004 was $15.6 million as compared to $8.0 million for the six months
ended June 30, 2003. This increase of $7.6 million, or 94.4%, was due to
increased revenues and cost containment programs. Income from operations at
Arizona Charlie's Decatur for the six months ended June 30, 2004 was $8.5
million as compared to $6.8 million for the six months ended June 30, 2003. This
increase of $1.7 million, or 24.8%, was due to increased slot revenues. Income
from operations at Arizona Charlie's Boulder for the six months ended June 30,
2004 was $1.7 million as compared to a loss of $2.9 million for the six months
ended June 30, 2003. This increase was primarily due to increased slot revenues
and reduced selling, general, and administrative expenses.
53
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Gross revenues for the year ended December 31, 2003 amounted to $285.1
million, an increase of $13.1 million, or 4.8%, over the year ended December 31,
2002. Gross revenues at the Stratosphere for the year ended December 31, 2003
were $176.4 million, or 61.9% of gross revenues, an increase of $5.7 million as
compared to revenues for the year ended December 31, 2002. Gross revenues at
Arizona Charlie's Decatur for the year ended December 31, 2003 were $73.9
million, or 25.9% of combined gross revenues, an increase of $2.7 million as
compared to the year ended December 31, 2002. This increase of 3.7% in gross
revenues at Arizona Charlie's Decatur was primarily attributable to an increase
in casino revenues. Gross revenues at Arizona Charlie's Boulder for the year
ended December 31, 2003 were $34.8 million, or 12.2% of gross revenues, an
increase of $4.7 million as compared to the year ended December 31, 2002. This
increase of 15.8% as primarily due to the increased slot coin in and increased
hold percentage compared to the year ended December 31, 2002.
CASINO REVENUES
Casino revenues during the year ended December 31, 2003 totaled $147.9
million, an increase of $4.8 million over the year ended December 31, 2002. Slot
machine revenues were $119.6 million, or 80.9% of casino revenues, and table
game revenues were $23.6 million, or 16.0% of casino revenues, for the year
ended December 31, 2003 as compared to $115.6 million and $23.3 million,
respectively, for the year ended December 21, 2002.
Casino revenues at the Stratosphere for the year ended December 31,2003
were $66.5 million, a decrease of $.7 million, or 1.1%, over the year ended
December 31, 2002, of which slot machine revenues were $46.6 million, or 70.0%
of its casino revenues, and table game revenues were $18.6 million, or 27.9% of
its casino revenues as compared to $48.7 million and $18.0 million,
respectively, for the year ended December 31, 2002. Average win per slot machine
per day at Stratosphere for the year ended December 31, 2003 was $91.73 which
was an increase over the prior year of $90.74 due to a 3% decrease in the number
of units compared to the prior year. Casino revenues at Arizona Charlie's
Decatur for the year ended December 31, 2003 were $57.7 million, an increase of
$1.6 million as compared to the year ended December 31, 2002, of which slot
machine revenues were $52.4 million, or 90.7% of its casino revenues, and table
game revenues were $2.9 million, or 5.0% of its casino revenues as compared to
$49.6 million and $3.2 million, respectively, for the year ended December 31,
2002. Average win per slot machine per day at Arizona Charlie's Decatur for the
year ended December 31, 2003 as $105.61, as compared to the average win per slot
machine per day of $92.93 for 2002. Casino revenues at Arizona Charlie's Boulder
for the year ended December 31, 2003 were $23.7 million, an increase of $4.0
million as compared to the year ended December 31, 2002. For the year ended
December 31, 2003, slot machine revenues were $20.6 million, or 87.2% of its
casino revenues, and table game revenues were $2.2 million, or 9.2% of its
casino revenues as compared to $17.4 million and $2.1 million, respectively, for
the year ended December 31, 2002. Average win per slot machine per day at
Arizona Charlie's Boulder for the year ended December 31, 2003 was $79.16, as
compared to the average win per slot machine per day of $65.53 for 2002.
54
NON-CASINO REVENUES
Hotel revenues totaled $47.3 million, or 16.6% of gross revenues, for
the year ended December 31, 2003 as compared to $44.3 million, or 16.3% of gross
revenues for the year ended December 31, 2002. Hotel revenues at the
Stratosphere totaled $40.6 million for the year ended December 31, 2003 as
compared to $38.1 million for the year ended December 31, 2002. Stratosphere
hotel occupancy during the period was 89.8%, as compared to 89.6% for the year
ended December 31, 2002. As a result of the increased room capacity, average
daily room rate increased from $48.28 for the year ended December 31, 2002 to
$51.17 for the year ended December 31, 2003. Hotel revenues at Arizona Charlie's
Decatur were $3.4 million for the year ended December 31, 2003, an increase of
15.6% from the previous year. This is a result of an increase in average
occupancy rate from 74.4% to 85.3%. Hotel revenues at Arizona Charlie's Boulder
were $3.3 million for the year ended December 31, 2003 as compared to $3.3
million for the year ended December 31, 2002. The occupancy rate for Arizona
Charlie's Boulder increased from 55.2% for the year ended December 31, 2002 to
55.7% for the year ended December 31, 2003 and resulted in an increase in the
ADR from $42.97 to $43.32.
Food and beverage for the year ended December 31, 2003 totaled $59.6
million, or 20.9% of combined gross revenues, as compared to $56.3 million, or
20.7% of gross revenues, for the year ended December 31, 2002. Food and beverage
revenues at the Stratosphere increased 6.5% from $39.7 million for the year
ended December 31, 2002 to $42.3 million for the year ended December 31, 2003,
due to an increase in food covers of 0.6%, while the average revenue per cover
increased 5.9%. At Arizona Charlie's Decatur, food and beverage revenues were
$10.4 million for both years ended December 31, 2003 and 2002. At Arizona
Charlie's Boulder, food and beverage revenues were $7.0 million for the year
ended December 31, 2003, an increase of $.7 million, or 10.7%, from the year
ended December 31, 2002.
Tower, retail and other revenues increased $2.1 million to $30.3
million for the year ended December 31, 2003. Tower, retail and other revenues
at Stratosphere increased 5.4%, from $25.7 million in the year ended December
31, 2002 to $27.1 million for the year ended December 31, 2003. The combined
retail and other revenues increased at Arizona Charlie's Decatur to $2.4
million, or 34.2% and Arizona Charlie's Boulder increased $.1 million, or 10.1%
of revenues.
PROMOTIONAL ALLOWANCES
Promotional allowances provided to gaming patrons for the year ended
December 31, 2003 and 2002 totaled $22.3 million and $21.9 million,
respectively, and are recorded in our financial statements as a reduction of
gross revenues. Promotional allowances represent the retail value of rooms, food
and beverage, and other items that are provided to customers on a complimentary
basis.
Promotional allowances at the Stratosphere were $12.7 million, or 7.2%
of its gross revenues, for the year ended December 31, 2003, a decrease of 11.2%
from $14.3 million, or 8.4% of its gross revenues for the year ended December
31, 2002. This decrease was due primarily to less aggressive promotional
policies.
Promotional allowances at Arizona Charlie's Decatur were $6.0 million
for the year ended December 31, 2003, or 8.2% of its gross revenues, compared to
$5.0 million, or 7.0% of its gross revenues for the year ended December 31,
2002. This increase is primarily due to an increase in play due to our "Action
Cash" program implemented in July 2003.
55
Promotional allowances at Arizona Charlie's Boulder were $3.5 million
for the year ended December 31, 2003, or 10.1% of its gross revenues, compared
to $2.6 million, or 8.7% of its gross revenues for the year ended December 31,
2002. This increase is primarily due to an increase in play due to our "Action
Cash" program implemented in July, 2003.
OPERATING EXPENSES
Casino operating expense for the year ended December 31, 2003 totaled
$61.3 million, or 41.4% of combined casino revenues, as compared to $59.9
million, or 41.9% of casino revenues, for the year ended December 31, 2002.
Casino operating expenses were primarily comprised of salaries, wages and
benefits, and operating expenses of the casinos.
Casino operating expenses at the Stratosphere were $29.6 million, or
44.6% of its casino revenues, for the year ended December 31, 2003 as compared
to $29.0 million, or 43.1% of its casino revenues, for the year ended December
31, 2002. This increase of $.6 million, or 2.2% in casino expenses is due
primarily to increases in complimentaries. Casino operating expenses at Arizona
Charlie's Decatur were $20.0 million, or 34.6% of its casino revenues, for the
year ended December 31, 2003 as compared to $21.3 million, or 37.9% of its
casino revenues, for the year ended December 31, 2002. This decrease was due
primarily to cost reductions. Casino operating expenses at Arizona Charlie's
Boulder were $11.7 million, or 49.3% of its casino revenues, for the year ended
December 31, 2003 as compared to $9.6 million, or 48.9% of its casino revenues,
for the year ended December 31, 2002.
Selling, general and administrative expenses for the year ended
December 31, 2003 were $75.0 million, or 26.3% of combined gross revenues, as
compared to $80.0 million, or 29.4% of gross revenues, for the year ended
December 31, 2002. Selling, general and administrative expenses at the
Stratosphere were $44.9 million, or 25.4% of its gross revenues, for the year
ended December 31, 2003 as compared to $45.9 million, or 26.9% of its gross
revenues, for the year ended December 31, 2002. Selling, general and
administrative expenses at Arizona Charlie's Decatur were $18.4 million, or
24.9% of its gross revenues, for the year ended December 31,2003, as compared to
$19.5 million, or 27.3% of its gross revenues, for the year ended December 31,
2002. General and administrative expenses at Arizona Charlie's Boulder were
$11.7 million, or 33.6% of its gross revenues, as compared to $14.6 million, or
48.7% of its gross revenues, for the prior year.
INCOME FROM OPERATIONS
Operating income for the year ended December 31, 2003 was $25.2 million
as compared to operating income of $11.4 million for the year ended December 31,
2002. Operating income at the Stratosphere for the year ended December 31, 2003
was $15.5 million as compared to $11.3 million for the year ended December 31,
2002. This increase was primarily due to an increase in hotel revenues,
increased building rents, lower promotions and lower depreciation. Operating
income at Arizona Charlie's Decatur for the year ended December 31, 2003 was
$14.0 million as compared to $8.8 million for the year ended December 31, 2002.
This increase was due to an increase in casino revenues and reduced food and
beverage expenses. For the years ended December 31, 2003 and December 31, 2002,
Arizona Charlie's Boulder incurred operating losses of $4.3 million and $8.6
million, respectively. The reduced loss was due to increased casino revenues and
reduced selling, general, and administrative expenses.
56
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
The Las Vegas market experienced a significant drop in visitor volume
over the four months following the September 11, 2001 terrorist attacks as
compared to the same period in 2000, with smaller decreases through the
remaining months of 2002.
Gross revenues for the year ended December 31, 2002 were $271.9
million, an increase of $5.7 million, or 2.1%, as compared to the year ended
December 31, 2001. Gross revenues at the Stratosphere for the year ended
December 31, 2002 were $170.7 million, or 62.8% of gross revenues, an increase
of $14.5 million as compared to the year ended December 31, 2001. This increase
was primarily due to an increase in hotel revenues as a result of the hotel
expansion of 1,000 rooms which opened in June 2001. Gross revenues at Arizona
Charlie's Decatur for the year ended December 31, 2002 were $71.2 million, or
26.2% of gross revenues, a decrease of $8.8 million as compared to the year
ended December 31, 2001. This decrease was primarily due to a decrease in casino
revenues for the year ended December 31, 2002 as compared to the year ended
December 31, 2001. Gross revenues at Arizona Charlie's Boulder for the year
ended December 31, 2002 were $30.0 million, or 11.0% of gross revenues,
approximately the same as revenues for the year ended December 31, 2001.
CASINO REVENUES
Casino revenues during the year ended December 31, 2002 were $143.1
million, an increase of $0.1 million as compared to the year ended December 31,
2001. Slot machine revenues were $118.2 million, or 82.6% of casino revenues,
and table game revenues were $23.3 million, or 16.3% of the casino revenues, for
the year ended December 31, 2002 as compared to $115.1 million and $22.9
million, respectively, for the year ended December 31, 2001.
Casino revenues at the Stratosphere for the year ended December 31,
2002 were $67.2 million, an increase of $5.7 million, or 9.3%, as compared to
the year ended December 31, 2001, primarily due to an increase in customer
traffic. For the year ended December 31, 2002, slot machine revenues were $48.7
million, or 72.4% of its casino revenues, and table game revenues were $18.0
million, or 26.8% of its casino revenues, as compared to $43.7 million and $16.5
million, respectively, for the year ended December 31, 2001. Average win per
slot machine per day at the Stratosphere for the year ended December 31, 2002
was $90.74 as compared to $85.37 for 2001. Average win per table per day at the
Stratosphere for the year ended December 31, 2002 was $1,022.50 as compared to
$984.58 for 2001. Casino revenues at Arizona Charlie's Decatur for the year
ended December 31, 2002 were $56.1 million, a decrease of $5.6 million as
compared to the year ended December 31, 2001 primarily due to a tightening of
our complimentary policies. For the year ended December 31, 2002, slot machine
revenues were $51.2 million, or 91.3% of casino revenues at Arizona Charlie's
Decatur, and table game revenues were $3.2 million, or 5.7% of its casino
revenues as compared to $54.3 million and $4.1 million, respectively, for the
year ended December 31, 2001. Average win per slot machine per day at Arizona
Charlie's Decatur for the year ended December 31, 2002 was $92.93, as compared
to $97.85 for 2001. This decline was primarily due to a decrease in slot play as
a result of tightening our complimentary policy. Casino revenues at Arizona
Charlie's Boulder for the year ended December 31, 2002 were $19.7 million, which
was flat as compared to the year ended December 31, 2001. For the year ended
December 31, 2002, slot machine revenues were $18.3 million, or 92.9% of its
casino revenues, and table game revenues were $2.1 million, or 10.4% of its
casino revenues, as compared to $17.1 million and $2.2 million, respectively,
for the year ended December 31, 2001. Average win per slot machine per day at
Arizona Charlie's Boulder for the year ended December 31, 2002 was $65.53 as
compared to $61.96 for 2001.
57
NON-CASINO REVENUES
Hotel revenues totaled $44.3 million, or 16.3% of gross revenues, for
the year ended December 31, 2002 as compared to $38.3 million, or 14.4% of
combined gross revenues, for the year ended December 31, 2001. Hotel revenues at
the Stratosphere totaled $38.1 million for the year ended December 31, 2002 as
compared to $32.0 million for the year ended December 31, 2001. Stratosphere
hotel occupancy during the period was 89.6%, as compared to 93.2% for the year
ended December 31, 2001. ADR decreased from $48.54 for 2001 to $48.28 for 2002.
Hotel revenues at Arizona Charlie's Decatur were $2.9 million for the year ended
December 31, 2002, a decrease of 4.8% from the previous year. Hotel revenues at
Arizona Charlie's Boulder were $3.3 million for the year ended December 31, 2002
as compared to $3.2 million for the year ended December 31, 2001.
Food and beverage revenues for the year ended December 31, 2002 were
$56.3 million, or 20.7% of gross revenues, as compared to $55.5 million, or
20.8% of gross revenues, for the year ended December 31, 2001. Food and beverage
revenues at the Stratosphere increased 8.8% from $36.5 million for the year
ended December 31, 2001 to $39.7 million for the year ended December 31, 2002,
primarily due to an 8.6% increase in average revenue per cover offset, in part,
by a 0.6% decrease in food covers. At Arizona Charlie's Decatur, food and
beverage revenues were $10.4 million for the year ended December 31, 2002, a
decrease of $2.2 million, or 17.7%, from the year ended December 31, 2001
primarily due to the tightening of our complimentary policies. At Arizona
Charlie's Boulder, food and beverage revenues were $6.3 million for the year
ended December 31, 2002, a decrease of $0.1 million, or 1.4%, for the year ended
December 31, 2001.
Tower, retail and other revenues decreased $1.3 million to $28.2
million for the year ended December 31, 2002.
PROMOTIONAL ALLOWANCES
Promotional allowances provided to gaming patrons for the years ended
December 31, 2002 and 2001 were $21.9 million and $23.7 million, respectively.
Promotional allowances at the Stratosphere were $14.3 million, or 8.4%
of its gross revenues, for the year ended December 31, 2002, a decrease of 1.5%
from $14.6 million, or 9.3% of its gross revenues, for the year ended December
31, 2001. This decrease was primarily due to less aggressive promotional
policies. Promotional allowances at Arizona Charlie's Decatur were $5.0 million
for the year ended December 31, 2002, or 7.0% of its gross revenues, compared to
$6.6 million, or 8.3% of its gross revenues, for the year ended December 31,
2001. This decrease was primarily due to a tightening of its complimentary
policies. Promotional allowances at Arizona Charlie's Boulder were $2.6 million
for the year ended December 31, 2002, or 8.7% of its gross revenues, compared to
$2.5 million, or 8.4% of its gross revenues, for the year ended December 31,
2001.
OPERATING EXPENSES
Casino operating expense for the year ended December 31, 2002 totaled
$59.9 million, or 41.9% of casino revenues, as compared to $60.0 million, or
42.0% of casino revenues, for the year ended December 31, 2001.
Casino operating expenses at the Stratosphere were $29.0 million, or
43.1% of its casino revenues, for the year ended December 31, 2002 as compared
to $27.0 million, or 43.8% of its casino revenues, for the year ended December
31, 2001. This increase was primarily due to increases in complimentary and
promotional expenses related to increased promotional events, many of which were
58
undertaken to increase customer traffic following September 11, 2001. Casino
operating expenses at Arizona Charlie's Decatur were $21.3 million, or 37.9% of
its casino revenues, for the year ended December 31, 2002 as compared to $23.1
million, or 37.4% of its casino revenues, for the year ended December 31, 2001.
This decrease was primarily due to cost reduction efforts as a result of
technology improvements and staffing reductions. Casino operating expenses at
Arizona Charlie's Boulder were $9.6 million, or 48.9% of its casino revenues,
for the year ended December 31, 2002 as compared to $10.0 million, or 50.7% of
its casino revenues, for the year ended December 31, 2001. This decrease was
primarily due to staffing reductions.
Selling, general and administrative expenses for the year ended
December 31, 2002 were $80.0 million, or 29.4% of gross revenues, as compared to
$78.7 million, or 29.6% of gross revenues, for the year ended December 31, 2001.
Selling, general and administrative expenses at the Stratosphere were $45.7
million, or 26.9% of its gross revenues, for the year ended December 31, 2002 as
compared to $46.1 million, or 29.5% of its gross revenues, for the year ended
December 31, 2001. Selling, general and administrative expenses at Arizona
Charlie's Decatur were $19.5 million, or 27.3% of its gross revenues, for the
year ended December 31, 2002, as compared to $19.5 million, or 24.3% of its
gross revenues, for the year ended December 31, 2001. Selling, general and
administrative expenses at Arizona Charlie's Boulder were $14.6 million, or
48.7% of its gross revenues, as compared to $13.2 million, or 43.8% of its gross
revenues, for the prior year. Selling, general and administrative expenses at
the Arizona Charlie's Boulder property increased year over year primarily due to
an increase in healthcare costs of $0.9 million.
INCOME FROM OPERATIONS
Operating income for the year ended December 31, 2002 was $11.4 million
as compared to $10.9 million for the year ended December 31, 2001. Operating
income at the Stratosphere for the year ended December 31, 2002 was $11.3
million as compared to $4.6 million for the year ended December 31, 2001. This
increase was primarily due to the hotel expansion which resulted in an increase
in all revenue categories. Operating income at Arizona Charlie's Decatur for the
year ended December 31, 2002 was $8.8 million as compared to $13.7 million for
the year ended December 31, 2002. This decrease was primarily due to a decrease
in net revenues of $7.1 million and offset, in part, by cost reductions of $1.8
million. For the years ended December 31, 2002 and December 31, 2001, Arizona
Charlie's Boulder incurred operating losses of $8.6 million and $7.3 million,
respectively. The increased operating loss at Arizona Charlie's Boulder was
primarily due to an increase in employee healthcare benefits of $1.1 million.
LIQUIDITY AND CAPITAL RESOURCES
We completed the acquisitions of three Las Vegas, Nevada gaming and
entertainment properties from affiliated parties on May 26, 2004. We applied the
net proceeds from the offering of our $215 million principal amount of 7.85%
senior secured notes due 2012 to pay the acquisition price for two of the
properties, repay indebtedness owed to our parent, to make a distribution to our
parent and to pay fees and expenses of the offering.
Pending consummation of the acquisitions, the perfection of security
interests in the assets of the properties acquired, the receipt of all necessary
approvals of the Nevada Gaming Commission upon the recommendation of the Nevada
State Gaming Control Board and certain other events, the net proceeds of the
offering, were held in escrow in a note proceeds account, together with an
additional amount sufficient to fund a special redemption obligation if, among
other things, the acquisitions were not completed by August 31, 2004. Upon
closing of the acquisitions, perfection of such security interests, receipt of
necessary approvals of the Nevada Gaming Commission upon the recommendation of
the Nevada State Gaming Control Board and such other events, the funds held in
escrow in the note proceeds
59
account and additional cash on hand were used in connection with the
acquisitions, to repay intercompany indebtedness, to fund distribution to our
parent company and to pay related fees and expenses.
At June 30, 2004, we had cash and cash equivalents of $49.2 million.
Upon the release of funds from the escrow account, we retained an amount equal
to accrued interest through the date of release, May 26, 2004, plus an amount
equal to estimated unpaid fees and expenses related to the notes offering. Our
capital expenditures for 2003 were $33.5 million. We currently anticipate
capital expenditures for 2004 and 2005 to be approximately $15.0 million for
each year.
We expect to fund our operating and capital needs, as currently
contemplated, with operating cash flows and, if necessary, borrowings under our
senior secured revolving credit facility entered into by American Casino &
Entertainment Properties LLC, as borrower and certain of its subsidiaries, as
guarantors. The senior secured revolving credit facility allows for borrowings
of up to $20.0 million, subject to us complying with financial and other
covenants, until January 29, 2008.
We met our capital requirements in 2003 through net cash from operating
activities. For the six months ended June 30, 2004, net cash provided by
operating activities totaled approximately $24.1 million and cash used for
investing activities totaled $5.2 million, compared to approximately $22.2
million provided by operating activities and $4.8 million used in investing
activities for the six months ended June 30, 2003.
Management believes borrowings available under the senior secured
revolving credit facility and operating cash flows will be adequate to meet our
anticipated future requirements for working capital, capital expenditures and
scheduled interest payments on the notes and under the senior secured revolving
credit facility, lease payments and other permitted indebtedness at least
through the next twelve months. Although no additional financing is currently
contemplated, we will seek, if necessary and to the extent permitted under the
indenture governing the notes and the terms of the senior secured revolving
credit facility, additional financing through bank borrowings or debt or equity
financings. However, additional financing, if needed, may not be available to
us, or if available, the financing may not be on terms favorable to us. Our
estimates of our reasonably anticipated liquidity needs may not be accurate and
new business developments or other unforeseen events may occur, resulting in the
need to raise additional funds.
The following table summarizes contractual obligations and commitments
to make future payments under certain contracts, including long-term debt
obligations, and operating leases at June 30, 2004.
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------
LESS THAN AFTER
CONTRACTUAL OBLIGATIONS AND COMMITMENTS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
--------------------------------------- ----- ------ --------- --------- -------
(IN THOUSANDS)
Long-term debt.......................... $ 215,000 $ -- $ -- $ -- $ 215,000
Capital leases.......................... 11,358 665 1,995 1,288 7,362
------------- ----------- ------------ ------------ ---------
Total cash obligations.................. $ 226,358 $ 665 $ 1,995 $ 1,337 $ 222,362
============= =========== ============ ============ =========
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CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
GAAP, which requires management to make estimates and assumptions about the
effects of matters that are inherently uncertain. We have summarized our
significant accounting policies in note 1 to our combined financial statements.
Of the accounting policies, we believe the following may involve a higher degree
of judgment and complexity.
Revenue Recognition. Casino revenues represent the net win from gaming
activities, which is the difference between gaming wins and losses. Hotel and
other revenues are recognized at the time the related service is performed.
Property and Equipment. At June 30, 2004, we had approximately $322.0
million of net property and equipment recorded on our balance sheet. We
depreciate our assets on a straight-line basis over their estimated useful
lives. The estimate of the useful lives is based on the nature of the asset as
well as our current operating strategy. Future events, such as property
expansions, new competition and new regulations, could result in a change in the
manner in which we use certain assets, which could require a change in the
estimated useful lives of such assets. In assessing the recoverability of the
carrying value of property and equipment, we must make assumptions regarding
estimated future cash flows and other factors. If these estimates or the related
assumptions change in the future, we may be required to record impairment
charges for these assets.
Slot Club Liability. We offer a program whereby participants can
accumulate points for casino wagering that can currently be redeemed for cash,
lodging, food and beverages, and merchandise. A liability is recorded for the
estimate of unredeemed points based upon redemption history at our casinos.
Changes in the program, increases in membership and changes in the redemption
patterns of the participants can impact this liability. Points expire after
twelve months.
Litigation, Claims and Assessment. We also utilize estimates for
litigation, claims and assessments. These estimates are based upon management's
knowledge and experience about past and current events and also upon reasonable
future events. Actual results may differ from those estimates.
QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our long-term debt.
As of March 31, 2004, Stratosphere had an intercompany note payable to
AREH of $76.3 million, which bore interest at a rate of 90-day LIBOR plus a
spread of 3.0%. Upon the closing of the acquisitions, we repaid this note. All
of our debt is at a fixed rate of interest. We can borrow, from time to time, up
to $20.0 million under the senior secured revolving credit facility for working
capital purposes. At March 31, 2004, we could not borrow under the facility,
pending completion of the acquisitions. At June 30, 2004, there was not any
amount outstanding under the facility.
The fair value of our long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
us for debt of the same remaining maturities. Based on the borrowing rates
currently available to us for debt with similar terms and average maturities,
the estimated fair value of long-term debt outstanding is approximately $219
million as of June 30, 2004.
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We do not invest in derivative financial instruments, interest rate
swaps or other investments that alter interest rate exposure.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. Under SFAS No.
143, the fair value of a liability for an asset retirement obligation is
required to be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. We adopted
SFAS No. 143 on January 1, 2003. Adoption of SFAS No. 143 did not have a
material impact on our financial condition, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other matters, SFAS No. 145 addresses the presentation for
gains and losses on early retirements of debt in the statement of operations.
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.
Adoption of SFAS No. 145 did not have a material impact on our financial
condition, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The provisions of SFAS No. 146
became effective for exit or disposal activities commenced subsequent to
December 31, 2002. We do not have any such activities and therefore do not
expect any impact on our financial condition, results of operations or cash
flows.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of SFAS Nos. 5, 57 and
107 and a rescission of FASB Interpretation No. 34. This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on our combined
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of SFAS No.
123. This Statement amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures of the effect of the fair value
method in both annual and interim financial statements. We do not anticipate the
adoption of this Statement to have a material impact upon the combined financial
statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For nonpublic enterprises, such as us, with a
variable interest in a variable interest entity created before February 1, 2003,
the Interpretation is applied to the enterprise no later than the end of the
first annual reporting period beginning after June 15, 2003. The application of
this Interpretation is not expected to have a material effect on our financial
statements. The Interpretation requires certain disclosures in financial
statements
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issued after January 31, 2003 if it is reasonably possible that we will
consolidate or disclose information about variable interest entities when the
Interpretation becomes effective. We do not believe that we have any variable
interest entities.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
No. 150 establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that companies classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. The provisions of this Statement are
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise are effective at the beginning of the first interim period
beginning after December 15, 2003. The impact of this Statement is not expected
to have a significant effect on our financial statements.
63
BUSINESS
OUR COMPANY
We own and operate three gaming and entertainment properties in the Las
Vegas metropolitan area. The three properties include the Stratosphere, which is
located on the Las Vegas Strip and caters to visitors to Las Vegas, and two
off-Strip casinos, Arizona Charlie's Decatur and Arizona Charlie's Boulder,
which cater primarily to residents of Las Vegas and the surrounding communities.
The Stratosphere is one of the most recognized landmarks in Las Vegas and our
two Arizona Charlie's branded properties are well-recognized casinos in their
respective marketplaces. Each of our properties offers customers a
value-oriented experience, by providing competitive odds in our casinos,
high-quality rooms in our hotels, award-winning dining facilities and, at the
Stratosphere, an offering of entertainment attractions found nowhere else in Las
Vegas. We believe the value we offer our patrons, together with a strong focus
on customer service, will enable us to continue to attract customer traffic to
our properties.
We are a holding company that was incorporated in Delaware on December
29, 2003 for the purpose of acquiring the entities that own and operate the
Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. The
Stratosphere was a direct subsidiary of AREH. AREP and API, together, own 100%
of AREH. The entities that own Arizona Charlie's Decatur and Arizona Charlie's
Boulder have been indirect subsidiaries of Mr. Icahn and his affiliates since
September 1998 and January 2000, respectively. We are a subsidiary of AREP, a
New York Stock Exchange-listed company with over $2.0 billion in assets at March
31, 2004 and after giving effect to an offering by it of 8?% Senior Notes due
2012, which was completed on May 12, 2004, and the acquisitions and related
transactions. Mr. Icahn owns over 86% of AREP's outstanding depositary units and
preferred units.
American Casino & Entertainment Properties Finance Corp., a Delaware
corporation, is a wholly owned subsidiary of American Casino & Entertainment
Properties LLC with no operations. American Casino & Entertainment Properties
Finance Corp. was formed solely for the purpose of serving as co-issuer of debt
securities of American Casino & Entertainment Properties LLC in order to
facilitate offerings of such debt securities. Other than as a co-issuer of the
notes, American Casino & Entertainment Properties Finance Corp. does not have
any operations or assets and does not have any revenues.
THE LAS VEGAS MARKET
Las Vegas is one of the fastest-growing and largest entertainment
markets in the country. Las Vegas hotel occupancy rates are among the highest of
any major market in the United States. We believe that the Las Vegas gaming
market has two distinct sub-segments: the tourist market, which tends to be
concentrated on the Las Vegas Strip and the local market, which tends to be
located in the areas surrounding the Las Vegas Strip, including Boulder Strip
and North Las Vegas.
TOURIST MARKET
According to the Las Vegas Convention and Visitors Authority, or LVCVA,
the number of visitors traveling to Las Vegas has increased over the last ten
years from 21.9 million visitors in 1992 to 35.1 million visitors in 2002, a
compound annual growth rate of 4.8%. The number of hotel and motel rooms in Las
Vegas has increased by over 65% from 76,523 at the end of 1992 to 126,787 at the
end of 2002, giving Las Vegas the most hotel and motel rooms of any metropolitan
area in the world. Despite this significant increase in the supply of rooms, the
Las Vegas hotel occupancy rate exceeded 88% for each of the years from 1992
through 2002.
Las Vegas Strip gaming revenues have grown as Las Vegas visitations and
hotel room count have
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grown. Between 1992 and 2002, gaming revenues on the Las Vegas Strip experienced
a compound annual growth of 5.9%
According to the LVCVA, Las Vegas has been the United States'
top-ranked destination for trade shows for the last nine years. The number of
trade show attendees in Las Vegas increased from approximately 2.0 million in
1992 to 5.1 million in 2002, representing a compound annual growth rate of
10.0%. Attendees spent approximately $5.9 billion in 2002.
We believe that the growth in the Las Vegas tourist market has been
enhanced by a dedicated program of the LVCVA and major Las Vegas hotels to
promote Las Vegas as an exciting vacation and convention site, the increased
capacity of McCarran International Airport and the introduction of large, themed
destination resorts in Las Vegas.
The Robert N. Broadbent Las Vegas Monorail, a driverless, state-of-the
art urban public transportation system is expected to become operational in
early 2004. The monorail will initially operate on a route approximately four
miles long, running along the east side of the Las Vegas Strip from the Sahara
Hotel to the MGM Grand. We anticipate that the monorail will significantly
reduce traffic congestion on the Las Vegas Strip. Plans have been announced to
eventually extend the monorail to downtown Las Vegas at its northern end and
McCarran International Airport at its southern end.
LOCAL MARKET
Nevada has been the fastest-growing state in the United States for the
last 17 years and has enjoyed a strong economy and demographics that include an
increasing number of retirees and other active gaming patrons. A majority of
Nevada's growth has occurred in Las Vegas. The population of Clark County has
grown from 873,730 in 1992 to 1,560,653 in 2002, a compound annual growth rate
of 6.0%. In comparison, the United States population increased at a compound
annual growth rate of 1.2% during this period. In 2002, median household income
in Clark County was $43,765, compared with the national median income of
$43,057.
Gaming revenues have increased along with population growth. Between
1992 and 2002, gaming revenues in the Las Vegas local market, comprised of
Boulder Highway and North Las Vegas, experienced a compound annual growth rate
of 15.7%.
OUR GAMING AND ENTERTAINMENT PROPERTIES
Stratosphere
The Stratosphere is situated on approximately 31 acres of land located
at the northern end of the Las Vegas Strip and is a tourist-oriented gaming and
entertainment destination property. The Stratosphere operates the Stratosphere
Tower, a hotel, casino and a retail center.
The Stratosphere is centered around the Stratosphere Tower, the tallest
free-standing observation tower in the United States. Standing 1,149 feet above
the Las Vegas Strip, the Stratosphere Tower is visible from all directions,
including from the McCarran International Airport.
Casino
The Stratosphere's casino contains approximately 80,000 square feet of
gaming space, with approximately 1,416 slot machines, 50 table games, a 125-seat
race and sports book and a Keno lounge. Eight themed restaurants and four bars,
two of which feature live entertainment are all located adjacent to
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the casino. These facilities have been designed to enable convenient access to
the casino.
For the years ended December 31, 2001, 2002 and 2003, approximately
71.0%, 72.4% and 70.0%, respectively, of the Stratosphere's gaming revenue was
generated by slot machine play and 26.9%, 26.8% and 27.9%, respectively, by
table games. The Stratosphere derives its other gaming revenue from the race and
sports book, which primarily serves to attract customers for slot machines and
table games.
Hotel, Food and Beverage
The hotel has 2,444 rooms, including 120 suites. The hotel amenities
include a 67,000 square foot pool and a recreation area with a new snack and
cocktail bar, private cabanas and a fitness center with views of the Las Vegas
Strip.
The Stratosphere offers eight restaurants:
- Top of the World Restaurant and Lounge, a 380-seat revolving
restaurant located in the Tower's Pod, a 12-story building
that begins at the 771-foot level of the Tower;
- The Courtyard Buffet, a 470-seat 24-hour buffet;
- The Crazy Armadillo, a 160-seat restaurant featuring Tex-Mex
cuisine and an oyster bar;
- Roxy's Diner, a 160-seat diner offering a selection of
burgers, sandwiches and shakes;
- Lucky's Cafe, a 240-seat "vintage Vegas"-themed coffee shop;
- Fellini's Ristorante Italiano, a 250-seat restaurant serving
Italian cuisine;
- Hamada Asian Village, a 180-seat restaurant serving Asian
cuisine; and
- Triple Crown Deli, a 42-seat New York-style deli.
Top of the World has been awarded "Best Gourmet Restaurant" by the
Nevada Magazine. Roxy's Diner has been awarded "Best Casual Dining Restaurant"
by Positive Image News & Reviews. Both Fellini's Ristorante Italiano and Hamada
Asian Village are operated by third parties.
The Tower
The Tower is the tallest free-standing observation tower in the United
States and, at 1,149 feet, the tallest building west of the Mississippi River.
From the indoor/outdoor observation decks, lounge and restaurant, Tower visitors
have dramatic views of the Las Vegas Strip, downtown Las Vegas and the
surrounding Las Vegas Valley. Visitors travel to the observation decks in four
high speed, double-decked elevators, which travel at 1,800 feet per minute. We
currently charge $9 per person to go to the observation decks.
The Tower's Pod features the three highest thrill rides in the world:
- Big Shot, which catapults up to 16 riders from the 921-foot
level of the Tower's Pod 160 feet straight up the mast of the
Tower, in a harnessed seat, and allows for a controlled free
fall back to the landing platform;
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- High Roller, which begins at the 909-foot level and transports
up to 28 passengers at a time along tracks wrapped around the
top portion of the Tower's Pod; and
- X Scream, which opened in October 2003, is shaped like a giant
teeter-totter and launches up to eight riders approximately 30
feet over the edge of the Tower and then dangles them
weightlessly above the Las Vegas Strip.
We charge $9 per ride for each of the Big Shot and the X Scream and $5
per ride for the High Roller.
The Tower's Pod also includes:
- event space, as well as a wedding chapel, at levels 103 and
104;
- the Top of the World restaurant, at level 106;
- a 175-seat cocktail lounge, at level 107; and
- indoor/outdoor observation decks, at levels 108 and 109,
containing two gift shops, free-standing vending machines
featuring souvenirs and snacks designed to capitalize on the
unique nature of the Tower.
The Tower's Pod has a maximum capacity of 2,500 visitors at any one
time and is open from 10:00 a.m. to 1:00 a.m. on Sunday through Thursday and
10:00 a.m. to 2:00 a.m. on Friday and Saturday.
Retail and Entertainment
The retail center, located on the second floor of the base building,
occupies approximately 110,000 square feet of developed retail space. The retail
center contains 43 shops, six of which are food venues, and 13 merchant kiosks.
Adjacent to the retail center is the 640-seat showroom that currently offers
afternoon and evening shows, which are designed to appeal to the wide spectrum
of value-minded visitors who come to Las Vegas. The Stratosphere's entertainment
includes American Superstars, a celebrity tribute featuring today's and
yesterday's hottest stars, and Viva Las Vegas, Las Vegas" longest-running
daytime show now in its twelfth year, features singing, dancing, comedy and
specialty acts. The retail center also includes a full-service salon. The
parking facility accommodates approximately 4,000 cars.
Business and Marketing Strategy
The Stratosphere utilizes the unique amenities of its Tower to attract
visitors. Gaming products, hotel rooms, entertainment and food and beverage
products are priced to appeal to the value-conscious, middle-market Las Vegas
visitor. The Top of the World restaurant, however, caters to higher-end
customers. Stratosphere offers competitive payout ratios for its slot machines
and video poker machines and competitive odds for its table games and sports
book products. Stratosphere offers attractive and often unique table games,
including Single Zero Roulette and Ten Times Odds Craps, that provide patrons
with odds that are better than the standard odds at other Las Vegas Strip
casinos. The Stratosphere participates in our Ultimate Rewards Club which
provides members with cash or complimentaries which can be used at all three of
our properties. Advertising and promotional campaigns are designed to maximize
hotel room occupancy, visits to the Tower and retention of guests on property.
67
The Stratosphere employs direct mail and electronic mail programs
targeting guests in its database with a variety of product offerings, including
incentives to visit Stratosphere's facilities on a frequent basis. The
Stratosphere uses print, radio and outdoor advertising. The Stratosphere has
significant outdoor advertising in and around McCarran International Airport.
The Stratosphere also advertises on the local Las Vegas hospitality network
television, which we believe many tourists use to determine which attractions to
attend. The Stratosphere has a website where customers can learn about the
property, make hotel reservations, purchase show tickets and make restaurant
reservations.
ARIZONA CHARLIE'S DECATUR
Arizona Charlie's Decatur opened in April 1988 as a full-service casino
and hotel geared toward residents of Las Vegas and surrounding communities.
Arizona Charlie's Decatur is located on approximately 17 acres of land four
miles west of the Las Vegas Strip in the heavily populated west Las Vegas area.
The property is easily accessible from Route 95, a major highway in Las Vegas.
Casino
Arizona Charlie's Decatur contains approximately 52,000 square feet of
gaming space with 1,516 slot machines, 14 table games, a 120-seat race and
sports book, a 486-seat, 24-hour bingo parlor, a 16-seat Keno lounge and a
16-seat poker lounge.
Approximately 72% of the slot machines at Arizona Charlie's Decatur are
video poker games. Arizona Charlie's Decatur emphasizes video poker because it
is popular with local players and generates, as a result, high volumes of play
and casino revenue. Arizona Charlie' Decatur has converted 100% of its video
poker and slot machines to Ticket-In/Ticket-Out technology. Most table games at
Arizona Charlie' Decatur are devoted to double-deck, hand-dealt blackjack play.
For the years ended December 31, 2001, 2002 and 2003, approximately
87.9%, 91.3% and 90.7%, respectively, of the property' gaming revenue was
generated by slot machine play and 6.7%, 5.7% and 5.0%, respectively, by table
games. Arizona Charlie' Decatur derives its other gaming revenue from bingo and
the race and sports book, which primarily serve to attract customers for slot
machines and table games.
Hotel, Food and Beverage
Arizona Charlie' Decatur currently has 258 rooms, including eight
suites. Hotel customers include local residents and their out-of-town guests, as
well as those business and leisure travelers who, because of location and cost
considerations, choose not to stay on the Las Vegas Strip or at other hotels in
Las Vegas.
Arizona Charlie' Decatur has four restaurants:
- Sourdough Cafe, open 24 hours a day, is located adjacent to
the casino floor and seats 250 patrons;
- Frisco Market Buffet, opened in October 2003, serves American
and international food in a San Francisco-themed atmosphere
and is located on the second floor and seats 260 patrons;
- Yukon Grille, an American-style steakhouse, is located on the
first floor, seats 95 patrons and attracts guests interested
in a more upscale dining experience; and
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- One quick service restaurant featuring two franchised brands
is located in close proximity to the poker room and the race
and sports book.
We believe that much of the casino and other business is attributable
to traffic created by the restaurants, and therefore prices are set at levels
designed to draw patrons to the facility. Our restaurants offer quality food and
service at affordable prices. Sourdough Cafe has been awarded the "Best
Breakfast Special" by the Las Vegas Review-Journal' "Best of Las Vegas Readers
Poll" for the past five years. Arizona Charlie's Decatur also has three bars,
one of which includes a lounge.
Retail and Entertainment
Arizona Charlie's Decatur provides complimentary entertainment as a
component of its overall customer appeal. The Naughty Ladies Saloon, a 111-seat
facility, features a variety of entertainment, including live bands, musician
showcase nights and jam sessions. Arizona Charlie's Decatur has focused on the
appeal of its entertainment programming in order to retain its customers and
increase the play at its casino.
A small gift shop located adjacent to the casino provides a limited
range of inexpensive gift items, candy, newspapers, magazines and cigarettes.
Added focus has been placed on logo merchandise promoting the Arizona Charlie's
name and motif. Arizona Charlie's Decatur offers on-site valet and self-parking
lots with combined capacity for over 1,400 vehicles. We believe that ease of
access to the casino is an important element in the appeal of Arizona Charlie's
Decatur to local customers.
Business and Marketing Strategy
Arizona Charlie's Decatur markets its hotel and casino primarily to
local residents of Las Vegas and the surrounding communities. We believe that
the property's pricing and gaming odds make it one of the best values in the
gaming industry and that its gaming products, hotel rooms, restaurants and other
amenities attract local customers in search of reasonable prices, smaller
casinos and more attentive service. Arizona Charlie's Decatur also tailors its
selection of slot machines, including many diverse video poker machines, and
table games, including double-deck, hand-dealt blackjack, to local casino
patrons. In addition, the casino features a selection of games that invite
personal interaction and which we believe are set for higher payout rates than
those at other Las Vegas casinos generally.
We use billboards, radio and television advertising, promotional
messages posted on our marquee, direct mailings to previous customers and e-mail
promotions, to promote the property and target our customers.
Arizona Charlie's Decatur also participates in the Ultimate Rewards
Club and the Action Cash program. Arizona Charlie's Boulder is the only other
casino that participates in the Action Cash program. Both programs permit their
members to accumulate points which can be redeemed for cash at the casino and
complimentaries at all three of our properties.
We have approximately 114,000 members registered with our Ultimate
Rewards Club, and approximately 38,000 of them are active members who have
visited the property at least once during the past 90 days. Importantly,
approximately 19% of our active Ultimate Rewards Club members frequented our
property, on average, more than four times per month.
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ARIZONA CHARLIE'S BOULDER
Arizona Charlie's Boulder opened in May 2000 as a full-service casino,
hotel and RV park. Arizona Charlie's Boulder is situated on approximately 24
acres of land located on Boulder Highway, in an established retail and
residential neighborhood in the eastern metropolitan area of Las Vegas. The
property is easily accessible from I-515 the most heavily traveled east/west
highway in Las Vegas.
Casino
Arizona Charlie's Boulder contains approximately 41,000 square feet of
gaming space with 835 slot machines, 13 table games, a 43-seat race and sports
book and a 500-seat, 24-hour bingo parlor.
Approximately 66% of the slot machines at Arizona Charlie's Boulder are
video poker games. Arizona Charlie's Boulder emphasizes video poker because it
is popular with local players and generates, as a result, high volumes of play
and casino revenue. Arizona Charlie's Boulder is 100% converted to Ticket-In/
Ticket-Out technology. Most table games at Arizona Charlie's Boulder are devoted
to double-deck, hand-dealt blackjack play.
For the years ended December 31, 2001, 2002 and 2003, approximately
87.2%, 92.9% and 88.0%, respectively, of gaming revenue was generated by gaming
machine play and 11.4%, 10.4% and 8.6%, respectively, by table games. Arizona
Charlie's Boulder derives its other gaming revenue from bingo and the race and
sports book, which primarily serve to attract customers for slot machines and
table games.
Hotel, Food and Beverage
Arizona Charlie's Boulder hotel currently has 303 rooms, including 219
suites. Hotel customers include local residents and their out-of-town guests, as
well as those business and leisure travelers who, because of location and cost
considerations, choose not to stay on the Las Vegas Strip or at other hotels in
Las Vegas. We completed an approximate $2.3 million renovation to the hotel room
interiors in January 2004.
Arizona Charlie's Boulder has four restaurants:
- Sourdough Cafe, open 24 hours a day, is located on the second
floor and seats 124 patrons;
- Wild West Buffet, serves a variety of foods and is located on
the second floor and seats 158 patrons;
- Yukon Grille, an American-style steakhouse, is located on the
second floor, seats 86 patrons and attracts guests interested
in a more upscale dining experience; and
- the Deli is located in close proximity to the race and sports
book, and seats 24 patrons.
We believe that much of the casino and other business is attributable
to traffic created by the restaurants, and therefore prices are set at levels
designed to draw patrons to the facility. The Sourdough Cafe, Wild West Buffet,
Yukon Grille and Deli offer quality food and service at affordable prices. The
Sourdough Cafe has been awarded the "Best Breakfast Special" by the Las Vegas
Review-Journal's "Best of Las Vegas Readers Poll" for the past three years.
Arizona Charlie's Boulder also has three bars, one of which includes a lounge.
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Retail and Entertainment
The emphasis of Arizona Charlie's Boulder on complimentary
entertainment is a component of its overall customer appeal. Palace Grand, a
112-seat facility, features live bands at no charge. Arizona Charlie's Boulder
has focused on the appeal of its entertainment programming in order to retain
its customers and increase the play at its casino.
Arizona Charlie's Boulder also has an RV park. With 30- to 70-foot pull
through stations and over 200 spaces, it is one of the largest short-term RV
parks on the Boulder Strip. The RV park offers a range of services including
laundry facilities, game and exercise rooms, swimming pool, whirlpool and shower
facilities which are included in the nightly, weekly or monthly rates.
A small gift shop located adjacent to the casino provides a limited
range of inexpensive gift items, candy, newspapers, magazines and cigarettes.
Added focus has been placed on logo merchandise promoting the Arizona Charlie's
name and motif. Arizona Charlie's Boulder offers on-site valet and self-parking
lots with combined capacity for over 1,200 vehicles. We believe that ease of
access to the casino is an important element in the appeal of Arizona Charlie's
Boulder to local customers.
Business and Marketing Strategy
Arizona Charlie's Boulder markets its hotel and casino primarily to
residents of Las Vegas and the surrounding communities. We believe that its
pricing and gaming odds make it one of the best values in the gaming industry
and that its gaming products, hotel rooms, restaurants, and other amenities
attract local customers in search of reasonable prices, smaller casinos and more
attentive service. Arizona Charlie's Boulder also tailors its selection of slot
machines, including many diverse video poker machines, and table games,
including double-deck, hand-dealt blackjack, to local casino patrons. In
addition, the casino features a selection of games that invites personal
interaction and which we believe are set for higher payout rates than those at
other Las Vegas casinos generally.
We use billboards, radio and television advertising, promotional
messages posted on our marquee, direct mailings to previous customers and e-mail
promotions, to promote the property and target our customers.
Arizona Charlie's Boulder also participates in the Ultimate Rewards
Club and the Action Cash program. Arizona Charlie's Decatur is the only other
casino that participates in the Action Cash program. Both programs permit its
members to accumulate points which can be redeemed for cash at the casino earned
and complimentaries at all three of our properties.
We have approximately 97,000 members registered with our Ultimate
Rewards Club, and approximately 26,000 of them are active members who have
visited the property at least once during the past 90 days. Importantly,
approximately 15% of our active Ultimate Rewards Club members frequented our
property, on average, more than four times per month.
OUR BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
We intend to grow the revenues and profitability of our business
through the continued execution of a number of key operating strategies:
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VALUE-ORIENTED EXPERIENCE
We target primarily middle-market customers who focus on obtaining
value in their gaming, lodging, dining and entertainment experiences. We strive
to deliver value to our gaming customers at our Arizona Charlie's locations by
offering payout ratios on our slot and video poker machines that we believe are
among the highest payout ratios in Las Vegas. Similarly, at the Stratosphere, we
offer attractive table games, including Single Zero Roulette and Ten Times Odds
Craps, that provide patrons with odds that are better than the standard odds for
these games at other Las Vegas Strip casinos.
We also provide our customers with attractive offerings in the areas of
lodging and food and beverage service. Our product offerings in each of these
categories are reasonably priced and of consistently high quality. In addition,
we believe our Ultimate Rewards Club, which enables customers to receive and
redeem rewards at all three of our properties, offers our customers some of the
most generous complimentary policies in Las Vegas, rewarding and further
encouraging frequent visitations by our customers.
CUSTOMER SERVICE
We are committed to providing our patrons a high level of customer
service. Our employees participate in regular and intensive customer service
training programs and are rewarded and incentivized, in part, based upon the
quality of service they provide to customers. We routinely conduct comprehensive
customer surveys at all of our properties, and we pursue a process of continuous
improvement at our properties based on the information gathered from our
surveys.
STRATOSPHERE AS A DESTINATION PROPERTY FOR VISITORS TO LAS VEGAS
We believe the Stratosphere is one of the most recognized landmarks in
Las Vegas. The Stratosphere offers the tallest free-standing observation tower
in the United States and, at 1,149 feet, it is the tallest building west of the
Mississippi River. The Stratosphere Tower boasts some of the most unique
amenities in Las Vegas, including an award-winning, 380-seat revolving
restaurant with unparalleled views of Las Vegas, known as the Top of the World,
the highest indoor/outdoor observation deck in Las Vegas, and the three highest
amusement rides in the world: the Big Shot, the High Roller and the recently
launched X Scream. The Stratosphere Tower also has a 175-seat cocktail lounge, a
wedding chapel and 6,200 square feet of event space.
We believe that the distinctive amenities of the Stratosphere, together
with our dedication to providing a high-quality, value-oriented experience, have
significantly contributed to the over 1.4 million visits to the Stratosphere
Tower in the twelve months ended June 30, 2004. We believe our attractions, as
well as the introduction of additional entertainment-driven amenities, will
enable us to continue to market the Stratosphere as a "must see" destination
property in Las Vegas.
RECENT SUCCESSFUL INITIATIVES
Our management team has improved operating results by: repositioning
each of our properties to better target their respective markets, expanding and
improving our existing facilities, focusing on customer service and implementing
a targeted cost reduction program. We believe there are a number of additional
initiatives which should contribute to a further improvement in our operating
performance, including the conversion of 100% of the slot floor space at each of
our properties from coin-operated to Ticket-In/ Ticket-Out, the introduction of
new entertainment attractions and other amenities into our casinos, further
refinements to our Ultimate Rewards Club and the continued execution of our
integration strategy and cost savings initiatives.
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EMPHASIS ON SLOT PLAY
We have focused our marketing efforts on attracting customers with an
affinity for playing slot and video poker machines. Similarly, we have
intentionally avoided competing for the attention of high-stakes table game
customers. We believe slot machine players are a more consistently profitable
customer type, and our properties are specifically oriented to this type of
customer. We have invested in outfitting our casinos with the latest in slot and
video poker machine technology and game brands. We regularly modify our mix of
slot machine product to maximize the profitability of our casinos, while also
providing our customers with the most current product offerings. We expect the
conversion to the 100% Ticket-In/Ticket-Out format to be completed at all of our
properties by the end of the first quarter of 2004. We anticipate this format
will yield meaningful operating efficiencies for us, while also increasing the
rate of customer play, as patrons will be able to enjoy a gaming experience
uninterrupted by the machine servicing requirements typically necessary for
coin-operated slot machines.
STRONG OWNERSHIP AND EXPERIENCED MANAGEMENT TEAM
We are a subsidiary of AREP, a New York Stock Exchange-listed limited
partnership which had over $2.0 billion in assets at March 31, 2004 and after
giving effect to an offering by it of 8?% Senior Notes due 2012, which was
completed on May 12, 2004, and the acquisitions and related transactions. Carl
C. Icahn, through affiliates, owns 100% of AREP's general partner and over 86%
of AREP's outstanding depositary units and preferred units.
Our senior management team, which collectively has over 100 years of
operating experience in the gaming industry, has successfully managed a
significant improvement in the operating performance of our properties. Our
executive and property-level management teams have an established record of
developing, integrating and operating gaming and entertainment properties. Our
management team is focused on controlling costs in an effort to increase
operating cash flow.
COMPETITION
The hotel and casino industry in general, and the markets in which we
compete in particular, are highly competitive. The Las Vegas market includes
many world class destination resorts, with numerous other tourist attractions.
Numerous Las Vegas hotel and casino resorts are themselves tourist attractions.
Each of these resorts competes with us in our ability to attract visitors to the
Stratosphere. The Stratosphere's hotel and food and beverage operations compete
directly with other properties targeting the budget-minded, middle-market Las
Vegas visitor.
Arizona Charlie's Decatur and Arizona Charlie's Boulder compete
primarily with other Las Vegas hotels and casinos located outside of the Las
Vegas Strip. The Arizona Charlie's properties compete for local customers with
other hotels and casinos targeting this group and located near their respective
hotel and casino. The Arizona Charlie's properties compete with other casinos in
the Las Vegas metropolitan area based on a mix of casino games, personal
service, payout ratios, location, price of hotel rooms, restaurant value and
promotions.
SEASONALITY
Generally, our gaming and entertainment properties are not affected by
seasonal trends. However, our gaming and entertainment properties tend to have
increased customer flow from mid-January through Easter and from mid-September
through Thanksgiving and during periods of large events, conventions or trade
shows. Our gaming and entertainment properties tend to have decreased customer
flow from Thanksgiving through the middle of January, except during the week
between Christmas and New Year's.
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EMPLOYEES
At June 30, 2004, the Stratosphere employs approximately 2,399 full and
part-time employees, of whom approximately 1,319 were covered by collective
bargaining agreements.
At June 30, 2004, approximately 1,241 employees working in kitchen
production, food service, slot service, bell service, housekeeping, and beverage
service currently were covered by a collective bargaining agreement between
Stratosphere Gaming Corporation and the Culinary Workers Union, Local 226 and
the Bartenders Union, Local 165. This agreement has been in effect since June 1,
2002 and will expire on May 31, 2007.
At June 30, 2004, approximately 67 employees working in maintenance and
engineering classifications were covered by a collective bargaining agreement
between Stratosphere Corporation and the International Union of Operating
Engineers, Local No. 501. This agreement has been in effect since October 15,
2002 and will expire on October 14, 2005.
At June 30, 2004, approximately 11 employees working in the warehouse
are currently covered by a collective bargaining agreement between Stratosphere
Gaming Corporation and the Professional, Clerical and Miscellaneous Employees,
Teamsters, Local Union No. 995. This agreement has been in effect since August
1, 2001 and will expire on July 31, 2004.
The Stratosphere has historically had good relationships with unions
representing its employees.
At June 30, 2004, Arizona Charlie's Decatur and Arizona Charlie's
Boulder employed approximately 868 persons and 584 persons, respectively, none
of whom was employed pursuant to collective bargaining or other union
arrangements. Management believes that its employee relations are good.
PROPERTIES
The Stratosphere is located at 2000 Las Vegas Boulevard South on the
Las Vegas Strip on approximately 31 acres owned by us. The property includes
approximately eight acres of undeveloped land.
Arizona Charlie's Decatur is located at 740 South Decatur Boulevard,
Las Vegas, Nevada on approximately 17 acres owned by us. In addition, Arizona
Charlie's Decatur leases office, storage and laundry space located in an
adjacent shopping center. The current annual rent payable, including insurance,
tax and common area maintenance payments, under lease aggregates approximately
$85,000.
Arizona Charlie's Boulder is located at 4575 Boulder Highway, Las
Vegas, Nevada on approximately 24 acres owned by us.
ENVIRONMENTAL MATTERS
We are subject to various federal, state and local laws, ordinances and
regulations that (1) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water or (2) may impose
liability for the costs of cleaning up and certain damages resulting from sites
of past spills, disposals or other releases of hazardous or toxic substances or
wastes. We endeavor to maintain compliance with environmental laws, but from
time to time, current or historical operations on our property may have resulted
or may result in noncompliance or liability for cleanup pursuant to
environmental laws. In that regard, we may incur costs for cleaning up
contamination relating to historical
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uses of certain of its properties.
LEGAL PROCEEDINGS
We are from time to time parties to various legal proceedings arising
out of our businesses. We believe, however, that, other than the proceedings
discussed below, there are no proceedings pending or threatened against us
which, if determined adversely, would have a material adverse effect on our
business, financial condition, results or operation or liquidity.
In December 2001, Tiffiny Decorating Company, a subcontractor to Great
Western Drywall, Inc., commenced an action against Stratosphere Corporation,
Stratosphere Development, LLC, AREH, Great Western and Nevada Title and Safeco
Insurance in the Eighth Judicial District Court of the State of Nevada. The
action asserts claims that include breach of contract, unjust enrichment and
foreclosure of lien. We filed a cross-claim against Great Western in that
action. Additionally, Great Western has filed a separate legal action against
the Stratosphere parties setting forth the same disputed issues and claiming
additional damages. That separate action has been consolidated with the case
brought by Tiffiny.
The initial complaint brought by Tiffiny asserts that Tiffiny performed
certain construction services at the Stratosphere and was not fully paid for
those services. Tiffiny claims the sum of approximately $521,562 against Great
Western, the Stratosphere parties and the other defendants, which the
Stratosphere parties contend has been paid to Great Western for payment to
Tiffiny.
Great Western is alleging that it is owed payment from the Stratosphere
parties for work performed and for delay and disruption damages. Great Western
is claiming damages in the sum of $3,935,438 plus interest, costs and legal fees
from the Stratosphere parties. The amount apparently includes the Tiffiny claim.
The Stratosphere parties have evaluated the project and have determined
that the amount of approximately $1,004,059, of which $195,953 and $371,973 were
disbursed to Tiffiny and Great Western in 2002, respectively, is properly due
and payable to satisfy all claims for the work performed, including the claim by
Tiffiny. The remaining amount has been segregated in a separate interest bearing
account. The Stratosphere parties intend to vigorously defend the action for
claims in excess of $1,004,059.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On April 1, 2004, KPMG LLP advised our indirect parent, American Real
Estate Partners, L.P., or AREP, that it would not seek re-election as AREP's
independent auditor for 2004, and that the client-auditor relationship between
AREP and KPMG had ceased and, therefore, our relationship with KPMG has also
ceased. None of KPMG's reports on our combined financial statements for the
years ended December 31, 2002 or 2003 contained an adverse opinion or a
disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope or accounting principles. During the two most recent
fiscal years and the interim period preceding receipt of KPMG's letter, there
were no (1) disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreements in connection with
its report or (2) "reportable events" as such term is defined in Item
304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
Effective as of April 26, 2004, AREP's audit committee engaged Grant
Thornton LLP as its independent public accountant and, therefore, our
independent public accountant. During the years ended December 31, 2002 and
2003, and from January 1, 2004 through April 26, 2004 (the date Grant Thornton
75
LLP was appointed), neither we, AREP nor AREP's audit committee consulted Grant
Thornton LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed; or any matter that was
either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K).
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REGULATION
INTRODUCTION
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to the Nevada Gaming Control Act and the regulations made
under such Act, as well as various local ordinances. The gaming operations of
our casinos are subject to the licensing and regulatory control of the Nevada
Gaming Commission and the Nevada State Gaming Control Board. Our casinos'
operations are also subject to regulation by the Clark County Liquor and Gaming
Licensing Board and the City of Las Vegas. These agencies are referred to herein
collectively as the Nevada Gaming Authorities.
POLICY CONCERNS OF GAMING LAWS
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy. These public policy
concerns include, among other things:
- preventing unsavory or unsuitable persons from being directly
or indirectly involved with gaming at any time or in any
capacity;
- establishing and maintaining responsible accounting practices
and procedures;
- maintaining effective controls over the financial practices of
licensees, including establishing minimum procedures for
internal fiscal affairs, and safeguarding assets and revenue,
providing reliable recordkeeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities;
- preventing cheating and fraudulent practices; and
- providing a source of state and local revenue through taxation
and licensing fees.
- Changes in these laws, regulations and procedures could have
significant negative effects on our gaming operations and our
financial condition and results of operations.
OWNER AND OPERATOR LICENSING REQUIREMENTS
Our casinos are licensed by the Nevada Gaming Authorities as corporate
and limited liability company licensees, which we refer to herein as company
licensees. Under their gaming licenses, our casinos are required to pay periodic
fees and taxes. The gaming licenses are not transferable.
To date, our casino properties have obtained all gaming licenses
necessary for the operation of their existing gaming operations; however, gaming
licenses and related approvals are privileges under Nevada law, and we cannot
assure you that any new gaming license or related approvals that may be required
in the future will be granted, or that any existing gaming licenses or related
approvals will not be limited, conditioned, suspended or revoked or will be
renewed.
OUR REGISTRATION REQUIREMENTS
We have been found suitable by the Nevada Gaming Commission to own the
equity interests of Charlie's Holding LLC and the stock of Stratosphere
Corporation. We have also been registered by the Nevada Gaming Commission as a
holding company, which we refer to herein as a registered company, for the
purposes of the Nevada Gaming Control Act. American Entertainment Properties
Corp., our direct
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parent, has been found suitable by the Nevada Gaming Commission to own our
equity interests and to be registered by the Nevada Gaming Commission as a
holding company. Charlie's Holding LLC has been found suitable by the Nevada
Gaming Commission to own the equity securities of its licensed subsidiaries.
Periodically, we will be required to submit detailed financial and
operating reports to the Nevada Gaming Commission and to provide any other
information that the Nevada Gaming Commission may require. Substantially all of
our material loans, leases, sales of securities and similar financing
transactions must be reported to, or approved by, the Nevada Gaming Commission.
INDIVIDUAL LICENSING REQUIREMENTS
No person may become a stockholder or member of, or receive any
percentage of the profits of, a non-publicly traded holding or intermediary
company or company licensee without first obtaining licenses and approvals from
the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any
individual who has a material relationship to or material involvement with us to
determine whether the individual is suitable or should be licensed as a business
associate of a gaming licensee. Keith A. Meister has filed an application to be
licensed or found suitable by the Nevada Gaming Authorities as one of our
officers and as a director of American Entertainment Properties Corp., our
direct parent. Key employees of a company licensee may also be required to file
such applications. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. An applicant for
licensing or an applicant for a finding of suitability must pay or must cause to
be paid all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or licensing, the Nevada
Gaming Authorities have the jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with us, we would have to sever all relationships with that person.
In addition, the Nevada Gaming Commission may require us to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
CONSEQUENCES OF VIOLATING GAMING LAWS
If the Nevada Gaming Commission decides that we have violated the
Nevada Gaming Control Act or any of its regulations, it could limit, condition,
suspend or revoke our registrations and gaming licenses. In addition, we and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Gaming Control Act, or of the regulations of the Nevada
Gaming Commission, at the discretion of the Nevada Gaming Commission. Further,
the Nevada Gaming Commission could appoint a supervisor to conduct the
operations of our casinos and, under specified circumstances, earnings generated
during the supervisor's appointment, except for the reasonable rental value of
the premises, could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of any of our gaming licenses and the appointment of
a supervisor could, and revocation of any gaming license would, have a
significant negative effect on our gaming operations.
REQUIREMENTS FOR BENEFICIAL SECURITIES HOLDERS
Regardless of the number of equity interests held, any beneficial
holder of our voting securities may be required to file an application, be
investigated and have that person's suitability as a beneficial
78
holder of voting securities determined if the Nevada Gaming Commission has
reason to believe that the ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. If the beneficial holder of the voting
securities who must be found suitable is a corporation, partnership, limited
partnership, limited liability company or trust, it must submit detailed
business and financial information including a list of its beneficial owners.
The applicant must pay all costs of the investigation incurred by the Nevada
Gaming Authorities in conducting any investigation.
The Nevada Gaming Control Act requires any person who acquires more
than 5% of the voting securities of a publicly traded registered company to
report the acquisition to the Nevada Gaming Commission. The Nevada Gaming
Control Act requires beneficial owners of more than 10% of a publicly traded
registered company's voting securities to apply to the Nevada Gaming Commission
for a finding of suitability within 30 days after the Chairman of the Nevada
State Gaming Control Board mails the written notice requiring such filing. Under
certain circumstances, an "institutional investor," as defined in the Nevada
Gaming Control Act, which acquires more than 10%, but not more than 15%, of the
publicly traded registered company's voting securities may apply to the Nevada
Gaming Commission for a waiver of a finding of suitability if the institutional
investor holds the voting securities for investment purposes only. In certain
circumstances, an institutional investor that has obtained a waiver can hold up
to 19% of a registered company's voting securities for a limited period of time
and maintain the waiver. An institutional investor will not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of the board at directors of the publicly
traded registered company, a change in the corporate charter, bylaws,
management, policies or operations of the publicly traded registered company, or
any of its gaming affiliates, or any other action which the Nevada Gaming
Commission finds to be inconsistent with holding the publicly traded registered
company's voting securities for investment purposes only. Activities which are
not deemed to be inconsistent with holding voting securities for investment
purposes only include:
- voting on all matters voted on by stockholders or interest
holders;
- making financial and other inquiries of management of the type
normally made by securities analysts for informational
purposes and not to cause a change in its management, policies
or operations; and
- other activities that the Nevada Gaming Commission may
determine to be consistent with such investment intent.
CONSEQUENCES OF BEING FOUND UNSUITABLE
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Nevada Gaming
Commission or by the Chairman of the Nevada State Gaming Control Board, or who
refuses or fails to pay the investigative costs incurred by the Nevada Gaming
Authorities in connection with the investigation of its application, may be
found unsuitable. The same restrictions apply to a record owner if the record
owner, after request, fails to identify the beneficial owner. Any person found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
any voting security or debt security of a registered company beyond the period
of time as may be prescribed by the Nevada Gaming Commission may be guilty of a
criminal offense. We will be subject to disciplinary action if, after we receive
notice that a person is unsuitable to hold an equity interest or to have any
other relationship with, we:
- pay that person any dividend or interest upon any voting
securities;
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- allow that person to exercise, directly or indirectly, any
voting right held by that person;
- pay remuneration in any form to that person for services
rendered or otherwise; or
- fail to pursue all lawful efforts to require the unsuitable
person to relinquish such person's voting securities
including, if necessary, the immediate purchase of the voting
securities for cash at fair market value.
GAMING LAWS RELATING TO SECURITIES OWNERSHIP
The Nevada Gaming Commission may, in its discretion, require the holder
of any debt or similar securities of a registered company to file applications,
be investigated and be found suitable to own the debt or other security of the
registered company if the Nevada Gaming Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the Nevada Gaming Commission decides that a person is
unsuitable to own the security, then under the Nevada Gaming Control Act, the
registered company can be sanctioned, including the loss of its approvals if,
without the prior approval of the Nevada Gaming Commission, it:
- pays to the unsuitable person any dividend, interest or any
distribution whatsoever;
- recognizes any voting right by the unsuitable person in
connection with the securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation or
similar transaction.
We are required to maintain a current stock ledger in Nevada, which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make the disclosure may be grounds for finding the record holder
unsuitable. We will be required to render maximum assistance in determining the
identity of the beneficial owner of any of our voting securities. The Nevada
Gaming Commission has the power to require the stock certificates of any
registered company to bear a legend indicating that the securities are subject
to the Nevada Gaming Control Act and certain subject to restrictions imposed by
applicable gaming laws. To date, this requirement will be imposed on us.
APPROVAL OF STOCK PLEDGES AND CERTAIN NEGATIVE COVENANTS
The pledge of the equity securities of Charlie's Holding LLC,
Stratosphere Corporation and their licensed subsidiaries and any of our other
future subsidiaries that obtains a Nevada gaming license, or is registered with
the Nevada Gaming Commission, requires the approval of the Nevada Gaming
Commission, upon the recommendation of the Nevada Gaming Control Board, before
becoming effective. Such approval is also required in relation to restrictions
on the transfer of and agreements not to encumber the equity securities of
Charlie's Holding LLC, Stratosphere Corporation and their licensed subsidiaries
or any other of our future subsidiaries that obtains a Nevada gaming license or
is registered with the Nevada Gaming Commission. These approvals have been
granted with respect to our existing licensed and registered subsidiaries.
Approval by the Nevada Gaming Commission of the pledges does not constitute
approval to foreclose on the pledges. Separate approval would be required to
foreclose on the pledges and to transfer ownership of the underlying membership
interests. Approval to foreclose on the pledges would require the licensing of
the trustee or other secured party, unless the Nevada Gaming
80
Commission waives such licensing requirements upon application of the secured
party. No assurance can be given that approval to foreclose on the pledges would
be granted, or that the secured party seeking to foreclose on the equity pledges
would be licensed or would receive a waiver of such licensing requirements.
Foreclosure on a lien on collateral consisting of gaming devices in respect of
the notes and the exchange notes and the taking of possession of such gaming
devices may require that the Nevada Gaming Commission license the foreclosing
party as a distributor. Under the Nevada Gaming Control Act, however, the Nevada
Gaming Control Board may authorize the disposition of gaming devices without
requiring a distributor's license when such gaming devices are acquired through
foreclosure on a lien secured in whole or part by gaming devices. No assurance
can be given that the Nevada Gaming Control Board would grant such approval or
that if that approval were not granted, the foreclosing party would be granted a
license as a distributor.
APPROVAL OF PUBLIC OFFERINGS
Neither we nor any of our affiliates may make a public offering of our
securities without the prior approval of the Nevada Gaming Commission if the
proceeds from the offering are intended to be used to construct, acquire or
finance gaming facilities in Nevada, or to retire or extend obligations incurred
for those purposes or for similar transactions. Any approval of any future
public offerings will not constitute a finding, recommendation or approval by
any of the Nevada Gaming Authorities as to the accuracy or adequacy of the
offering document or the investment merits of the securities. Any statement
indicating otherwise is unlawful.
The offer by us to exchange the notes for publicly registered notes
will require the review of, and prior approval by, the Nevada Gaming
Authorities. We have applied to the Nevada Gaming Commission for approval of the
exchange offer. If granted this approval will permit us to issue the exchange
notes. There can be no assurance that this approval will be granted or that it
will be granted on a timely manner.
APPROVAL OF CHANGES IN CONTROL
We must obtain prior approval of the Nevada Gaming Commission with
respect to a change in control through:
- merger;
- consolidation;
- stock or asset acquisitions;
- management or consulting agreements; or
- any act or conduct by a person by which the person obtains
control of us.
Entities seeking to acquire control of a registered company must
satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission with
respect to a variety of stringent standards before assuming control of the
registered company. The Nevada Gaming Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control to be
investigated and licensed as part of the approval process relating to the
transaction.
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APPROVAL OF DEFENSIVE TACTICS
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licenses or affecting registered companies that
are affiliated with the operations permitted by Nevada gaming licenses may be
harmful to stable and productive corporate gaming. The Nevada Gaming Commission
has established a regulatory scheme to reduce the potentially adverse effects of
these business practices upon Nevada's gaming industry and to further Nevada's
policy to:
- assure the financial stability of corporate gaming operators
and their affiliates;
- preserve the beneficial aspects of conducting business in the
corporate form; and
- promote a neutral environment for the orderly governance of
corporate affairs.
Approvals may be required from the Nevada Gaming Commission before we
can make exceptional repurchases of voting securities above our current market
price and before a corporate acquisition opposed by management can be
consummated. The Nevada Gaming Control Act also requires prior approval of a
plan of recapitalization proposed by a registered company's board of directors
in response to a tender offer made directly to its stockholders for the purpose
of acquiring control.
FEES AND TAXES
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the licensed subsidiaries respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon:
- a percentage of gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A live entertainment tax is also paid by casino operations where
entertainment is furnished in connection with an admission charge, the selling
or serving of food or refreshments or the selling of merchandise. Our casinos
are also subject to a state payroll tax based on the wages paid to their
employees.
FOREIGN GAMING INVESTIGATIONS
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with those persons, which
we refer to as licensees, and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada State Gaming
Control Board, and thereafter maintain, a revolving fund in the amount of
$10,000 to pay the expenses of investigation of the Nevada State Gaming Control
Board of the licensee's or registrant's participation in such foreign gaming.
The revolving fund is subject to increase or decrease in the discretion of the
Nevada Gaming Commission. Licensees and registrants are required to comply with
the reporting requirements imposed by the Nevada Gaming Control Act. A licensee
or registrant is also subject to disciplinary action by the Nevada Gaming
Commission if it:
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- knowingly violates any laws of the foreign jurisdiction
pertaining to the foreign gaming operation;
- fails to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada
gaming operations;
- engages in any activity or enters into any association that is
unsuitable because it poses an unreasonable threat to the
control of gaming in Nevada, reflects or tends to reflect,
discredit or disrepute upon the State of Nevada or gaming in
Nevada, or is contrary to the gaming policies of Nevada;
- engages in activities or enters into associations that are
harmful to the State of Nevada or its ability to collect
gaming taxes and fees; or
- employs, contracts with or associates with a person in the
foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of unsuitability.
LICENSE FOR CONDUCT OF GAMING AND SALE OF ALCOHOLIC BEVERAGES
The conduct of gaming activities and the service and sale of alcoholic
beverages by our casinos are subject to licensing, control and regulation by the
Clark County Liquor and Gaming Licensing Board and the City of Las Vegas. In
addition to approving our casinos, the Clark County Liquor and Gaming License
Board and the City of Las Vegas have the authority to approve all persons owning
or controlling the stock of any corporation controlling a gaming license. All
licenses are revocable and are not transferable. The county and city agencies
have full power to limit, condition, suspend or revoke any license. Any
disciplinary action could, and revocation would, have a substantial negative
impact upon our operations.
INDEMNIFICATION OBLIGATIONS
Starfire Holding Corporation and Mr. Icahn agreed to indemnify American
Casino & Entertainment Properties LLC against, and agreed to hold it harmless
from, any and all losses it incurs associated with any breach of or any
inaccuracy in any representation or warranty made by the sellers in the
membership interest purchase agreement, or any breach of or failure by the
sellers to perform any of their covenants or obligations set out or contemplated
in the membership interest purchase agreement.
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MANAGEMENT
The following table sets forth certain information as of June 30, 2004,
concerning the executive officers and directors of American Entertainment
Properties Corp., our parent, and American Casino & Entertainment Properties
Finance Corp. who have been appointed subject to receipt of any necessary
approvals from the Nevada gaming authorities:
NAME AGE POSITION
- -------------------- --- ----------------------------------------------
Jack G. Wasserman 67 Director
William A. Leidesdorf 59 Director
James L. Nelson 54 Director
Keith A. Meister 31 Director
Richard P. Brown 57 President, Chief Executive Officer and Director
Denise Barton 47 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
The following table sets forth certain information as of June 30, 2004,
concerning our executive officers and key employees who have been appointed
subject to receipt of any necessary approvals from the Nevada gaming
authorities:
NAME AGE POSITION
- ----------------- --- -----------------------------------------------------------------------
Richard P. Brown 57 President and Chief Executive Officer
Denise Barton 47 Senior Vice President, Chief Financial Officer, Treasurer and Secretary
Ronald P. Lurie 63 General Manager -- Arizona Charlie's Decatur
Bobby Ray Harris 45 General Manager -- Stratosphere Operations
Mark Majetich 54 General Manager -- Arizona Charlie's Boulder
Jack G. Wasserman has served as a Director of American Entertainment
Properties Corp., American Casino & Entertainment Properties Finance Corp. and
American Real Estate Finance Corp. since inception and a Director of API since
December 3, 1993. Mr. Wasserman is an attorney and a member of the bars of New
York, Florida, and the District of Columbia. From 1966 until 2001, he was a
senior partner of Wasserman, Schneider, Babb & Reed, a New York-based law firm
and its predecessors. Since September 2001, Mr. Wasserman has been engaged in
the practice of law as a sole practitioner. Mr. Wasserman has been licensed by
the New Jersey State Casino Control Commission and the Nevada State Gaming
Commission and, at the latter's direction, is an independent member and the
Chairman of the Stratosphere's Compliance Committee. Mr. Wasserman is not a
member of the Stratosphere's Board of Directors. Since December 1, 1998, Mr.
Wasserman has been a Director of National Energy Group, Inc., which, on December
4, 1998, sought protection under the Federal bankruptcy laws. A Plan of
Reorganization became effective on August 4, 2000, and a final decree closing
the case and settling all matters relating to the bankruptcy proceeding became
effective on December 13, 2001. In 2003, National Energy Group, Inc. became a
subsidiary of AREH. Mr. Wasserman is also a Director of Cadus Pharmaceutical
Corporation, a publicly-traded biotechnology company. Affiliates of Mr. Icahn
are controlling shareholders of each of these companies. On June 9, 2004, Mr.
Wasserman was elected to the Board of Directors of Triarc Industries, Inc., a
publicly traded diversified holding company.
William A. Leidesdorf has served as a Director of American
Entertainment Properties Corp., American Casino & Entertainment Properties
Finance Corp. and American Real Estate Finance Corp. since inception and a
Director of API since March 26, 1991. Mr. Leidesdorf is also a Director of Renco
Steel Group, Inc. and its subsidiary, WCI Steel Inc., a steel producer which
filed for Chapter 11 bankruptcy protection in September 2003. Since June 1997,
Mr. Leidesdorf has been an owner and a managing director of Renaissance Housing,
LLC, a company primarily engaged in acquiring multifamily residential
properties. From April 1995 through December 1997, Mr. Leidesdorf acted as an
independent
84
real estate investment banker. Mr. Leidesdorf has been licensed by the New
Jersey Casino Control Commission and the Nevada State Gaming Control Commission.
James L. Nelson has served as a Director of American Entertainment
Properties Corp., American Casino & Entertainment Properties Finance Corp. and
American Real Estate Finance Corp. since inception and a Director of API since
June 12, 2001. From 1986 until the present, Mr. Nelson has been Chairman and
Chief Executive Officer of Eaglescliff Corporation, a specialty investment
banking, consulting and wealth management company. From March 1998 through 2003,
Mr. Nelson was Chairman and Chief Executive Officer of Orbit Aviation, Inc., a
company engaged in the acquisition and completion of Boeing Business Jets for
private and corporate clients. From August 1995 until July 1999, he was Chief
Executive Officer and Co-Chairman of Orbitex Management, Inc. Mr. Nelson
currently serves as a Director of Viskase Corporation, a closely-held supplier
for the meat and poultry business. Until March 2001, he was on the Board of
Orbitex Financial Services Group, a financial services company in the mutual
fund sector. Mr. Nelson has been licensed by the New Jersey State Casino Control
Commission and the Nevada State Gaming Control Commission.
Keith A. Meister has served as a Director of American Entertainment
Properties Corp., American Casino & Entertainment Properties Finance Corp. and
American Real Estate Finance Corp. since inception. Since August 2003, Mr.
Meister has served as President and Chief Executive Officer of API. He also
continues to serve as a senior investment analyst of High River Limited
Partnership, a company affiliated with Mr. Icahn, a position he has held since
June 2002. From March 2000 through 2001, Mr. Meister co-founded and served as
co-president of J Net Ventures, a venture capital fund focused on investments in
information technology and enterprise software businesses. From 1997 through
1999, Mr. Meister served as an investment professional at Northstar Capital
Partners, an opportunistic real estate investment partnership. Prior to
Northstar, Mr. Meister served as an investment analyst in the investment banking
group at Lazard Freres. He also serves on the following Boards of Directors: XO
Communications, Inc., a company that is majority-owned by various Icahn
entities; TransTexas Gas Corporation, a company that is 85%-owned by various
Icahn entities and managed by National Energy Group, Inc., a subsidiary of AREH;
and Scientia Corporation, a private health care venture company in which AREH
holds less than a 10% equity interest.
Richard P. Brown has served as our President and Chief Executive
Officer and President, Chief Executive Officer and a director of American
Entertainment Properties Corp. and American Casino & Entertainment Properties
Finance Corp. since inception. Mr. Brown has over 12 years experience in the
gaming industry. Mr. Brown has been the President and Chief Executive Officer of
each of the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's
Boulder since June 2002. From January 2001 to June 2002, he served as Chief
Operating Officer for all three properties. Prior to joining Stratosphere Gaming
Corporation in March 2000 as Executive Vice President of Marketing, Mr. Brown
held executive positions with Harrah's Entertainment and Hilton Hotels
Corporation. Mr. Brown also serves as President and Chief Executive Officer of
Greate Bay Hotel and Casino, Inc., which owns and operates the Sands Hotel and
Casino in Atlantic City, New Jersey and which is controlled by affiliates of Mr.
Icahn.
Denise Barton has served as the Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of American Entertainment Properties Corp.,
American Casino & Entertainment Properties Finance Corp. and American Casino &
Entertainment Properties LLC since inception. Ms. Barton has been Senior Vice
President and Chief Financial Officer of each of the Stratosphere, Arizona
Charlie's Decatur and Arizona Charlie's Boulder since February 2003. Ms. Barton
joined the Stratosphere as Vice President of Finance and Chief Financial Officer
in August 2002. Subject to the approval of the New Jersey Casino Control
Commission, Ms. Barton will serve as the interim Chief Financial Officer of
Greate Bay Holding, Inc., an entity controlled by affiliates of Mr. Icahn. From
February 1999 to June
85
2002, she served as Chief Financial Officer for Lowestfare.com, a travel company
controlled by affiliates of Mr. Icahn. Ms. Barton was employed by KPMG LLP,
certified public accountants, from January 1990 to February 1999. Ms. Barton is
a certified public accountant.
Ronald P. Lurie has served as our General Manager -- Arizona Charlie's
Decatur since inception and as Executive Vice President and General Manager of
Arizona Charlie's Decatur since January 1999. From November 1990 until January
1999, Mr. Lurie held various positions at Sunset Coin, an affiliate of Arizona
Charlie's, Inc., including most recently as General Manager of Sunset Coin. In
addition to his 25 years in the gaming industry, Mr. Lurie served as a Las Vegas
City Councilman from 1973 to 1987 and as the Mayor of Las Vegas from June 1987
to June 1991.
Bobby Ray Harris has served as our General Manager -- Stratosphere
Operations since inception and as Senior Vice President -- Stratosphere
Operations since March 2000. From February 1999 to March 2000 he served as Vice
President -- Hotel and Tower Operations and from August 1996 to February 1999 he
served as Director of Hotel Operations. Mr. Harris joined the Stratosphere in
October 1995 as the director of marketing services. Prior to joining the
Stratosphere, Mr. Harris held various management positions at Caesars Tahoe and
MGM Grand. He has more than 20 years of experience in the gaming industry.
Mark Majetich has served as our General Manager -- Arizona Charlie's
Boulder since inception and Vice President -- General Manager for Arizona
Charlie's Boulder since May 2001. He served as Director of Operations at Arizona
Charlie's Boulder from February 2001 until May 2001. From June 2000 until
January 2001, he was Director of Hotel Operations for the Stratosphere. From
November 1992 until August 1999, Mr. Majetich held various positions at the
Excalibur Hotel/Casino, including most recently, Hotel Manager. He has more than
25 years of experience in the gaming industry.
COMPENSATION OF DIRECTORS
Our parent's directors who are not employees of American Casino &
Entertainment Properties LLC do not receive any compensation for their service
as members of our parent's board of directors, but are reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at meetings
of the board of directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during the year
ended December 31, 2003 and, with respect to the Stratosphere only, the years
ended December 31, 2001 and 2002, by our Chief Executive Officer and our four
other most highly compensated executive officers and key employees for services
rendered in all capacities for those years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ---------------------------------------------------- ---- --------- --------
Richard P. Brown.................................... 2003 317,411 20,000(1)
President and Chief Executive Officer 2002 276,823 20,000
2001 202,896 -
Denise Barton....................................... 2003 182,507 37,000
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary 2002 64,029 26,250
Ronald Lurie........................................ 2003 222,954 52,500
General Manager -- Arizona Charlie's Decatur 2002 216,311 -
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ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ---------------------------------------------------- ---- --------- --------
Bobby Ray Harris.................................... 2003 185,374 37,000
General Manager -- Stratosphere Operations 2002 171,417 35,000
2001 158,325 26,200
Mark Majetich....................................... 2003 149,471 37,500
General Manager -- Arizona Charlie's Boulder 2002 141,682 10,000
- ---------------
(1) Represents bonus earned in 2003 and paid in 2004.
OPTION GRANTS IN LAST FISCAL YEAR
We have not implemented a stock option plan.
EMPLOYMENT AGREEMENTS
We and Mr. Richard Brown, our President and Chief Executive Officer,
entered into a two-year employment agreement effective April 1, 2004. Mr.
Brown's agreement provides that he will be paid a base annual compensation of
$500,000. The agreement also provides that Mr. Brown will receive an annual
bonus of up to 50% of his annual compensation based on operating results of the
company. The agreement further provides that if Mr. Brown is terminated without
cause (as defined in the agreement), then Mr. Brown will receive any amounts of
the base salary and previously earned bonus due and unpaid to Mr. Brown as of
the termination date plus a lump-sum payment in the amount equal to the then
current base salary.
OUR SOLE STOCKHOLDER
American Entertainment Properties Corp. owns all of the membership
interests of American Casino & Entertainment Properties LLC. The principal
executive offices of American Entertainment Properties Corp. are located at 2000
Las Vegas Boulevard South, Las Vegas, Nevada 89104.
American Entertainment Properties Corp. is wholly owned by American
Real Estate Holdings Limited Partnership, or AREH. American Real Estate
Partners, L.P., or AREP, owns a 99% limited partner interest in AREH. Carl C.
Icahn, through certain affiliates, currently owns 100% of AREP's and AREH's
general partner and over 86% of AREP's outstanding depositary units and
preferred units.
Neither our officers nor the officers and directors of our parent own
any of our equity interests or the equity interests of our parent or
subsidiaries.
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CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
THE ACQUISITIONS
As of December 31, 2003, affiliates of Mr. Icahn owned over 86% of
AREP's outstanding depositary units and preferred units. AREP's general partner
is API, which is a wholly-owned subsidiary of Beckton Corp. All of the capital
stock of Beckton is owned by Mr. Icahn. AREP's business is conducted through a
subsidiary limited partnership, AREH, in which AREP owns a 99% limited
partnership interest. API has a 1% general partnership interest in each of AREP
and AREH. AREH owns 100% of American Entertainment Properties Corp. which is our
direct parent.
Pre-Acquisition Transactions
Prior to the acquisitions on May 26, 2004 by us of Stratosphere,
Arizona Charlie's Boulder and Arizona Charlie's Decatur, AREH owned 100% of
Stratosphere Corporation. In addition, prior to the acquisitions, Fresca, LLC,
the holder of Arizona Charlie's Boulder, was owned by Mr. Icahn and Mr. Icahn's
wholly-owned subsidiary, Starfire Holding Corporation, and Arizona Charlie's,
Inc., the holder of Arizona Charlie's Decatur, was wholly-owned by Nybor Limited
Partnership, the limited partner of which is Starfire Holding Corporation and
the general partner of which is Barberry Corp., which is wholly-owned by Mr.
Icahn.
Prior to the acquisitions, Stratosphere Corporation repaid a portion of
the principal amount of its intercompany debt owed to AREH $30.7 million, which
was an amount equal to not more than the cash Stratosphere Corporation held in
excess of $12 million. In addition, the entity which owns Arizona Charlie's
Decatur made a cash distribution in an amount equal to not more than the cash
the entity which owned Arizona Charlie's Decatur had in excess of $8 million and
such distribution was included in the assets that were acquired by us.
Acquisitions
In January 2004, we entered into a membership interest purchase
agreement with Starfire Holding Corporation and Mr. Icahn, as sellers, in which
American Casino & Entertainment Properties LLC agreed to purchase all of the
membership interests in Charlie's Holding LLC, a newly formed entity that owned
indirectly Arizona Charlie's, LLC, the successor to Arizona Charlie's, Inc.,
which owns and operates Arizona Charlie's Decatur, and Fresca, LLC, which owns
and operates Arizona Charlie's Boulder. The closing of this acquisition was
approved by the Nevada Gaming Commission upon the recommendation of the Nevada
State Gaming Control Board in May 2004. The purchase price was $125.9 million,
subject to a dollar for dollar reduction based on a post-closing adjustment to
the extent that, as of the closing date of the acquisitions, the working
capital, defined as current assets minus current liabilities, of Arizona
Charlie's, Inc. and Fresca, LLC was less than $6.037 million.
In January 2004, we entered into a contribution agreement with American
Entertainment Properties Corp., AREH and Stratosphere Corporation, in which AREH
agreed to contribute to American Entertainment Properties Corp. 100% of the
outstanding capital stock of Stratosphere Corporation, which American
Entertainment Properties Corp. would then contribute to American Casino &
Entertainment Properties LLC, subject only to necessary approvals under
applicable Nevada gaming laws and the closing of the transaction contemplated by
the membership interest purchase agreement. This transaction was also approved
by the Nevada Gaming Commission upon the recommendation of the Nevada Gaming
Control Board in May 2004.
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Tax Allocation Agreement
We and our subsidiaries entered into a tax allocation agreement with
our parent, American Entertainment Properties Corp. The tax allocation agreement
provides for payments to our parent of the tax liabilities, which we refer to as
the standalone tax liabilities, of us and our subsidiaries, calculated as if we
and our subsidiaries were a group of corporations filing consolidated income tax
returns separately from our parent, which we refer to as the standalone group.
The tax allocation agreement also provides for payments by our parent to us
whenever previously paid standalone tax liabilities must be reduced either as a
result of a subsequent determination such as by a governmental authority, or as
a result of the incurrence by the standalone group of net operating losses, net
capital losses or credits that may be carried back to prior years.
OTHER TRANSACTIONS
As of May 26, 2004, we have entered into an intercompany services
agreement with GB Holdings, Inc. pursuant to which we provide management and
consulting services. We are compensated based upon an allocation of salaries
plus a 15% overhead charged based upon the salary allocation and reimbursed for
reasonable out-of-pocket expenses. During 2002 and 2003 and the six months ended
June 30, 2004, we received payments from the company that owns the Sands in
Atlantic City, New Jersey, which is controlled by affiliates of Mr. Icahn, for
services provided by certain of our employees in an amount equal to
approximately $27,900 and $190,600 and $116,200, respectively.
During 2001, 2002, 2003 and the six months ended June 30, 2004, we made
payments to XO Communications, Inc., which, since January 2003, has been
controlled by affiliates of Mr. Icahn, for certain telecommunications services
provided to us in an amount equal to approximately $123,700, $160,900 and
$161,400 and $80,900, respectively.
On May 1, 2001, Stratosphere Corporation delivered a $73.0 million
promissory note for a construction loan to AREH, in order to finance the
construction of the 1,000-room hotel tower, Lucky's Cafe and a new pool area.
The promissory note is secured by a deed of trust on certain real property. The
promissory note is secured by a deed of trust in certain real property. Demand
notes bearing interest at 9.5% per annum and totaling $48.0 million, as of April
18, 2001, were replaced by this note. During 2001, AREH provided additional
advances of $25.0 million against the $73.0 million note. In November 2001,
Stratosphere Corporation began making principal payments on the loan in equal
monthly installments based on a 20 year amortization schedule, with the
remaining balance due and payable June 2002. Interest accrues at a variable rate
per annum equal to the sum of (1) 300 basis points plus (2) the 90 day London
Interbank Offered Rate, LIBOR. This interest rate at December 31, 2003 was
4.69%. On July 3, 2002, Stratosphere Corporation paid AREH 1% or $730,000 to
obtain a 24 month extension of the loan term. The extension fee is being
amortized over the remaining term of the loan. The note has been extended to
September 6, 2005. On May 26, 2004, upon the consummation of the acquisitions,
we used a portion of the net proceeds from the offering to repay this note and
the deed of trust securing the note will be reconveyed.
On May 1, 2001, Stratosphere Corporation delivered a $12.5 million
promissory note to AREH to replace the $12.5 million demand note used to acquire
the property under the master lease from Strato-Retail, LLC. The promissory note
is secured by a deed of trust on certain real property. In November 2001,
Stratosphere Corporation began making principal payments on the loan in equal
installments based on a 20 year amortization schedule with the remaining balance
due and payable July 2002. Interest accrues at a variable rate per annum equal
to the sum of (1) 350 basis points plus (2) the 90-day LIBOR. This interest rate
at December 31, 2003 was 5.19%. On July 4, 2002, Stratosphere Corporation paid
AREH 1%, or $125,000, to obtain a 12 month extension of the loan term. The loan
extension fee is being
89
amortized over the remaining term of the loan. The note has been further
extended to August 31, 2004. Stratosphere Corporation prepaid prior to the
consummation of the acquisitions this note and the deed of trust securing the
note was reconveyed.
On September 24, 2001, Arizona Charlie's, Inc. refinanced the remaining
principal balance of approximately $7.9 million on a prior note payable to Arnos
Corp., a company related through common ownership. The note boar interest at the
prime rate plus 1.50% (5.75% at December 31, 2002), with a maturity of June
2004, and was collateralized by all assets of Arizona Charlie's, Inc. The note
was repaid during November 2003 and the security interest in the assets of
Arizona Charlie's, Inc. was released.
On January 2, 2002, Fresca, LLC entered into an unsecured line of
credit in the amount of $25.0 million with Starfire Holding Corporation. The
outstanding balance, including accrued interest, was due and payable on January
2, 2007. At March 31, 2004, Fresca, LLC, had $25.0 million outstanding. The note
boar interest on the unpaid principal balance from January 2, 2002 until
maturity at the rate per annum equal to the prime rate, as established by Fleet
Bank, from time to time, plus 4.75%. Interest was payable semi-annually in
arrears on the first day of January and July, and at maturity. The note was
repaid on May 26, 2004.
On November 20, 1998, Starfire Holding Corporation, an affiliate of Mr.
Icahn, entered into an undertaking pursuant to which Starfire Holding
Corporation agreed to indemnify AREP and its subsidiaries for losses resulting
from the imposition by the PBGC of termination or minimum funding pension
liabilities on AREP or its subsidiaries. These liabilities could be imposed as a
result of AREP or its subsidiaries being members of the controlled group of
entities of which Mr. Icahn has a direct or indirect ownership interest of at
least 80%. Applicable pension and tax laws make each member of a "controlled
group" jointly and severally liable for certain pension plan obligations of any
member of the controlled group. The undertaking provides, among other things,
that Starfire Holding Corporation will not make any distribution to its
stockholders that would reduce its net worth to below $250.0 million.
90
DESCRIPTION OF SENIOR SECURED REVOLVING CREDIT FACILITY
We entered into a new senior secured revolving credit facility on the
date of the closing of the notes offering. That facility became available upon
the consummation of the acquisitions, the perfection of the security interests
in the assets of the properties acquired, the receipt of all necessary approvals
of the Nevada Gaming Commission upon the recommendation of the Nevada State
Gaming Control Board and certain other events. The following discussion
summarizes the material terms of the senior secured revolving credit facility.
This summary does not purport to be complete and is qualified in its entirety by
reference to the provisions of the credit agreement, guaranty and other related
agreements.
General. A syndicate of lenders has provided a non-amortizing $20.0
million revolving credit facility. The commitments are available to us in the
form of revolving loans, and include a letter of credit facility (subject to a
$10.0 million sublimit). The proceeds of loans under the senior secured
revolving credit facility will be available to us to provide working capital for
us and our subsidiaries and other general corporate purposes. Loans made under
the senior secured revolving facility will mature and the commitments under them
will terminate on January 29, 2008.
Guarantees and Ranking. The senior secured revolving credit facility is
jointly, severally and unconditionally guaranteed by the guarantors of the
notes. This indebtedness is our and the guarantors' senior secured debt and
ranks equally with all of our and the guarantors' existing and future senior
secured debt. However, the senior secured revolving credit facility and the
guarantees are secured by a first-priority security interest in the note
collateral, while the notes are secured by a second-priority security interest
in the note collateral.
Interest and Fees. The loans under the senior secured revolving credit
facility bear interest, at our option, at a rate per annum equal to (a) a LIBOR
rate plus a spread payable monthly, bi-monthly or quarterly, or (b) a base rate
plus a spread, payable quarterly. We pay administration fees, commitment fees,
letter of credit fees and certain expenses and provide certain indemnities that
are customary for a financing of this type.
Covenants. The senior secured revolving credit facility contains
customary affirmative covenants for this type of transaction. In addition, the
negative covenants are similar to those contained in the indenture. However,
certain of those covenants are more restrictive than those contained in the
indenture, including certain financial covenants with which we must comply on an
ongoing basis. For example, the senior secured revolving credit facility
contains limitations on liens and certain other financial covenants that are not
included in the indenture.
Prepayments. The senior secured revolving credit facility contains
customary mandatory prepayment requirements, including, without limitation,
requiring prepayment from proceeds that we receive as a result of certain asset
sales, subject to re-investment provisions. We are permitted to make voluntary
prepayments or permanently reduce the commitments under the senior secured
revolving credit facility in whole or in part, at our option, without premium or
penalty, subject to reimbursement of the lenders" breakage and other losses.
Events of Default. The senior secured revolving credit facility
contains customary events of default, including, without limitation, nonpayment
of principal, interest, fees or other amounts when due, violation of covenants,
inaccuracy of representations and warranties, cross-default and/or
cross-acceleration to other indebtedness, bankruptcy, ERISA, material judgments
and change of control.
Amendment and Waiver. The senior secured revolving credit facility is
subject to amendment or waiver by the holders of a majority in principal amount
of the revolving loans.
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DESCRIPTION OF INTERCREDITOR AGREEMENT
The agent under our first-priority lien secured indebtedness, including
our senior secured revolving credit facility and the trustee under the indenture
with respect to our notes entered into an intercreditor agreement. The
intercreditor agreement sets forth certain agreements between the agent for our
first-priority lien secured indebtedness, including our senior secured revolving
credit facility, and the trustee regarding, among other things, the priority of
their claims and interests in the note collateral, the arrangements applicable
to actions with respect to approval rights and waivers, certain limitations on
rights of enforcement upon default and the application of proceeds of
enforcement. The following discussion summarizes the material terms of the
intercreditor agreement. This summary does not purport to be complete and is
qualified in its entirety by reference to provisions of the definitive
intercreditor agreement.
NOTE COLLATERAL; PRIORITY OF LIENS
Pursuant to the intercreditor agreement, the trustee and the agent
under our first-priority lien secured indebtedness, including our senior secured
revolving credit facility, may appoint a collateral agent. If so, the collateral
agent will hold some or all of the note collateral and act on their behalf under
the collateral documents and the intercreditor agreement, including exercising
any remedies with respect to such collateral upon an event of default. The
intercreditor agreement provides that the liens and security interests granted
to the lenders of the first-priority lien secured indebtedness, including our
senior secured revolving credit facility, will be first-priority liens and those
granted to the noteholders will be second-priority liens, in each case, subject
to permitted liens, as defined, notwithstanding
(1) the availability of any other collateral to any lender,
(2) the actual date and time of execution, delivery,
recording, filing and perfection of any of the collateral documents,
(3) whether or not such liens are perfected and
(4) the fact that any lien or security interest created by any
of the collateral documents, or any claim with respect thereto, is or
may be subordinated, avoided or disallowed in whole or in part under
any bankruptcy or insolvency law or other applicable federal or state
law.
The obligations due and outstanding under the lenders" respective debt
instruments include all principal, additional advances permitted under the
instruments, protective advances made by such party to protect or preserve the
note collateral, interest, default interest, post-petition interest and all
other amounts due thereunder, for periods before and for periods after the
commencement of any legal proceedings, even if the claim for any of those
amounts is disallowed pursuant to applicable law.
PERMITTED FACILITY AMENDMENTS; ADDITIONAL INDEBTEDNESS
The intercreditor agreement provides that the lenders under any
first-priority lien secured indebtedness facility may amend their facilities
without the consent of the holders of the notes or any other lender under
another first-priority lien debt facility, so long as the amendment does not
increase the maximum principal amount of our first-priority lien secured
indebtedness by more than the amount permitted under the indenture governing the
notes.
The intercreditor agreement also provides that the lenders of the
first-priority lien secured
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indebtedness will have the right to make additional "protective" advances in
order to protect, preserve, repair and maintain the security interest in the
note collateral. For example, the intercreditor agreement provides that the
lenders under our first-priority lien secured indebtedness may make advances (1)
to pay delinquent taxes or insurance premiums, and (2) to pay claims that
otherwise might have lien priority over the liens of those lenders. Any amounts
so advanced will be secured by the lien granted to secure the loan provided by
the lenders of the first-priority lien secured indebtedness in the same priority
as regular advances made by the lenders in accordance with that facility. This
priority will be maintained regardless of whether the amount of protective
advances causes the aggregate amount of outstanding first-priority lien secured
indebtedness to exceed the amount of first-priority lien secured indebtedness
permitted by the indenture.
PERMITTED AMENDMENTS TO COLLATERAL DOCUMENTS
Subject to certain exceptions, the intercreditor agreement provides
that the terms and conditions of any collateral document, including any event of
default under it, may be modified or waived by a writing duly signed by us (or
our subsidiary that is party to the document) and the agent for the
first-priority lien secured indebtedness and the consent of the trustee.
However, to the extent such modification or waiver results in the release of any
first-priority lien in any note collateral, the consent of the trustee will not
be required to release the second-priority lien on that collateral if, after
giving effect to such release, the aggregate book value of all the assets
released will not exceed 10% of our total combined assets as of the date of
issuance of the notes. Release of substantially all of the collateral will
require approval by vote of the holders of 75% of the principal amount of the
outstanding notes (other than in accordance with the indenture and the
collateral documents).
ADDITIONAL PARTIES TO INTERCREDITOR AGREEMENT
The intercreditor agreement provides that any other lenders of
first-priority lien secured indebtedness that are permitted under the terms of
the indenture and the senior secured revolving credit facility will be added
from time to time as "secured creditors" under the intercreditor agreement and
that addition will not require the written consent of the trustee so long as the
addition does not otherwise violate the indenture. Upon their addition as
"secured creditors," the additional secured creditors will have substantially
the same rights and obligations under the intercreditor agreement as the lenders
under our senior secured revolving credit facility.
EVENTS OF DEFAULT
The intercreditor agreement provides that the lenders under a
particular debt facility will be entitled to declare an event of default and
accelerate their indebtedness in accordance with the terms of their credit
facility. The exercise of any remedies by each party to the intercreditor
agreement will be subject to the following conditions:
(1) each party to the intercreditor agreement will be subject
to a 30-day standstill period;
(2) the standstill period with respect to the exercise of
remedies by or on behalf of holders of the notes may be extended by the
lenders under our senior secured revolving credit facility and the
lenders under any other first-priority lien secured indebtedness for an
additional 45-day period;
(3) each party to the intercreditor agreement will not be
entitled to initiate or join as a petitioning creditor in an
involuntary proceeding against us (or against any of our affiliates)
until 10 days after the expiration of the standstill period; and
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(4) upon expiration of the standstill period, each party to
the intercreditor agreement will be entitled to exercise remedies
against us or with respect to the note collateral, provided that:
(a) (1) if any lenders under our senior
secured revolving credit facility
or any other first-priority lien
secured indebtedness accelerates
the indebtedness under their
respective facility, then that
lender will concurrently provide
the trustee with notice of such
acceleration and
(2) the agent for the first-priority
lien secured indebtedness will
provide the trustee at least 5
business days prior notice of its
intent to file a notice of default,
and
(b) (1) as a condition to completing any
foreclosure by the trustee on
behalf of the noteholders, the
trustee must have provided
reasonable assurances to the agent
for the first-priority lien secured
indebtedness that such foreclosure
will generate sufficient net
proceeds to pay off all first-lien
obligations in full and
(2) concurrently with any such
foreclosure, all then outstanding
first-lien secured indebtedness
must be paid in full.
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DESCRIPTION OF NOTES
GENERAL
The terms of the new notes we are issuing in the exchange offer and the
private notes that are outstanding are identical in all respects, except:
- the new notes will be registered under the Securities Act of
1933; and
- the new notes will not contain transfer restrictions and
registration rights that relate to private notes.
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word "ACEP"
refers only to American Casino & Entertainment Properties LLC and not to any of
its Subsidiaries. The term "ACEP Finance" refers only to American Casino &
Entertainment Properties Finance Corp. and not to any of its Subsidiaries. The
term "issuers" refers to ACEP and ACEP Finance, collectively.
issuers will issue the new notes under an indenture among the issuers,
the note guarantors and Wilmington Trust Company, as trustee. The terms of the
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939. The Collateral Documents
referred to under the caption "-- Security" define the terms of the agreements
that secure the notes and the Note Guarantees.
The following description is a summary of the material provisions of
the indenture, the registration rights agreement and the Collateral Documents.
It does not restate those agreements in their entirety. We urge you to read the
indenture, the registration rights agreement and the Collateral Documents
because they, and not this description, define your rights as holders of the
notes. Copies of the indenture, the registration rights agreement and the
Collateral Documents are available as set forth below under "-- Additional
Information." Certain defined terms used in this description but not defined
below under "-- Certain Definitions" have the meanings assigned to them in the
indenture and the registration rights agreement.
The registered holder of a note will be treated as the owner of it for
all purposes. Only registered holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
The notes:
- are the general obligation of each of the issuers;
- are secured by a second-priority security interest in the Note
Collateral to the extent owned by any of the issuers, which
represents substantially all of the assets of the issuers,
which consist primarily of the capital stock of the
subsidiaries that own the Stratosphere, Arizona Charlie's
Decatur and Arizona Charlie's Boulder;
- are (1) pari passu in right of payment to all existing and
future senior Indebtedness of the issuers, except that the
notes are effectively subordinated to all First Lien
Obligations of the
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issuers, including borrowings under the Credit Facilities,
which are secured by a first-priority security interest in the
Note Collateral and (2) effectively senior to any future
unsecured senior obligations of the issuers to the extent of
the value of the Note Collateral; and
- are senior in right of payment to any future subordinated
Indebtedness of the issuers.
The notes are jointly, severally and unconditionally guaranteed by each
of the Note Guarantors and will be guaranteed in the future by certain
Restricted Subsidiaries. Stratosphere Corporation, which owns and operates the
Stratosphere, Stratosphere Gaming Corporation, which holds Stratosphere's gaming
licenses, Arizona Charlie's, LLC, which owns and operates the Arizona Charlie's
Decatur, Fresca, LLC, which owns and operates the Arizona Charlie's Boulder, and
Charlie's Holding LLC, which holds the membership interests of each of Arizona
Charlie's, LLC and Fresca, LLC, each is a Note Guarantor.
THE NOTES GUARANTEES
Each Note Guarantee:
- is the general obligation of each Note Guarantor;
- is secured by a second-priority Lien on the Note Collateral to
the extent owned by the Note Guarantor, which Note Collateral
consists, in the aggregate, of substantially all of the assets
of Stratosphere, Arizona Charlie's Decatur and Arizona
Charlie's Boulder (with certain exceptions described below);
- is (1) pari passu in right of payment to all existing and
future senior Indebtedness of the Note Guarantor, except that
the notes are effectively subordinated to all First Lien
Obligations of the Note Guarantor, including guarantees or
borrowings under the Credit Facilities, which are secured by a
first-priority security interest in the Note Collateral of the
Note Guarantor, and (2) effectively senior to any future
unsecured senior obligations of the Note Guarantor to the
extent of the value of the Note Collateral of the Note
Guarantor; and
- are senior in right of payment to any future subordinated
Indebtedness of the Note Guarantor.
The operations of ACEP will be conducted through its subsidiaries and,
therefore, ACEP depends on the cash flow of its subsidiaries to meet its
obligations, including its obligations under the notes. The Note Guarantors
generated all of our combined revenues in the twelve-months period ended
December 31, 2003 and held all of our assets as of December 31, 2003. In the
event of a bankruptcy, liquidation or reorganization of any future Subsidiaries
that are not Note Guarantors, those Subsidiaries will pay the holders of their
debt and their trade creditors before they will be able to distribute any of
their assets to us.
Currently, all of our Subsidiaries, other than JetSet LLC are
"Restricted Subsidiaries" and "Note Guarantors." However, under the
circumstances described below under the caption "-- Certain Covenants --
Designation of Restricted and Unrestricted Subsidiaries," we will be permitted
to designate certain of our Subsidiaries as "Unrestricted Subsidiaries" and it
is possible that we may designate Unrestricted Subsidiaries prior to the
Acquisition Date. Our Unrestricted Subsidiaries will not be subject to many of
the restrictive covenants in the indenture. Our Unrestricted Subsidiaries will
not guarantee the notes.
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PRINCIPAL, MATURITY AND INTEREST
The issuers are offering to issue up to $215.0 million in aggregate
principal amount of new notes in exchange for a like principal amount of private
notes to satisfy its obligations under the registration rights agreement that it
entered into when the private notes were issued. The issuers may issue
additional notes ("Additional Notes") from time to time after this offering. Any
offering of Additional Notes is subject to the covenant "-- Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock." In the case of each
series, the notes and any Additional Notes subsequently issued under the
indenture will be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemption and
offers to purchase. The issuers will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on February 1, 2012.
Interest on the notes will accrue at the rate of 7.85% per annum and
will be payable semi-annually in arrears on February 1 and August 1, commencing
on August 1, 2004. Interest on overdue principal and interest and Liquidated
Damages, if any, will accrue at a rate that is 1% higher than the then
applicable interest rate on the notes. The issuers will make each interest
payment to the holders of record on the immediately preceding January 15 and
July 15.
Interest on the notes will accrue from the date of original issuance
or, if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a noteholder holds at least $2.0 million aggregate principal amount
of notes, such holder may give wire transfer instructions to the issuers and the
issuers will pay all principal, interest and premium and Liquidated Damages, if
any, on that holder's notes in accordance with those instructions. All other
payments on the notes will be made at the office or agency of the paying agent
and registrar within the City and State of New York unless the issuers elect to
make interest payments by check mailed to the noteholders at their address set
forth in the register of holders. In addition, all payments will be subject to
the applicable rules and procedures of the settlement systems (including, if
applicable, those of Euroclear and Clearstream), which may change from time to
time.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. The
issuers may change the paying agent or registrar without prior notice to the
holders of the notes, and the issuers or any of their Subsidiaries may act as
paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the
provisions of the indenture. The registrar and the trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
in connection with a transfer of notes. Holders will be required to pay all
taxes due on transfer. The issuers will not be required to transfer or exchange
any note selected for redemption. Also, the issuers will not be required to
transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
SECURITY
The notes are secured by a second-priority Lien on the Note Collateral
owned by the issuers, and
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the Note Guarantees are secured by a second-priority Lien on the Note Collateral
owned by the Note Guarantors. The issuers' principal assets consist of the
Capital Stock of ACEP's wholly owned subsidiary that owns and operates the
Stratosphere, and of ACEP's wholly owned subsidiary that owns the Capital Stock
of the subsidiaries that own and operate Arizona Charlie's Decatur and Arizona
Charlie's Boulder. The principal assets of the Note Guarantors will consist of
the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder (each
of which are owned and operated by a separate Note Guarantor) and the Capital
Stock of the Subsidiary operating the Arizona Charlie's Decatur and the
Subsidiary operating the Arizona Charlie's Boulder.
The Liens securing the notes and the Note Guarantees are prior to all
other Liens on the Note Collateral, except for First Lien Obligations and
Permitted Liens. First Lien Obligations include obligations under the Bank
Credit Facility.
The Liens securing the issuers' obligations with respect to the First
Lien Obligations are senior to the Liens securing the notes, and the Liens
securing the Note Guarantors' obligations with respect to First Lien Obligations
will be senior to the Liens securing the Note Guarantees (except that the Liens
securing First Lien Obligations will not extend to the funds in the Notes
Proceeds Account or funds put aside for defeasance or discharge, which funds
will only secure the notes).
The Note Collateral includes all assets, now owned or hereafter
acquired, of the issuers or any Note Guarantor defined as collateral in the
Collateral Documents, which will initially include, subject to the exceptions
described below, a second-priority Lien on:
- the Capital Stock of all Restricted Subsidiaries including the
Stratosphere Corporation, Stratosphere Gaming Corp., Charlie's
Holding LLC, Fresca, LLC and Arizona Charlie's, LLC;
- the Properties;
- the furniture, fixtures and equipment (other than those
separately financed or leased to us as permitted by the
indenture) of the Properties;
- intercompany notes (including a pledge of any debt (and
related security interest)) owed to the issuers or any of the
Restricted Subsidiaries, if any; and
- certain material contract rights of the issuers or the
Restricted Subsidiaries, excluding, however, any rights of the
issuers or the Restricted Subsidiaries to any Gaming License.
The Note Collateral will not include:
(1) property, plant or equipment financed by other parties
(including equipment financed or leased to us as permitted by the
indenture) (or other assets or property that are permitted to secure
certain other obligations as provided for in the indenture),
(2) any property or assets (other than Cash Equivalents)
acquired by the issuers or the Restricted Subsidiaries in the future
that are neither
(A) located on the Properties nor
(B) necessary for the operation of any of
the Properties in the ordinary
98
course,
(3) any assets held by an Unrestricted Subsidiary or a Foreign
Subsidiary (provided that if the asset came from the issuers or a
Restricted Subsidiary, that the transfer to the Unrestricted Subsidiary
or the Foreign Subsidiary was permitted by the indenture),
(4) certain reserves for other lenders and
(5) certain other customary exceptions.
In the event of Asset Sales permitted by the indenture and in certain
other events, the trustee will release assets included in the Note Collateral so
long as all other Liens on such assets securing any Credit Facility or any other
Indebtedness that is secured by that asset (including all commitments
thereunder) are also released.
Concurrently with the acquisition by the issuers or any Note Guarantor
of any assets or property that either (1) secures First Lien Obligations or (2)
has a Fair Market Value in excess of $2.0 million individually or $10.0 million
in a series of one or more related transactions, subject to the approval by
Gaming Authorities or to the extent not prohibited by applicable Gaming Laws,
the issuers will, or will cause the applicable Note Guarantor to:
(1) in the case of personal property, execute and deliver to
the trustee for the benefit of the noteholders such Uniform Commercial
Code financing statements or take such other actions as shall be
necessary or (in the opinion of the trustee) desirable to perfect and
protect the trustee's security interest in such assets or property for
the benefit of the noteholders;
(2) in the case of real property, execute and deliver to the
trustee:
(a) a deed of trust or a leasehold deed of
trust, as appropriate, substantially in the
form of the deeds of trust or leasehold
deeds of trust, as appropriate, executed in
connection with the Liens on the Properties
(with such modifications as are necessary to
comply with applicable law) that secure the
Note Guarantees; and
(b) title and extended coverage insurance
covering such real property in an amount at
least equal to the purchase price of such
real property; and
(3) promptly deliver to the trustee such opinions of counsel,
if any, as the trustee may reasonably require with respect to the
foregoing (including opinions as to enforceability and perfection of
security interests);
provided, however, that (1) the issuers and the Note Guarantors will not be
required to provide a security interest in any assets or property that are
permitted to secure certain other obligations as provided for in the indenture,
and (2) no more than 65% of the Capital Stock of any Foreign Subsidiary will be
required to be pledged as Note Collateral.
Also, if the granting of such a security interest in such property to
the trustee requires the consent of a third party, the issuers will use
commercially reasonable efforts to obtain such consent.
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Any future Foreign Subsidiary of the issuers that is a direct borrower
with respect to the Indebtedness described in clause (1) of the definition of
Permitted Debt under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" may, to the extent otherwise permitted by the indenture, grant
a security interest in its property to the lenders therein with respect to such
Indebtedness, or to an agent or trustee on behalf of such lenders, to secure
obligations with respect to such Indebtedness, without being required to provide
a second-priority security interest upon such property as security for the
notes; provided, however, that no such security interest shall secure any
Indebtedness of the issuers, any Restricted Subsidiary or any Note Guarantor.
So long as no Event of Default shall have occurred and be continuing,
and subject to certain terms and conditions in the indenture and the Collateral
Documents, the issuers and the Restricted Subsidiaries will be entitled to use
the Note Collateral in a manner consistent with normal business practices and
applicable law. Upon the occurrence and during the continuance of an Event of
Default, and, except as provided below, as a result of which, the obligations
under the notes have been accelerated to become immediately due and payable, but
subject to certain terms, conditions and limitations in the Intercreditor
Agreement, the trustee may sell the Note Collateral or any part thereof in
accordance with the terms of the Collateral Documents. All funds distributed
under the Collateral Documents and received by the trustee for the benefit of
the holders of the notes shall be distributed by the trustee in accordance with
the provisions of the indenture.
Under the terms of the Collateral Documents but subject to certain
terms, conditions and limitations set forth in the Intercreditor Agreement, the
trustee will determine the circumstances and manner in which the Note Collateral
will be disposed of, including, but not limited to, the determination of whether
to release all or any portion of the Note Collateral from the Liens created by
the Collateral Documents and whether to foreclose on the Note Collateral
following an Event of Default. Subject to certain additional provisions set
forth in the indenture, the Note Collateral may be released from the Lien and
security interest created by the indenture and the Collateral Documents at any
time or from time to time upon the request of the issuers pursuant to an
Officers' Certificate certifying that all terms for release and conditions
precedent under the indenture and under any applicable Collateral Document have
been met and specifying (1) the identity of the Note Collateral to be released
and (2) the provision of the indenture which authorizes such release.
The trustee shall release (at the sole cost and expense of the
issuers):
(1) all Note Collateral that is contributed, sold, leased,
conveyed, transferred or otherwise disposed of to any Person (other
than the issuers or any Restricted Subsidiary (including any Note
Collateral that is contributed, sold, leased, conveyed, transferred or
otherwise disposed of to an Unrestricted Subsidiary)); provided, such
contribution, sale, lease, conveyance, transfer or other disposition is
or will be in accordance with the provisions and limitations of the
indenture, including, without limitation, if applicable, the
requirement that the net proceeds from such contribution, sale, lease,
conveyance, transfer or other disposition are or will be applied
(subject to the provisions of the Intercreditor Agreement) in
accordance with the indenture and that no Default or Event of Default
has occurred and is continuing or would occur immediately following
such release;
(2) Note Collateral that is condemned, seized or taken by the
power of eminent domain or otherwise confiscated pursuant to an Event
of Loss; provided that the Net Loss Proceeds, if any, from such Event
of Loss are or will be applied in accordance with the covenant
described above under "Repurchase at the Option of Holders -- Events of
Loss;"
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(3) all Note Collateral which may be released with the consent
of holders pursuant to the amendment provisions of the indenture;
(4) all Note Collateral (except as provided in the discharge
and defeasance provisions of the indenture and, in particular, the
funds in the trust fund described in such provisions) upon discharge or
defeasance of the indenture in accordance with the discharge and
defeasance provisions of the indenture;
(5) all Note Collateral upon the payment in full of all
obligations of the issuers with respect to the notes and the Note
Guarantors with respect the Note Guarantees;
(6) Note Collateral of a Note Guarantor whose Note Guarantee
is released pursuant to the terms of the indenture;
(7) assets included in the Note Collateral with a Fair Market
Value of up to $1.0 million in any calendar year, subject to cumulative
carryover for any amount not used in any prior calendar year; and
(8) all Note Collateral that constituted furnishings, fixtures
or equipment that is financed with the proceeds of the Indebtedness to
any Person (including to the issuers or an Affiliate of the issuers
provided that such financing action complies with the requirements of
"-- Transactions with Affiliates") financed or permitted to be incurred
pursuant to the subparagraph (3) of the second paragraph of the
covenant described above under the heading "-- Incurrence of
Indebtedness and Issuance of Preferred Stock."
CERTAIN GAMING LAW LIMITATIONS
The trustee's ability to foreclose upon the pledged Capital Stock and
other gaming collateral comprising our gaming businesses is limited by
applicable Gaming Laws. Regulations of the Nevada Gaming Commission provide that
no Person may acquire an interest in a gaming licensee or enforce a security
interest in the equity of a corporation, limited liability company or other
entity which is the holder of a gaming license or which owns equity in such a
corporation, limited liability company or other entity without the prior
approval of the Nevada Gaming Commission. As such, neither the trustee nor any
holder of the notes is permitted to operate or manage any gaming business or
assets unless such Person has been licensed under applicable Gaming Laws for
such purpose.
Nevada Gaming Laws also require that all Persons who propose to own
equity of licensed corporations, limited liability companies or other entities
or of registered holding companies, limited liability companies or other
entities must be found suitable as an equityholder of such corporations, limited
liability companies or other entities by the Nevada Gaming Commission and other
relevant Gaming Authorities before acquiring ownership of such equity interests.
Consequently, it would be necessary for the trustee to file an application with
the Nevada Gaming Authorities requesting approval to enforce the security
interest in the pledged equity interests and obtain such approval before it may
take any steps to enforce the security interest. Additionally, the trustee must
file applications with the Nevada Gaming Authorities requesting approval to
enforce a security interest in gaming assets before it may take steps to enforce
the security interest. Moreover, it would be necessary for a prospective
purchaser of the pledged equity interests or the assets comprising the gaming
businesses to file the necessary applications, be investigated, and be found
suitable by the Nevada Gaming Authorities before acquiring the gaming assets or
the pledged equity interests through a foreclosure sale. Under Nevada Gaming
Law, the applicant for such approvals must file all applications required by the
Nevada Gaming Authorities, be investigated, provide all information requested by
the investigating agency and pay all fees and costs
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charged by the Nevada Gaming Authorities for such investigations. Although the
regulations of the Nevada Gaming Commission provide that the Nevada Gaming
Commission may, in its discretion, grant a temporary or permanent waiver of
these requirements with respect to foreclosure on pledged equity interests, no
action to enforce the security interest in the pledged equity interests may be
taken nor may the ownership of the equity interests be transferred until these
procedures are complied with so long as the entities hold gaming licenses or are
registered with the Nevada Gaming Commission as a holding company which owns any
interest in a licensed company. These requirements may therefore limit the
number of potential bidders who would participate in any foreclosure sale and
may delay the sale of the pledged equity interests or other gaming assets,
either of which could have an adverse effect on the proceeds received from such
sales.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the trustee to repossess and dispose of the Note
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against the issuers or a Note Guarantor prior to the
trustee having repossessed and disposed of the Note Collateral. Under bankruptcy
law, a secured creditor such as the trustee is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover,
bankruptcy law permits the debtor to continue to retain and to use collateral
(and the proceeds, products, rents or profits of such collateral) even though
the debtor is in default under the applicable debt instruments, provided that
the secured creditor is given "adequate protection." The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral and may include, if approved by the court, cash payments or the
granting of additional security for any diminution in the value of the
collateral as a result of the stay of repossession or the disposition or any use
of the collateral by the debtor during the pendency of the bankruptcy case. The
court has broad discretionary powers in all these matters, including the
valuation of collateral. In addition, because the enforcement of the Lien of the
trustee in cash, deposit accounts and cash equivalents may be limited in a
bankruptcy proceeding, the holders of the notes may not have any consent rights
with respect to the use of those funds by the issuers or any of their
Subsidiaries during the pendency of the proceeding. In view of these
considerations, it is impossible to predict how long payments under the notes
could be delayed following commencement of a bankruptcy case, whether or when
the trustee could repossess or dispose of the Note Collateral or whether or to
what extent holders of the notes would be compensated for any delay in payment
or loss of value of the Note Collateral.
OPTIONAL REDEMPTION
At any time prior to February 1, 2007, the issuers may on one or more
occasions redeem up to 35% of the aggregate principal amount of notes (including
Additional Notes) issued under the indenture at a redemption price of 107.850%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of one or
more Equity Offerings or from the proceeds of Permitted Affiliate Subordinated
Debt of ACEP; provided, however, that:
(1) at least 65% of the aggregate principal amount of notes
issued under the indenture remains outstanding immediately after the
occurrence of such redemption (excluding notes held by ACEP and its
Subsidiaries); and
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(2) the redemption occurs within 60 days of the date of the
closing of such Equity Offering or the issuance of Permitted Affiliate
Subordinated Debt.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at the issuers' option prior to February 1, 2008.
On or after February 1, 2008, the issuers may redeem all or a part of
the notes upon not less than 15 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, on the notes
redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2008...................................................................... 103.925%
2009...................................................................... 101.963%
2010 and thereafter....................................................... 100.000%
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
If any Gaming Authority requires that a holder or Beneficial Owner of
notes be licensed, qualified or found suitable under any applicable Gaming Law
and such holder or Beneficial Owner:
(1) fails to apply for a license, qualification or a finding
of suitability within 30 days (or such shorter period as may be
required by the applicable Gaming Authority) after being requested to
do so by the Gaming Authority; or
(2) is denied such license or qualification or not found
suitable;
ACEP shall then have the right, at its option:
(3) to require each such holder or Beneficial Owner to dispose
of its notes within 30 days (or such earlier date as may be required by
the applicable Gaming Authority) of the occurrence of the event
described in clause (1) or (2) above, or
(4) to redeem the notes of each such holder or Beneficial
Owner, in accordance with Rule 14e-1, if applicable, at a redemption
price equal to the lowest of:
(a) the principal amount thereof, together with
accrued and unpaid interest and Liquidated
Damages, if any, to the earlier of the date
of redemption, the date 30 days' after such
holder or Beneficial Owner is required to
apply for a license, qualification or
finding of suitability (or such shorter
period that may be required by any
applicable Gaming Authority) if such holder
or Beneficial Owner fails to do so
("Application Date") or of the date of
denial of license or qualification or of the
finding of unsuitability by such Gaming
Authority;
(b) the price at which such holder or Beneficial
Owner acquired the notes, together with
accrued and unpaid interest and Liquidated
Damages, if any, to the earlier of the date
of redemption, the Application Date or the
date of
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the denial of license or qualification or of
the finding of unsuitability by such Gaming
Authority; and
(c) such other lesser amount as may be required
by any Gaming Authority.
Immediately upon a determination by a Gaming Authority that a holder or
Beneficial Owner of the notes will not be licensed, qualified or found suitable
and must dispose of the notes, the holder or Beneficial Owner will, to the
extent required by applicable Gaming Laws, have no further right:
(1) to exercise, directly or indirectly, through any trustee
or nominee or any other person or entity, any right conferred by the
notes, the Note Guarantees or the indenture; or
(2) to receive any interest, Liquidated Damages, dividend,
economic interests or any other distributions or payments with respect
to the notes and the Note Guarantees or any remuneration in any form
with respect to the notes and the Note Guarantees from the issuers, the
Note Guarantors or the trustee, except the redemption price referred to
above.
ACEP will notify the trustee in writing of any such redemption as soon
as practicable. Any holder or Beneficial Owner that is required to apply for a
license, qualification or a finding of suitability will be responsible for all
fees and costs of applying for and obtaining the license, qualification or
finding of suitability and of any investigation by the applicable Gaming
Authorities and the issuers will not reimburse any holder or Beneficial Owner
for such expense.
MANDATORY REDEMPTION
Other than in connection with the special mandatory redemption, the
issuers are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right
to require the issuers to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes pursuant to a Change of
Control offer on the terms set forth in the indenture. In the Change of Control
offer, the issuers will offer a Change of Control payment in cash equal to 101%
of the aggregate principal amount of notes repurchased plus accrued and unpaid
interest and Liquidated Damages, if any, on the notes repurchased, to the date
of purchase. Within 30 days following any Change of Control, the issuers will
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the Change
of Control payment date specified in the notice, which date will be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the indenture and described in such
notice.
On the Change of Control payment date, the issuers will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly
tendered and not withdrawn pursuant to the Change of Control offer;
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(2) deposit with the paying agent an amount equal to the
Change of Control payment in respect of all notes or portions of notes
properly tendered; and
(3) deliver or cause to be delivered to the trustee the notes
properly accepted together with an Officers' Certificate stating the
aggregate principal amount of notes or portions of notes being
purchased by the issuers.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. The issuers will
publicly announce the results of the Change of Control offer on or as soon as
practicable after the Change of Control payment date.
The provisions described above that require the issuers to make a
Change of Control offer following a Change of Control will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that the issuers
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The issuers will not be required to make a Change of Control offer upon
a Change of Control if a third party makes the Change of Control offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control offer made by the issuers and
purchases all notes properly tendered and not withdrawn under the Change of
Control offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of ACEP and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require the issuers to repurchase its notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of ACEP and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
ASSET SALES
ACEP will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Asset Sale;
(2) ACEP (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to
the Fair Market Value of the assets sold, leased, transferred, conveyed
or otherwise disposed of or Equity Interests issued or sold or
otherwise disposed of;
(3) with respect to any Asset Sale involving consideration or
property in excess of $2.5 million, such Fair Market Value is evidenced
by a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the trustee;
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(4) at least 75% of the consideration received in the Asset
Sale by ACEP or such Restricted Subsidiary is in the form of cash or
Cash Equivalents. For purposes of this provision, each of the following
will be deemed to be cash:
(a) any liabilities, as shown on ACEP's or such
Restricted Subsidiary's most recent balance
sheet, of ACEP or any Restricted Subsidiary
(other than contingent liabilities and
liabilities that are by their terms
subordinated to the notes or any Note
Guarantee which may be assumed only if such
liabilities are deemed to be Restricted
Payments and such Restricted Payment may
then be made) that are assumed by the
transferee of any such assets pursuant to a
customary novation agreement that releases
ACEP or such Restricted Subsidiary from
further liability; and
(b) any securities, notes or other obligations
received by ACEP or any such Restricted
Subsidiary from such transferee that are
converted by ACEP or such Restricted
Subsidiary into cash within 30 days, to the
extent of the cash received in that
conversion; and
(5) the Board of Directors has determined in good faith that
the Asset Sale complies with the provisions of the indenture summarized
in clauses (2), (3) and (4) above.
Within one year after the receipt of any Net Asset Sale Proceeds, ACEP
or the Restricted Subsidiary may apply those Net Asset Sale Proceeds at its
option:
(6) to repay First Lien Obligations or any other Indebtedness
that is pari passu with the notes, including any notes and, if the
Indebtedness repaid is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto;
(7) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Principal Business;
(8) to make an Investment in or expenditures for acquiring or
constructing properties and assets that replace the properties and
assets that were the subject of the Asset Sale; or
(9) to acquire, construct, repair or rebuild other assets or
property, other than current assets, that are used or useful in a
Principal Business;
provided, however, that with respect to any assets that are acquired or
constructed or Voting Stock that is acquired with such Net Asset Sale Proceeds,
ACEP or the applicable Restricted Subsidiary, as the case may be, promptly
grants to the trustee, on behalf of the holders of the notes, a second-priority
security interest on any such assets or Voting Stock on the terms set forth in
the indenture and the Collateral Documents. Pending the final application of any
Net Asset Sale Proceeds, ACEP or the applicable Restricted Subsidiary may
temporarily reduce revolving credit borrowings or otherwise invest the Net Asset
Sale Proceeds in any manner that is not prohibited by the indenture.
Any Net Asset Sale Proceeds that are not applied or invested as
provided in the preceding paragraph (or in the case of clauses (2), (3) or (4),
contracted or committed to within one year; provided that such acquisition,
investment, construction, repair or reconstruction is completed within two years
of the date of such contract or commitment) will constitute "Excess Proceeds."
When the aggregate amount
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of Excess Proceeds exceeds $5.0 million, the issuers will make an offer (an
"Asset Sale Offer") to all holders of notes to purchase the maximum principal
amount of notes and, if the issuers are required to do so under the terms of any
other Indebtedness that is pari passu with the notes, such other Indebtedness on
a pro rata basis with the notes, that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of the purchase of all properly tendered and
not withdrawn notes pursuant to an Asset Sale Offer, ACEP may use such remaining
Excess Proceeds for any purpose not otherwise prohibited by the indenture and
the Collateral Documents. If the aggregate principal amount of notes and other
pari passu Indebtedness tendered into such Asset Sale Offer (together with any
other pari passu Indebtedness expected to be repaid from such Excess Proceeds)
exceeds the amount of Excess Proceeds, the trustee will select the notes and
such other pari passu Indebtedness to be purchased on a pro rata basis based on
the principal amount of notes and such other Indebtedness tendered (or otherwise
expected to be repaid). Upon completion of any Asset Sale Offer, the amount of
Excess Proceeds will be reset at zero. The issuers may commence an Asset Sale
Offer without having to wait for the expiration of the one year period.
EVENTS OF LOSS
Within one year (or two years in the case of clause (1) below) after
any Event of Loss with respect to (1) any of the Properties, or any other assets
or property, with a Fair Market Value (or replacement cost, if greater) in
excess of $15.0 million, ACEP or the affected Restricted Subsidiary, as the case
may be, may apply the Net Loss Proceeds from such Event of Loss in any manner
permitted by clauses (1) through (4) of the second paragraph of the covenant
described above under the caption "-- Asset Sales" for Net Asset Sale Proceeds
from an Asset Sale or to the rebuilding or repair of the Subject Property (as
defined), or (2) any other Event of Loss, ACEP or the affected Restricted
Subsidiary, as the case may be, may apply the Net Loss Proceeds from such Event
of Loss to repay First Lien Obligations or any indebtedness pari passu with the
notes, including any notes, or to the rebuilding, repair, replacement or
construction of improvements to the property affected by such Event of Loss (the
"Subject Property"), with no concurrent obligation to make any purchase of any
notes; provided, however, that ACEP delivers to the trustee:
(1) within either
(a) 150 days of such Event of Loss a written
opinion from a reputable contractor that the
Subject Property can be rebuilt, repaired,
replaced or constructed in, and operating
in, substantially the same condition (or
better) as existed prior to the Event of
Loss within 24 months of the Event of Loss
or
(b) 60 days of such Event of Loss a written
opinion from a reputable contractor that the
Subject Property can be rebuilt, repaired,
replaced or constructed in, and operating
in, substantially the same condition (or
better) as existed prior to the Event of
Loss within two years of the receipt of Net
Loss Proceeds; and
(2) an Officers' Certificate (delivered concurrently with the
opinion specified in clause (i) or (ii) above) certifying that ACEP has
available from Net Loss Proceeds or other sources sufficient funds to
complete the rebuilding, repair, replacement or construction referred
to in clause (1) above.
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Any Net Loss Proceeds from any Event of Loss that are not applied or
permitted to be reinvested as provided in the preceding paragraph will
constitute "Excess Loss Proceeds." When the aggregate amount of Excess Loss
Proceeds exceeds $5.0 million, the issuers will make an offer (an "Event of Loss
Offer") to all holders of notes to purchase the maximum principal amount of
notes and, if the issuers are required to do so under the terms of any other
Indebtedness that is pari passu with the notes, such other Indebtedness on a pro
rata basis with the notes, that may be purchased out of the Excess Loss
Proceeds. The offer price in any Event of Loss Offer will be equal to 100% of
principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess Loss
Proceeds remain after consummation of the purchase of all properly tendered and
not withdrawn notes pursuant to an Event of Loss Offer, ACEP may use such
remaining Excess Loss Proceeds for any purpose not otherwise prohibited by the
indenture and the Collateral Documents. If the aggregate principal amount of
notes and other pari passu Indebtedness tendered into such Event of Loss Offer
(together with any pari passu Indebtedness expected to be repaid from such Event
of Loss proceeds) exceeds the amount of Excess Loss Proceeds, the trustee will
select the notes and such other pari passu Indebtedness to be purchased on a pro
rata basis based on the principal amount of notes and such other Indebtedness
tendered (or expected to be repaid). Upon completion of any such Event of Loss
Offer, the amount of Excess Loss Proceeds will be reset at zero.
In the event of an Event of Loss pursuant to clause (3) of the
definition of "Event of Loss" with respect to any property or assets that have a
Fair Market Value (or replacement cost, if greater) in excess of $5.0 million,
ACEP or the affected Restricted Subsidiary, as the case may be, will be required
to receive consideration and with respect to any Event of Loss of any portion of
the hotel, casino or parking structure and other property comprising part of the
Properties, at least 75% of which is in the form of cash or Cash Equivalents.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
ACEP will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of ACEP's or any Restricted Subsidiary's Equity
Interests (including, without limitation, any payment in connection
with any merger or consolidation involving ACEP or any Restricted
Subsidiary) or to the direct or indirect holders of ACEP's or any
Restricted Subsidiary's Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of ACEP or to ACEP or a Restricted
Subsidiary of ACEP);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving ACEP) any Equity Interests of ACEP or any
direct or indirect parent of ACEP;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any
Indebtedness of ACEP or any Note Guarantor that is contractually
subordinated to the notes or to any Note Guarantee (excluding any
intercompany Indebtedness between or among ACEP and any of its
Restricted Subsidiaries), except a payment of interest, Other
Liquidated Damages or principal at the Stated Maturity on such
subordinated Indebtedness that is not Permitted Affiliate Subordinated
Indebtedness;
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(4) purchase, redeem, defease or otherwise retire for value or
pay any interest, principal or other amount on any Permitted Affiliate
Subordinated Indebtedness (other than payment of interest in the form
of additional Permitted Affiliate Subordinated Indebtedness or Equity
Interests in ACEP (other than Disqualified Stock) or accrual of
interest on Permitted Affiliate Subordinated Indebtedness); or
(5) make any Restricted Investment (all such payments and
other actions set forth in these clauses (1) through (5) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted Payment;
(2) ACEP would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the most recently ended four-quarter
period for which financial statements are available, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by ACEP and the Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (6), (7), (8) and (9) of
the next succeeding paragraph) is less than the sum, without
duplication, of:
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(a) 50% of the Consolidated Net Income of ACEP
for the period (taken as one accounting
period) from the Acquisition Date to the end
of ACEP's most recently ended fiscal quarter
for which financial statements are available
at the time of such Restricted Payment (or,
if such Consolidated Net Income for such
period is a deficit, less 100% of such
deficit); provided, however, that to the
extent any payments pursuant to the Tax
Allocation Agreement were excluded from the
calculation of Consolidated Net Income
during the applicable period, for the
purposes of this clause (a), such payments
pursuant to the Tax Allocation Agreement
will be deducted from Consolidated Net
Income, plus
(b) 100% of the aggregate net cash proceeds
received by ACEP since the date of the
indenture as a contribution to its common
equity capital or received as cash proceeds
of Permitted Affiliate Subordinated Debt of
ACEP or from the issue or sale of Equity
Interests of ACEP (excluding Disqualified
Stock) or from the issue or sale of
convertible or exchangeable Disqualified
Stock or convertible or exchangeable debt
securities of ACEP that have been converted
into or exchanged for such Equity Interests
(other than Equity Interests or Disqualified
Stock or debt securities) sold to a
Subsidiary of ACEP, plus
(c) 100% of the lesser of
(1) the aggregate amount received in
cash and the Fair Market Value of
property received by means of
(B) the sale or other
disposition (other than to
ACEP or a Restricted
Subsidiary) of Restricted
Investments made by ACEP or
its Restricted Subsidiaries
and repurchases and
redemptions of such Restricted
Investments from ACEP or its
Restricted Subsidiaries and
repayments of loans or
advances which constitute
Restricted Investments by ACEP
or its Restricted Subsidiaries
or
(C) the sale (other than to
ACEP or a Restricted
Subsidiary) of the Capital
Stock of an Unrestricted
Subsidiary or a distribution
from an Unrestricted
Subsidiary (other than in each
case to the extent the
Investment in such
Unrestricted Subsidiary was
made by a Restricted
Subsidiary pursuant to clause
(9) of the next succeeding
paragraph or to the extent
such Investment constituted a
Permitted Investment) or a
dividend from an Unrestricted
Subsidiary and
(2) the aggregate amount of Restricted
Payments made to make the
Restricted Investment so sold or
disposed of or in the Capital Stock
of the Unrestricted Subsidiary so
sold or disposed of (provided,
however, that if the cash received
in any transaction described in
clause (A) or (B) of this clause
(c) plus the cash received from the
disposition of any property
received in any
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such transaction is greater than
the amount otherwise calculated
under this clause (c), then such
greater cash amount may be added
to this clause (c) in lieu of such
lesser amount), plus
(d) in case, after the date hereof, any
Unrestricted Subsidiary has been
redesignated as a Restricted Subsidiary
pursuant to the terms of the indenture or
has been merged, consolidated or amalgamated
with or into, or transfers or conveys assets
to, or is liquidated into ACEP or a
Restricted Subsidiary, and no Default or
Event of Default is then occurring or
results therefrom, an amount equal to the
lesser of
(1) the Fair Market Value of the
Investments owned by ACEP and the
Restricted Subsidiaries in such
Unrestricted Subsidiary at the time
of the redesignation, combination,
transfer or liquidation (or of the
assets transferred or conveyed, as
applicable) and
(2) the aggregate amount of Restricted
Payments made in such Unrestricted
Subsidiary.
So long as no Default or Event of Default has occurred and is
continuing or would be caused thereby, the preceding provisions will not
prohibit:
(1) the payment of any dividend or the consummation of any
irrevocable redemption within 60 days after the date of declaration of
the dividend or giving of the redemption notice, as the case may be, if
at the date of declaration or notice, the dividend or redemption
payment would have complied with the provisions of the indenture;
(2) the making of any Restricted Payment in exchange for, or
out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of ACEP) of, Equity Interests (other than
Disqualified Stock) or Permitted Affiliate Subordinated Debt of ACEP or
from the substantially concurrent contribution of common equity capital
to ACEP; provided, however, that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition will be excluded from
clause (3) (b) of the preceding paragraph;
(3) the repurchase, redemption, defeasance or other
acquisition or retirement for value of Indebtedness of ACEP or any Note
Guarantor that is contractually subordinated to the notes or to any
Note Guarantee with the net cash proceeds from a substantially
concurrent incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend (or, in the case of any
partnership or limited liability company, any similar distribution) by
a Restricted Subsidiary of ACEP to the holders of its Equity Interests
on a pro rata basis;
(5) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of ACEP, any parent of
ACEP or any Restricted Subsidiary of ACEP held by any member of ACEP's
(or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement, stock option agreement or
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million;
111
(6) the redemption or repurchase of any Equity Interests or
Indebtedness of ACEP or any of its Subsidiaries to the extent required
by any Gaming Authority or, if determined in the good faith judgment of
the Board of Directors of ACEP as evidenced by a resolution of the
Board of Directors that has been delivered to the trustee, required to
prevent the loss or to secure the grant or establishment of any gaming
license or other right to conduct lawful gaming operations in the
United States;
(7) Permitted Payments to Parent;
(8) Restricted Payments pursuant to the terms of the
Acquisition Agreements and the payment of the balance of the
intercompany debt owed by Stratosphere Corporation to American Real
Estate Holdings Limited Partnership;
(9) the one-time payment of a distribution of Cash Equivalents
and marketable securities to the Parent (the "Parent Distribution") to
be paid within twenty days of the Acquisition Date such that, at the
Acquisition Date after giving effect to the Parent Distribution, the
purchase price of the Acquisition, the payment of the balance of the
intercompany debt owed by Stratosphere Corporation to American Real
Estate Holdings Limited Partnership and any unpaid fees and expenses
relating to the offering of the notes, ACEP and its Restricted
Subsidiaries, on a combined basis, would have cash no less than the sum
of (x) $25.0 million and (y) the amount of accrued interest on the
notes from the Issuance Date to, and including, the Acquisition Date;
provided, that from the Issuance Date to the date of the Parent
Distribution, except as disclosed in the Offering Memorandum and
contemplated in the Acquisition Agreements, ACEP shall not take any
actions and shall cause its Affiliates not to take any actions that
would cause the business of the Properties to be conducted, in any
material respect, other than in the ordinary course; and
(10) other Restricted Payments in an aggregate amount since
the Issuance Date not to exceed $2.5 million.
For purposes of determining compliance with this covenant, in the event
that a proposed Restricted Payment meets the criteria of more than one of the
categories of Restricted Payments described in clauses (1) through (10) above,
or is permitted to be made pursuant to the first paragraph of this covenant,
ACEP shall, in its sole discretion, classify such Restricted Payment in any
manner that complies with this covenant.
The amount of all Restricted Payments (other than cash) will be the
Fair Market Value on the date of the Restricted Payment of the assets, property
or securities proposed to be transferred or issued by ACEP or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
ACEP will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the
issuers will not issue any Disqualified Stock and will not permit any of their
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the issuers may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock, and the Note Guarantors may incur Indebtedness
(including Acquired Debt) or issue preferred stock, if:
the Fixed Charge Coverage Ratio for the issuers' most recently ended
four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such
112
additional Indebtedness is incurred or such Disqualified Stock or such
preferred stock is issued, as the case may be, would have been at least
2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the Disqualified Stock or the
preferred stock had been issued, as the case may be, at the beginning
of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by ACEP and any Note Guarantor of
Indebtedness and letters of credit under Credit Facilities in an
aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of ACEP and its
Restricted Subsidiaries thereunder) not to exceed $50.0 million less
the aggregate amount of all Net Asset Sale Proceeds of Asset Sales
applied by ACEP or any of its Restricted Subsidiaries since the date of
the indenture to repay any term Indebtedness under a Credit Facility or
to repay any revolving credit Indebtedness under a Credit Facility and
effect a corresponding commitment reduction thereunder pursuant to the
covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales;"
(2) the incurrence by the issuers and the Note Guarantors of
Indebtedness represented by the notes and the related Note Guarantees
to be issued on the date of the indenture and the exchange notes and
the related Note Guarantees to be issued pursuant to the registration
rights agreement;
(3) the incurrence by ACEP and the Note Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
acquisition, construction or improvement of property, plant or
equipment used or to be used in the business of ACEP or such Note
Guarantor, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (3), not to exceed $10.0
million at any time outstanding;
(4) the incurrence by ACEP and the Note Guarantors of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was incurred under the first
paragraph of this covenant or clauses (2), (3), (4), (10), (11) or (14)
of this paragraph;
(5) the incurrence by ACEP and its Restricted Subsidiaries of
intercompany Indebtedness between or among ACEP and any of its
Restricted Subsidiaries; provided, however, that:
113
(a) if ACEP is the obligor on such Indebtedness,
such Indebtedness must be expressly
subordinated to the prior payment in full in
cash of all Obligations with respect to the
notes;
(b) if a Note Guarantor is the obligor on such
Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in
cash of its Note Guarantee; and
(c) (i) any subsequent issuance or transfer of
Equity Interests that results in any such
Indebtedness being held by a Person other
than ACEP or a Restricted Subsidiary of ACEP
and (ii) any sale or other transfer of any
such Indebtedness to a Person that is not
either ACEP or a Restricted Subsidiary of
ACEP shall be deemed, in each case, to
constitute an incurrence of such
Indebtedness by ACEP or such Restricted
Subsidiary, as the case may be, that was not
permitted by this clause (5);
provided that in the case of clauses (a) and (b), that no restriction on the
payment of principal, interest or other obligations in connection with such
intercompany Indebtedness shall be required by such subordinated terms except
during the occurrence and continuation of a Default or Event of Default;
(6) the incurrence by ACEP and any of its Restricted Subsidiaries of
Hedging Obligations that are incurred in the normal course of business;
(7) the Guarantee by ACEP or any of the Note Guarantors of Indebtedness
of the issuers or a Restricted Subsidiary of ACEP that was permitted to be
incurred by another provision of this covenant; provided that if the
Indebtedness being guaranteed is subordinated to or pari passu with the notes,
then the Guarantee shall be subordinated or pari passu, as applicable, to the
same extent as the Indebtedness guaranteed;
(8) the incurrence by ACEP or any of its Restricted Subsidiaries of
Indebtedness in respect of workers' compensation claims, self-insurance
obligations, bankers' acceptances, performance and surety bonds in the ordinary
course of business;
(9) the incurrence by ACEP or any of its Restricted Subsidiaries of
Indebtedness arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently drawn against insufficient
funds, so long as such Indebtedness is covered within five business days;
(10) the incurrence by ACEP and its Restricted Subsidiaries of the
Existing Indebtedness;
(11) the incurrence by ACEP or any of its Restricted Subsidiaries of
Non-Recourse Financing used to finance the construction, purchase or lease of
personal or real property used in the business of ACEP or such Restricted
Subsidiary; provided, that the Indebtedness incurred pursuant to this clause
(11) (including any refinancings thereof pursuant to clause (4) above) shall not
exceed $15.0 million outstanding at any time;
(12) Indebtedness arising from any agreement entered into by ACEP or
any of its Restricted Subsidiaries providing for indemnification, purchase price
adjustment or similar obligations, in each case, incurred or assumed in
connection with an Asset Sale;
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(13) the incurrence by ACEP or any Restricted Subsidiary of Permitted
Affiliate Subordinated Indebtedness;
(14) the incurrence by ACEP of Additional Notes used for Property
Improvements, in an aggregate principal amount not to exceed 2.0 times the net
cash proceeds received by ACEP after the Acquisition Date from Equity Offerings
and the issuance of Permitted Affiliate Subordinated Debt, the net cash proceeds
of which Equity Offerings and the issuance of Permitted Affiliate Subordinated
Debt are also used in Property Improvements; and
(15) the incurrence by ACEP or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this clause
(15), not to exceed $10.0 million at any one time outstanding.
The issuers and their Restricted Subsidiaries will not incur any
Indebtedness (including Permitted Debt) that is contractually subordinated in
right of payment to any other Indebtedness of the issuers or its Restricted
Subsidiaries unless such Indebtedness is also contractually subordinated in
right of payment to the notes or the applicable Note Guarantee on substantially
identical terms; provided, however, that no Indebtedness of the issuers and its
Restricted Subsidiaries shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of the issuers or its Restricted
Subsidiaries for purposes of this paragraph solely by virtue of being unsecured
or secured to a lesser extent or on a junior Lien basis.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, in
each case, as of the date of incurrence thereof, the issuers shall, in their
sole discretion, classify (or later reclassify in whole or in part, in its sole
discretion) such item of Indebtedness in any manner that complies with this
covenant and such Indebtedness will be treated as having been incurred pursuant
to such clauses or the first paragraph hereof, as the case may be, designated by
the issuers.
The accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, the reclassification of preferred
stock as Indebtedness due to a change in accounting principles, and the payment
of dividends on Disqualified Stock in the form of additional shares of the same
class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this covenant;
provided, that in each such case, that the amount thereof shall be included in
Fixed Charges of ACEP as accrued (to the extent applicable under the definition
of Fixed Charges). Notwithstanding any other provision of this covenant, the
maximum amount of Indebtedness that ACEP or any Restricted Subsidiary may incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of
any other Indebtedness; and
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(3) in respect of Indebtedness of another Person secured by a
Lien on the assets of the specified Person, the lesser of:
(a) the Fair Market Value of such assets at the
date of determination; and
(b) the amount of the Indebtedness of the other
Person.
Upon entering into or refinancing or replacement of the Credit
Facilities or any portion thereof with a lender that was not party to the
Intercreditor Agreement or the incurrence of any Indebtedness permitted by the
indenture to be First Lien Obligations, the trustee shall enter into an
intercreditor agreement with such lender with terms that are no less favorable
to the trustee or the holders of notes than those contained in the Intercreditor
Agreement.
LIENS
ACEP will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind on any asset, now owned or hereafter acquired, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, except
Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
ACEP will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its
Capital Stock to ACEP or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to ACEP or any of its Restricted
Subsidiaries;
(2) make loans or advances to ACEP or any of its Restricted
Subsidiaries; or
(3) sell, lease or transfer any of its properties or assets to
ACEP or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(4) agreements in effect on the Acquisition Date and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of those
agreements; provided, however, that the amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are not materially more restrictive, taken
as a whole, with respect to such dividend and other restrictions than
those contained in those agreements on the Acquisition Date;
(5) the indenture, the notes, the Note Guarantees, the Credit
Facilities and the Collateral Documents;
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(6) applicable law, rule or order of an applicable
governmental body;
(7) any instrument governing Indebtedness or Capital Stock of
a Person acquired by ACEP or any Restricted Subsidiary as in effect at
the time of such acquisition (except to the extent such Indebtedness or
Capital Stock was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired;
provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the indenture to be incurred;
(8) customary non-assignment provisions in leases entered into
in the ordinary course of business;
(9) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on that property
of the nature described in clause (3) of the preceding paragraph;
(10) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(11) Permitted Refinancing Indebtedness; provided, however,
that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are not materially more restrictive,
taken as a whole, than those contained in the agreements governing the
Indebtedness being refinanced;
(12) Liens securing Indebtedness otherwise permitted to be
incurred under the provisions of the covenant described above under the
caption "-- Liens;" and
(13) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements, asset
sale agreements, stock sale agreements and other similar agreements
entered into in the ordinary course of business.
ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
ACEP
(a) will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than to ACEP or to any Restricted
Subsidiary), unless:
(1) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Restricted Subsidiary,
and
(2) the Net Asset Sale Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance
with the provisions described under "-- Repurchase at the Option of
Holders -- Asset Sales" above;
provided, however, that this clause (a) will not apply to any pledge of Capital
Stock of any Restricted Subsidiary securing First Lien Obligations, including
the Credit Facilities, or any exercise of remedies in connection therewith; and
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(b) will not permit any Restricted Subsidiary to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares and shares of Capital Stock of foreign
Subsidiaries issued to foreign nationals to the extent required under applicable
law) to any Person other than ACEP or any Restricted Subsidiary.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither ACEP nor any Note Guarantor may, directly or indirectly: (1)
consolidate or merge with or into another Person (whether or not ACEP or such
Note Guarantor, as the case may be, is the surviving corporation) or (2) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of ACEP or any Note Guarantor, in one or more related
transactions, to another Person; unless:
(1) either: (a) ACEP or such Note Guarantor, as the case may
be, is the surviving corporation, or (b) the Person formed by or
surviving any such consolidation or merger (if other than ACEP or such
Note Guarantor, as the case may be) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is a
corporation, limited liability company or limited partnership entity
organized or existing under the laws of the United States, any state of
the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation
or merger (if other than ACEP or such Note Guarantor, as the case may
be) or the Person to which such sale, assignment, transfer, conveyance
or other disposition has been made assumes all the obligations of ACEP
or such Note Guarantor, as the case may be, under the notes, the Note
Guarantees, the indenture, the registration rights agreement and the
Collateral Documents, as applicable;
(3) immediately after such transaction no Default or Event of
Default exists;
(4) ACEP or such Note Guarantor, as the case may be, or the
Person formed by or surviving any such consolidation or merger (if
other than ACEP or such Note Guarantor, as the case may be), or to
which such sale, assignment, transfer, conveyance or other disposition
has been made has, on the date of such transaction after giving pro
forma effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period, a Fixed Charge Coverage Ratio not less than the Fixed Charge
Coverage Ratio immediately preceding such transactions;
(5) such transaction would not result in the loss or
suspension or material impairment of any of ACEP's or any Note
Guarantor's Material Gaming Licenses, unless a comparable replacement
Gaming License is effective prior to or simultaneously with such loss,
suspension or material impairment;
(6) such transaction would not require any holder or
Beneficial Owner of notes in their capacity as such to obtain a Gaming
License or be qualified or found suitable under the law of any
applicable gaming jurisdiction; provided that such holder or Beneficial
Owner would not have been required to obtain a Gaming License or be
qualified or found suitable under the laws of any applicable gaming
jurisdiction in the absence of such transaction; and
(7) ACEP has delivered to the trustee an officers' certificate
and opinion of counsel, each stating that such transaction complies
with the terms of the indenture.
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ACEP will not have to comply with clause (4) above in connection with
any merger or consolidation or the sale, assignment, transfer, conveyance or
other disposition of all or substantially all of its properties or assets with
an Affiliate that has no material assets or liabilities where the primary
purpose of such transaction is to change ACEP into a corporation or other form
of business entity and such transaction does not cause the realization of any
material federal or state tax liability that will be paid by ACEP or any
Restricted Subsidiary. For purposes of this paragraph, the term material refers
to any assets, liabilities or tax liabilities that are greater than $1.0
million.
In addition, ACEP may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. In the case of a lease of all or
substantially all of the assets of ACEP, ACEP will not be released from its
obligations under the notes or the indenture, as applicable.
This "Merger, Consolidation or Sale of Assets" covenant will not apply
to:
(1) a merger of ACEP or ACEP Finance with an Affiliate solely
for the purpose of reorganizing ACEP or ACEP Finance in another
jurisdiction; or
(2) any consolidation or merger, or any sale, assignment,
transfer, conveyance, lease or other disposition of assets between or
among the issuers and their Restricted Subsidiaries or between or among
Restricted Subsidiaries.
Except as described with respect to the release of Note Guarantees of
Note Guarantors under the caption "-- Note Guarantees" above, the entity or
person formed by or surviving any consolidation or merger (if other than ACEP or
a Note Guarantor, as the case may be) or the sale, assignment, transfer,
conveyance or other disposition of all or substantially all of its properties or
assets will succeed to, and be substituted for, and may exercise every right and
power of ACEP or such Note Guarantor, as the case may be, under the indenture.
TRANSACTIONS WITH AFFILIATES
ACEP will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, any Affiliate of ACEP (each, an "Affiliate
Transaction"), unless:
(1) the Affiliate Transaction is on terms that are not
materially less favorable to ACEP or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by
ACEP or such Restricted Subsidiary with an unrelated Person as
determined in good faith by the Board of Directors of ACEP; and
(2) ACEP delivers to the trustee:
(a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions
involving aggregate consideration in excess
of $2.0 million, a resolution of the Board
of Directors of ACEP set forth in an
officers' certificate certifying that such
Affiliate Transaction complies with this
covenant and that such Affiliate Transaction
has been approved by a
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majority of the disinterested members of the
Board of Directors of ACEP; and
(b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions
involving aggregate consideration in excess
of $10.0 million, an opinion as to the
fairness to ACEP or such Subsidiary of such
Affiliate Transaction from a financial point
of view issued by an accounting, appraisal
or investment banking firm of recognized
standing.
The following items will not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, employee benefit plan, officer
or director indemnification agreement or any similar arrangement
entered into by ACEP or any of its Restricted Subsidiaries in the
ordinary course of business and payments pursuant thereto;
(2) transactions between or among ACEP and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors' fees to Persons who are
not otherwise Affiliates of ACEP;
(4) any issuance of Equity Interests (other than Disqualified
Stock) of ACEP to Affiliates of ACEP;
(5) Restricted Payments that do not violate the provisions of
the indenture described above under the caption "-- Restricted
Payments;"
(6) the transactions pursuant to the Acquisition Agreements
and the transactions described above under the caption "Use of
Proceeds;"
(7) Permitted Affiliate Subordinated Indebtedness;
(8) transactions between ACEP and/or any of its Restricted
Subsidiaries, on the one hand, and other Affiliates, on the other hand,
for the provision of goods or services in the ordinary course of
business by such other Affiliates; provided that such other Affiliate
is in the business of providing such goods or services in the ordinary
course of business to unaffiliated third parties and the terms and
pricing for such goods and services overall are not less favorable to
ACEP and/or its Restricted Subsidiaries than the terms and pricing upon
which such goods and services are provided to unaffiliated third
parties;
(9) loans or advances to employees in the ordinary course of
business not to exceed $1.0 million in the aggregate at any one time
outstanding;
(10) the provision of accounting, financial, management,
information technology and other ancillary services to Affiliates,
provided that ACEP or its Restricted Subsidiaries are paid a fee equal
to its out of pocket costs and allocated overhead (including a portion
of salaries and benefits) as determined by ACEP in its reasonable
judgment; provided further that this services under this clause shall
not include providing complimentaries or other benefits to customers of
an Affiliate; and
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(11) Permitted Payments to Parent.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of ACEP may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if that designation would not cause a Default;
provided that in no event will Project Assets of any of the Properties be
transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary
is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of
all outstanding Investments owned by ACEP and its Restricted Subsidiaries in the
Subsidiary designated as Unrestricted will be deemed to be an Investment made as
of the time of the designation and will reduce the amount available for
Restricted Payments under the covenant described above under the caption "--
Restricted Payments" or under one or more clauses of the definition of Permitted
Investments, as determined by ACEP. That designation will only be permitted if
the Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors of ACEP may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default.
Any designation of a Subsidiary of ACEP as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
a resolution of the Board of Directors giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "-- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted Subsidiary, it
will thereafter cease to be an Unrestricted Subsidiary for purposes of the
indenture and any Indebtedness of such Subsidiary will be deemed to be incurred
by a Restricted Subsidiary of ACEP as of such date and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock,"
ACEP will be in default of such covenant. The Board of Directors of ACEP may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of
ACEP; provided that such designation will be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of ACEP of any outstanding Indebtedness
of such Unrestricted Subsidiary, and such designation will only be permitted if
(1) such Indebtedness is permitted under the covenant described under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
LINE OF BUSINESS
For so long as any notes are outstanding, the issuers shall not, and
shall not permit any of the Restricted Subsidiaries to, engage in any business
or activity other than the Principal Business, except to such extent as would
not be material to the issuers and their Subsidiaries taken as a whole.
SALE AND LEASEBACK TRANSACTIONS
ACEP will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that ACEP or any of
its Restricted Subsidiaries may enter into a sale and leaseback transaction if:
(1) ACEP or that Restricted Subsidiary could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction under the covenant described above
under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" and
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(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "-- Liens;"
(2) the gross cash proceeds of that sale and leaseback
transaction are at least equal to the Fair Market Value, set forth in
an officers' certificate delivered to the trustee, of the property that
is the subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback
transaction is permitted by, and ACEP applies the proceeds of such
transaction in compliance with, the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales."
RESTRICTIONS ON LEASING AND DEDICATION OF PROPERTY
ACEP will not, and will not permit any of the Restricted Subsidiaries
to lease, sublease, or grant a license, concession or other agreement to occupy,
manage or use, as lessor or sublessor, any real or personal Project Assets owned
or leased by ACEP or any Restricted Subsidiary for annual lease base rent,
excluding common area maintenance and percentage rent, exceeding $2.0 million
with respect to any individual transaction (each, a "Lease Transaction"), other
than the following Lease Transactions:
(1) ACEP or any Restricted Subsidiary may enter into a Lease
Transaction with respect to any Project Assets, within or outside the
Properties, or with any Person, provided that, in the reasonable
opinion of ACEP, (a) such Lease Transaction will not materially
interfere with, impair or detract from the operations of any of the
Project Assets, and will in the reasonable judgment of ACEP enhance the
value and operations of the Properties and (b) such Lease Transaction
is at a fair market rent (in light of other similar or comparable
prevailing commercial transactions or in the reasonable judgement of
ACEP, otherwise enhances the value and operations of any of the
Properties) and contains such other terms such that the Lease
Transaction, taken as a whole, is commercially reasonable and fair to
ACEP or such Restricted Subsidiary;
(2) the transactions and agreements described under
"--Transactions with Affiliates," to the extent such transactions or
agreements constitute Lease Transactions;
(3) ACEP or any Restricted Subsidiary may enter into a
management or operating agreement with respect to any Project Asset,
including any hotel with any Person (other than an Unrestricted
Subsidiary or other Affiliate of the Principal (other than ACEP or any
Restricted Subsidiary)); provided that (i) the manager or operator has
experience in managing or operating similar operations or assets and
(ii) such management or operating agreement is on commercially
reasonable and fair terms to ACEP or such Restricted Subsidiary (in
either case, in the reasonable judgment of ACEP); and
(4) ACEP and any Restricted Subsidiary of ACEP may enter into
a Lease Transaction with any of ACEP or any Restricted Subsidiary.
Notwithstanding the foregoing, (a) no gaming or casino operations may
be conducted on any Project Asset that is the subject of such Lease Transaction
other than by ACEP or a Restricted Subsidiary; and (b) no Lease Transaction may
provide that ACEP or any Restricted Subsidiary may subordinate its fee or
leasehold interest to any lessee or any party providing financing to any lessee.
The trustee shall at the request of ACEP or any Restricted Subsidiary
enter into a commercially customary leasehold non-disturbance and attornment
agreement with the lessee under any Lease
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Transaction permitted under the covenant described above. Such agreement, among
other things, shall provide that if the interests of ACEP (or in the case of a
Lease Transaction being entered by a Restricted Subsidiary, the interests of the
Restricted Subsidiary) in the Project Assets subject to the Lease Transaction
are acquired by the trustee (on behalf of the holders of the notes), whether by
purchase and sale, foreclosure, or deed in lieu of foreclosure or in any other
way, or by a successor to the trustee, including without limitation a purchaser
at a foreclosure sale, then in each case subject to any applicable law or Gaming
License, (1) the interests of the lessee in the Project Assets subject to the
Lease Transaction shall continue in full force and effect and shall not be
terminated or disturbed, except in accordance with the lease documentation
applicable to the Lease Transaction, and (2) the lessee in the Lease Transaction
shall attorn to and be bound to the trustee (on behalf of the holders), its
successors and assigns under all terms, covenants and conditions of the lease
documentation applicable to the Lease Transaction. Such agreement shall also
contain such other provisions that are commercially customary and that will not
materially and adversely affect the Lien granted by the Collateral Documents
(other than pursuant to the terms of the applicable non-disturbance agreement)
as certified to the trustee by an Officer of ACEP.
INSURANCE
ACEP from and after the Acquisition Date will, and will cause the
Restricted Subsidiaries to, maintain the specified levels of insurance set forth
in the indenture, which shall not be less than the levels required in any
applicable Gaming License.
NOTE GUARANTEES
ACEP's and ACEP Finance's obligations under the notes, and ACEP's and
ACEP Finance's obligations under the indenture and the Collateral Documents,
will be unconditionally guaranteed by each of the Note Guarantors. The
obligations of each Note Guarantor under its Note Guarantee will be limited to
the extent necessary to ensure it does not constitute a fraudulent conveyance
under applicable law.
No Note Guarantor will consolidate with, or merge with or into (whether
or not such Note Guarantor is the surviving Person), another Person, whether or
not affiliated with such Note Guarantor, where the survivor of such
consolidation or merger is a Subsidiary of ACEP (other than an Unrestricted
Subsidiary that is properly designated as such pursuant to the terms of the
Indenture), unless:
(1) subject to the provisions of the following paragraph and
certain other provisions of the indenture, the Person formed by or
surviving any such consolidation or merger (if other than such Note
Guarantor) assumes all the obligations of such Note Guarantor pursuant
to a supplemental indenture and supplemental Collateral Documents in
form reasonably satisfactory to the trustee pursuant to which such
Person shall unconditionally guarantee, all of such Note Guarantor's
obligations under such Note Guarantee, the indenture and the Collateral
Documents on the terms set forth in the indenture; and
(2) immediately after giving effect to such transaction, no
Default or Event of Default exists.
In the event of (1) a sale or other disposition of all or substantially
all of the assets of any Note Guarantor, by way of merger, consolidation or
otherwise in accordance with the terms of the indenture, a Note Guarantor
becoming an Unrestricted Subsidiary pursuant to the terms of the indenture, a
sale or other disposition of all of the Capital Stock of any Note Guarantor in
accordance with the terms of the indenture, or a sale or disposition of Capital
Stock or other transaction which results in any Note Guarantor ceasing to be a
Restricted Subsidiary without any action required on the part of the trustee or
any holder of the notes, then such Note Guarantor (in the event of a sale or
other disposition, by way of
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such a merger, consolidation or otherwise, of all of the Capital Stock of such
Note Guarantor or the Note Guarantor becoming an Unrestricted Subsidiary
pursuant to the terms of the indenture) or the Person acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such Note Guarantor) shall be released and relieved of any obligations
under its Note Guarantee without any action required on the part of the trustee
or any holder of the notes; provided that (1) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and (2) if applicable, the
Net Asset Sale Proceeds of any sale or other disposition are applied in
accordance with the applicable provisions of the indenture relating to Asset
Sales. See "-- Repurchase at the Option of Holders -- Asset Sales."
A Note Guarantor may also be released from its obligations under its
Note Guarantee with the requisite consent of the holders of the notes. See "--
Amendment, Supplement and Waiver."
The indenture will provide that if any additional Restricted Subsidiary
is created or a Subsidiary of ACEP becomes a Restricted Subsidiary and
Investments in that Restricted Subsidiary exceed the amount described in clause
(1) of the definition of Permitted Investments, then ACEP will cause that
Restricted Subsidiary to (1) execute and deliver to the trustee a supplemental
indenture and supplemental Collateral Documents in form reasonably satisfactory
to the trustee pursuant to which that Restricted Subsidiary will unconditionally
guarantee, all of the issuers' obligations under the notes, the indenture and
the Collateral Documents on the terms set forth in the indenture which will be
secured by a second-priority Lien on terms substantially similar to the other
Restricted Subsidiaries and (2) deliver to the trustee an opinion of counsel
that, subject to customary assumptions and exclusions, such supplemental
indenture and supplemental Collateral Documents have been duly executed and
delivered by such Restricted Subsidiary.
FURTHER ASSURANCES
ACEP will (and will cause each of the Restricted Subsidiaries to)
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as may be reasonably
required from time to time in order:
(1) to carry out more effectively the express purposes of the
Collateral Documents;
(2) to subject to the Liens created by any of the Collateral
Documents any of the properties, rights or interests required to be
encumbered thereby and contemplated thereby;
(3) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and the Liens intended to
be created thereby and contemplated thereby; and
(4) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm to the trustee any of the rights granted
or now or hereafter intended by the parties thereto to be granted to
the trustee or under any other instrument executed in connection
therewith or granted to ACEP under the Collateral Documents or under
any other instrument executed in connection therewith.
Whether or not required by the rules and regulations of the SEC, so
long as any notes are outstanding, the issuers will furnish to the holders of
notes or cause the trustee to furnish to the holders of notes, within the time
periods specified in the SEC's rules and regulations:
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(5) all quarterly and annual reports that would be required to
be filed with the SEC on Forms 10-Q and 10-K if the issuers were
required to file such reports; and
(6) all current reports that would be required to be filed
with the SEC on Form 8-K if the issuers were required to file such
reports.
All such reports will be prepared in all material respects in
accordance with all of the rules and regulations applicable to such reports.
Each annual report on Form 10-K will include a report on the issuers'
consolidated financial statements by the issuers' certified independent
accountants. In addition, following the consummation of the exchange offer, the
issuers will file a copy of each of the reports referred to in clauses (1) and
(2) above with the SEC for public availability within the time periods specified
in the rules and regulations applicable to such reports (unless the SEC will not
accept such a filing) and, if the SEC will not accept such a filing, will post
the reports on its website within those time periods.
If, at any time after consummation of the exchange offer, the issuers
are no longer subject to the periodic reporting requirements of the Exchange Act
for any reason, the issuers will nevertheless continue filing the reports
specified in the preceding paragraphs of this covenant with the SEC within the
time periods specified above unless the SEC will not accept such a filing. The
issuers will not take any action for the purpose of causing the SEC not to
accept any such filings. If, notwithstanding the foregoing, the SEC will not
accept the issuers' filings for any reason, the issuers will post the reports
referred to in the preceding paragraphs on its website within the time periods
that would apply if the issuers were required to file those reports with the
SEC.
If ACEP has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraphs will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of ACEP and its
Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of ACEP.
In addition, the issuers and the Note Guarantors agree that, for so
long as any notes remain outstanding, if at any time they are not required to
file with the SEC the reports required by the preceding paragraphs, they will
furnish to the holders of notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The following constitutes an Event of Default:
(1) default in payment when due and payable, upon redemption
or otherwise, of principal or premium, if any, on the notes or under
any Note Guarantee;
(2) default for 30 days or more in the payment when due of
interest or Liquidated Damages on the notes or under any Note
Guarantee;
(3) failure by ACEP or any Note Guarantor to call for
redemption or to purchase any notes, in each case when required under
the indenture;
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(4) failure by ACEP or any Note Guarantor for 30 days after
written notice from the trustee to comply with the provisions described
under the captions "Restricted Payments" or "-- Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(5) failure by the issuers or any Note Guarantor for 60 days
after receipt of written notice from the trustee to comply with any of
its other agreements in the indenture, the Collateral Documents, the
notes or the Note Guarantees; provided, however, that any such failure
with respect to any Collateral Documents will not be deemed to have
occurred for purposes of the foregoing, and notice thereof shall not be
deemed to have been delivered, until the delivery of notice and the
expiration of all available grace periods provided for in the
applicable Collateral Documents;
(6) default under any mortgage, indenture or instrument under
which there is issued or by which there is secured or evidenced any
Indebtedness for money borrowed by ACEP or any of the Restricted
Subsidiaries or default on any Guarantee by ACEP or any of the
Restricted Subsidiaries of Indebtedness of a third party, whether such
Indebtedness or Guarantee now exists or is created after the Issuance
Date (other than any Non-Recourse Debt or any Guarantee related to
Non-Recourse Debt), which default (a) is caused by a failure to pay
when due at final maturity (giving effect to any grace period or waiver
related thereto) the principal of such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case (other than a Payment Default
or an acceleration of first-lien Indebtedness), the principal amount of
any such Indebtedness, together with the principal amount of any other
such Indebtedness under which a Payment Default then exists or with
respect to which the maturity thereof has been so accelerated or which
has not been paid at maturity, aggregates $5.0 million or more;
(7) failure of the Escrow Agreement, at any time, to be in
full force and effect (unless the escrow funds are released by the
Escrow Agent) or any contest by the issuers or any of the Note
Guarantors of the validity or enforceability of the Escrow Agreement;
(8) failure by ACEP or any of the Restricted Subsidiaries to
pay final judgments aggregating in excess of $5.0 million, which final
judgments remain unpaid, undischarged or unstayed for a period of more
than 60 days after such judgment becomes a final judgment;
(9) (a) except as permitted by the indenture, any Note
Guarantee or any Collateral Document or any material security interest
granted thereby shall be held in any judicial proceeding to be
unenforceable or invalid, or shall cease for any reason to be in full
force and effect and such default continues for 10 days after written
notice to ACEP or (b) ACEP or any Note Guarantor, or any Person acting
on behalf of ACEP or any Note Guarantor, shall deny or disaffirm its
obligations under any Note Guarantee or Collateral Document, in each of
clauses (a) and (b), which would materially and adversely impair the
benefits to the trustee or the holders of the notes thereunder;
(10) certain events of bankruptcy or insolvency with respect
to ACEP or any Note Guarantor that is a Significant Subsidiary of ACEP
or any group of Note Guarantors that together would constitute a
Significant Subsidiary of ACEP; or
(11) revocation, termination, suspension or other cessation of
effectiveness of any Gaming License, which results in the cessation or
suspension of gaming operations for a period of more than 90
consecutive days at any of the Properties (other than as a result of an
Asset Sale) and such Property is the principal asset of a Significant
Subsidiary or if such Property (considered separately) would constitute
a Significant Subsidiary if it were the only asset in a Subsidiary.
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Subject to the provisions of the Intercreditor Agreement, if any Event
of Default (other than by reason of bankruptcy or insolvency) occurs and is
continuing, the holders of more than 25% in principal amount of the then
outstanding notes may declare the principal, premium, if any, interest,
Liquidated Damages, if any, and any other monetary obligations on all the notes
to be due and payable immediately. See "Description of Intercreditor Agreement."
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to ACEP, or any Note
Guarantor that is a Significant Subsidiary, all outstanding notes will become
due and payable without further action or notice. Holders of the notes may not
enforce the indenture or the notes except as provided in the indenture. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding notes may direct the trustee in its exercise of any trust power,
including (subject to limitations contained in the Intercreditor Agreement) the
exercise of any remedy under the Collateral Documents or the giving of a notice
of default. The trustee may withhold from holders of notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in its interest. In addition, the trustee shall have no
obligation to accelerate the notes if in the best judgment of the trustee
acceleration is not in the best interest of the holders of the notes.
At any time after a declaration of acceleration with respect to the
notes and subject to certain conditions, the holders of a majority in aggregate
principal amount of notes outstanding may rescind and cancel such acceleration
and its consequences.
The holders of a majority in aggregate principal amount of the notes
then outstanding by notice to the trustee may on behalf of the holders of all of
the notes waive any existing Default or Event of Default and its consequences
under the indenture except a continuing Default or Event of Default in the
payment of interest on, premium, if any, or the principal of, any note held by a
non-consenting holder.
For a discussion of the effect of the Intercreditor Agreement on the
ability of the trustee or the holders of notes to exercise remedies after an
Event of Default, see "Description of Intercreditor Agreement."
The trustee may appoint one or more collateral agents, who may be
delegated any one or more of the duties or rights of the trustee under the
Collateral Documents or which are specified in any Collateral Documents.
The issuers will be required to deliver to the trustee annually a
statement regarding compliance with the indenture, and the issuers will be
required, within ten Business Days, upon becoming aware of any Default or Event
of Default to deliver to the trustee a statement specifying such Default or
Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator, manager (or managing
member) direct or indirect member, partner or stockholder of the issuers or the
Note Guarantors, as such, shall have any liability for any obligations of the
issuers or the Note Guarantors under the notes, any Note Guarantee, the
indenture, the Collateral Documents, as applicable, or for any claim based on,
in respect of, or by reason of such obligations or its creation. Each holder of
the notes by accepting a note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the notes and the Note
Guarantees.
COVENANT DEFEASANCE
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The issuers may, at their option and at any time, elect to have their
obligations and the obligations of any Restricted Subsidiary released with
respect to certain covenants that are described in the indenture ("Covenant
Defeasance") and, thereafter, any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the notes. In addition, the Note Collateral will be released and the Note
Guarantees will be terminated and released upon Covenant Defeasance.
In order to exercise Covenant Defeasance:
(1) the issuers must irrevocably deposit, or cause to be
deposited, with the trustee, in trust, for the benefit of the holders
of the notes, cash in U.S. dollars, non-callable Government Securities,
or a combination thereof, in such amounts as will be sufficient, to pay
the principal of, premium, if any, interest and Liquidated Damages, if
any, due on the outstanding notes on the stated maturity date or on the
applicable redemption date, as the case may be, in accordance with the
terms of the indenture;
(2) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of
such deposit;
(3) such Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which the issuers or any of
the Restricted Subsidiaries is a party or by which the issuers or any
of the Restricted Subsidiaries is bound;
(4) the issuers shall have delivered to the trustee an opinion
of counsel, containing customary assumptions and exceptions, to the
effect that upon and immediately following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally under any applicable law;
(5) the issuers shall have delivered to the trustee an
Officers' Certificate stating that the deposit was not made by the
issuers with the intent of defeating, hindering, delaying or defrauding
any creditors of the issuers or others; and
(6) the issuers shall have delivered to the trustee an
Officers' Certificate and an opinion of counsel in the United States
(which opinion of counsel may be subject to customary assumptions and
exclusions) each stating that all conditions precedent provided for or
relating to the Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
as to all notes issued thereunder and all Liens securing the notes and
obligations under the indenture including the Note Guarantees will be released,
when:
(1) either:
(a) all notes that have been authenticated,
except lost, stolen or destroyed notes that
have been replaced or paid and notes for
whose payment money
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has been deposited in trust and thereafter
repaid to the issuers, have been delivered
to the trustee for cancellation; or
(b) all notes that have not been delivered to
the trustee for cancellation (1) have become
due and payable by reason of the mailing of
a notice of redemption or otherwise, (2)
will become due and payable within one year
or (3) are to be called for redemption
within 12 months under arrangements
reasonably satisfactory to the trustee for
the giving of notice of redemption by the
trustee in the name, and at the reasonable
expense of the issuers, and the issuers or
any Note Guarantor have irrevocably
deposited or caused to be deposited with the
trustee as trust funds in trust solely for
the benefit of the holders, cash in U.S.
dollars, non-callable Government Securities,
or a combination of cash in U.S. dollars and
non-callable Government Securities, in
amounts as will be sufficient without
consideration of any reinvestment of
interest, to pay and discharge the entire
Indebtedness on the notes not delivered to
the trustee for cancellation for principal
and premium, if any, and accrued but unpaid
interest to the date of maturity or
redemption;
(2) no Default of Event of Default has occurred and is
continuing on the date of the deposit or will occur as a result of the
deposit and the deposit will not result in a breach or violation of, or
constitute a default under, any other material instrument to which the
issuers or any Note Guarantor is a party or by which the issuers or any
Note Guarantor is bound;
(3) the issuers or any Note Guarantor have paid or caused to
be paid all sums payable by them under the indenture; and
(4) the issuers have delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the case
may be.
In addition, the issuers must deliver an Officer's Certificate and an
Opinion of Counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the
indenture, the notes, the Note Guarantees or the Collateral Documents may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the notes then outstanding (including consents obtained
in connection with a tender offer or exchange offer for notes), and any existing
default or compliance with any provision of the indenture, the notes, the Note
Guarantees or the Collateral Documents may be waived with the consent of the
holders of a majority in principal amount of the then outstanding notes
(including consents obtained in connection with a tender offer or exchange offer
for notes).
Without the consent of at least 75% of the holders in principal amount
of the notes then outstanding, an amendment or waiver may not:
(1) release all or substantially all of the Note Collateral
from the Lien of the indenture or the Collateral Documents (other than
in accordance with the indenture and the Collateral Documents); or
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(2) release any Note Guarantor from any of its obligations
under its Note Guarantee or the indenture (other than in accordance
with the indenture).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any notes held by a nonconsenting holder of notes):
(3) reduce the principal amount of notes whose holders must
consent to an amendment, supplement or waiver;
(4) reduce the principal of or change the fixed maturity of
any note or alter or waive the provisions with respect to the
redemption of the notes;
(5) reduce the rate of or change the time for payment of
interest on any note;
(6) waive a Default or Event of Default in the payment of
principal of, premium or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration);
(7) make any note payable in money other than that stated in
the notes;
(8) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of holders of notes
to receive payments of principal of or premium, if any, or interest on
the notes; or
(9) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
notes, the issuers, the Note Guarantors and the trustee together may amend or
supplement the indenture, the notes, the Note Guarantees or the Collateral
Documents to cure any ambiguity, defect or inconsistency, to comply with the
covenant relating to mergers, consolidations and sales of assets, to provide for
uncertificated notes in addition to or in place of certificated notes, to
provide for the assumption of the issuers' or any Note Guarantor's obligations
to holders of the notes in the case of a merger, consolidation or asset sale, to
make any change that would provide any additional rights or benefits to the
holders of the notes (including providing for additional guarantees or
collateral), or that does not adversely affect the legal rights under the
indenture or the Collateral Documents of any such holder, or to enter into
additional or supplemental Collateral Documents.
CONCERNING THE TRUSTEE
The indenture will contain certain limitations on the rights of the
trustee, should it become a creditor of the issuers, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days or resign.
The holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy, available to the trustee, subject to
certain exceptions. The indenture will provide that in case an Event of Default
shall
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occur (which shall not be cured), the trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person in the conduct of
his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The indenture, the notes and the Note Guarantees will be, subject to
certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof. The issuance of the notes and the Note Guarantees will also be subject
to a certain extent to the laws of the jurisdiction of formation of the issuers.
The Collateral Documents will be governed by the laws of the State of New York,
except to the extent that (1) the laws of the State of Nevada are mandatory or
(2) validity or perfection of security interests and exercise of remedies in
respect of certain items of collateral, including, without limitation, real
property, is governed by the laws of the jurisdiction where such collateral is
located.
ADDITIONAL INFORMATION
Any holder of the notes or prospective investor may obtain a copy of
the indenture and the Collateral Documents without charge by writing to Denise
Barton, Chief Financial Officer, at ACEP and ACEP Finance, at 2000 Las Vegas
Boulevard South, Las Vegas, Nevada 89104.
BOOK-ENTRY, DELIVERY AND FORM
The new notes will be issued in one or more notes in global form (the
"Global Notes"). Except as set forth below, the notes will be issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess of $1,000. The Global Notes will be deposited upon
issuance with the trustee as custodian for DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC, s described
below.
Except as set forth below, the Global Notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Notes may not be exchanged
for definitive notes in registered certificated form ("Certificated Notes")
except in the limited circumstances described below. See "-- Exchange of Global
Notes for Certificated Notes." Except in the limited circumstances described
below, owners of beneficial interests in the Global Notes will not be entitled
to receive physical delivery of notes in certificated form.
In addition, transfers of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct and
indirect participants (including, if applicable, those of Euroclear and
Clerstream), which may change from time to time.
Prospective purchasers are advised that the laws of some states require
that certain Persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such Persons will be limited to such extent.
So long as the Global Note Holders is the registered owner of any
notes, the Global Note Holder will be considered the sole holder under the
indenture of any notes evidenced by the Global Notes. Beneficial owners of notes
evidenced by the Global Notes will not be considered the owners or holders of
the notes under the indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the trustee thereunder.
Neither the issuers nor the trustee will have any
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responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the notes.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. The issuers take no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the issuers that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC will credit the
accounts of the Participants designated by the initial purchaser with
portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be
shown on, and the transfer of ownership of these interests will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants
(with respect to other owners of beneficial interest in the Global
Notes).
Investors in the Global Notes who are Participants may hold their
interests therein directly through DTC. Investors in the Global Notes who are
not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) which are Participants. All
interests in a Global Note, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Clearstream may also be subject to the
procedures and requirements of such systems. The laws of some states require
that certain Persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such Persons will be limited to that extent. Because DTC can act
only on behalf of the Participants, which in turn act on behalf of the Indirect
Participants, the ability of a Person having beneficial interests in a Global
Note to pledge such interests to Persons that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
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Payments in respect of the principal of, and interest and premium, if
any, and Liquidated Damages, if any, on, a Global Note registered in the name of
DTC or its nominee will be payable to DTC in its capacity as the registered
holder under the indenture. Under the terms of the indenture, the issuers and
the trustee will treat the Persons in whose names the notes, including the
Global Notes, are registered as the owners of the notes for the purpose of
receiving payments and for all other purposes. Consequently, neither the
issuers, the trustee nor any agent of the issuers or the trustee has or will
have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account
of beneficial ownership interest in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of
DTC or any of its Participants or Indirect Participants.
DTC has advised the issuers that its current practice, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe that it will not
receive payment on such payment date. Each relevant Participant is credited with
an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the trustee or the
issuers. Neither the issuers nor the trustee will be liable for any delay by DTC
or any of the Participants or the Indirect Participants in identifying the
beneficial owners of the notes, and the issuers and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.
Transfers between the Participants will be effected in accordance with
DTC"s procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Cross-market transfers between the Participants, on the one hand, and
Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by their respective depositaries; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised the issuers that it will take any action permitted to
be taken by a holder of notes only at the direction of one or more Participants
to whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for notes in certificated
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form, and to distribute such notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. None of the issuers, the trustee and any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for Certificated Notes if:
(1) DTC (a) notifies the issuers that it is unwilling or
unable to continue as depository for the Global Notes or (b) has ceased
to be a clearing agency registered under the Exchange Act and, in
either case, the issuers fail to appoint a successor depositary;
(2) the issuers, at their option, notify the trustee in
writing that they elect to cause the issuance of the Certificated
Notes; or
(3) there has occurred and is continuing a Default or Event of
Default with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures).
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes. See "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The issuers will make payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by DTC or its nominee. The issuers will make all payments of
principal, interest and premium, if any, and Liquidated Damages, if any, with
respect to Certificated Notes by wire transfer of immediately available funds to
the accounts specified by the holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the Global Notes are expected to be eligible
to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such notes will, therefore, be required by DTC to be
settled in immediately available funds. The issuers expect that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.
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Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global Note from a
Participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of DTC. DTC has advised the issuers
that cash received in Euroclear or Clearstream as a result of sales of interests
in a Global Note by or through a Euroclear or Clearstream participant to a
Participant will be received with value on the settlement date of DTC but will
be available in the relevant Euroclear or Clearstream cash account only as of
the business day for Euroclear or Clearstream following DTC's settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"ACEP" means American Casino & Entertainment Properties LLC, a Delaware
limited liability company, or any successor thereto permitted under the
indenture.
"ACEP Finance" means American Casino & Entertainment Properties Finance
Corp., a Delaware corporation, or any successor thereto permitted under the
indenture.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such
other Person is merged with or into or became a Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Restricted Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Acquisitions" means the acquisitions of the Properties by ACEP
pursuant to the Acquisition Agreements.
"Acquisition Agreements" means, that certain membership interest
purchase agreement by and among ACEP, Starfire Holding Corporation and Carl C.
Icahn, and that certain contribution agreement by and among ACEP, American Real
Estate Holdings Limited Partnership, American Entertainment Properties Corp. and
Stratosphere Corporation.
"Acquisition Date" means the date and time of the consummation of the
Acquisitions pursuant to the Acquisition Agreements.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
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"AREP" means American Real Estate Partners, L.P.
"Arizona Charlie's Boulder" means that certain hotel and casino located
on approximately 24 acres at 4575 Boulder Highway, Las Vegas, Nevada, together
with all other improvements (including any buildings) and property thereon.
"Arizona Charlie's Decatur" means that certain hotel and casino located
on approximately 17 acres at 740 S. Decatur Boulevard, Las Vegas, Nevada,
together with all other improvements (including any buildings) and property
thereon.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of ACEP and its
Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption "--
Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants --
Merger, Consolidation or Sale of Assets" and not by the provisions of
the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of ACEP's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries by ACEP or a Restricted Subsidiary.
Notwithstanding the preceding, none of the following items will be
deemed to be an Asset Sale:
(3) any single transaction or series of related transactions
that involves assets having a Fair Market Value of less than $1.0
million;
(4) a transfer of assets between or among the issuers and its
Restricted Subsidiaries;
(5) an issuance of Equity Interests by a Restricted Subsidiary
of ACEP to ACEP or to a Restricted Subsidiary of ACEP;
(6) the sale or lease of products, services, equipment or
accounts receivable in the ordinary course of business and any sale or
other disposition of damaged, worn-out or obsolete assets in the
ordinary course of business;
(7) the sale or other disposition of cash or Cash Equivalents;
(8) a Restricted Payment that does not violate the covenant
described above under the caption "-- Certain Covenants -- Restricted
Payments" or a Permitted Investment;
(9) any Event of Loss;
(10) any Lease Transaction or any grant of easement or
Permitted Liens or Hedging Obligations permitted by the indenture;
(11) any dedication permitted pursuant to the covenant
described above under the caption "Certain Covenants -- Restrictions on
Leasing and Dedication of Property;"
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(12) any licensing of trade names or trademarks in the
ordinary course of business by any of ACEP or the Restricted
Subsidiaries; and
(13) the provision of accounting, financial management and
information technology and other ancillary services to Affiliates
provided in accordance with the covenant "-- Transactions with
Affiliates."
"Asset Sale Offer" has the meaning assigned to that term in the
indenture governing the notes.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction, including any period for which such
lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with GAAP;
provided, however, that if such sale and leaseback transaction results in a
Capital Lease Obligation, the amount of Indebtedness represented thereby will be
determined in accordance with the definition of "Capital Lease Obligation."
"Bank Credit Facility" means that certain Credit Agreement among ACEP
and ACEP Finance, as borrowers, certain of ACEP's Subsidiaries, as guarantors,
the lenders listed therein and Bear Stearns Corporate Lending Inc., as
syndication agent and administrative agent together with all related agreements,
instruments and documents executed or delivered pursuant thereto at any time
(including, all notes, mortgages, guarantees, security agreements and all other
collateral and security documents), in each case as such agreements, instruments
and documents may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the aggregate principal amount that may be borrowed
thereunder) all or any portion of the Indebtedness and other obligations under
such agreement or agreements or any successor or replacement agreement or
agreements, and whether by the same or any other agent, lender, debt holder or
group of lenders or debt holders.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of
the corporation or any committee thereof duly authorized to act on
behalf of such board;
(2) with respect to a partnership, the Board of Directors of
the general partner of the partnership;
(3) with respect to a limited liability company, the managing
member or members or any controlling committee of managing members
thereof or the Board of Directors of the managing member; and
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(4) with respect to any other Person, the board or committee
of such Person serving a similar function.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York or is a day on
which banking institutions located in such jurisdictions are authorized or
required by law or other governmental action to close.
"Capital Lease Obligation" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet prepared in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership
interests; and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person but excluding from all
of the foregoing (i) any debt securities convertible into Capital
Stock, whether or not such debt securities include any right of
participation with Capital Stock and (ii) Financing Participations.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality of the United States government (provided that the full
faith and credit of the United States is pledged in support of those
securities) having maturities of not more than one year from the date
of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case, with any lender party to the Credit Facilities
or with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Thomson Bank Watch Rating of "B" or
better;
(4) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (2)
and (3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
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(5) commercial paper having one of the two highest ratings
obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Rating Services and, in each case, maturing within one year after the
date of acquisition; and
(6) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1)
through (5) of this definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all of
the properties or assets of ACEP and its Subsidiaries taken as a whole
to any "person" (as that term is used in Section 13(d) of the Exchange
Act) other than the Principal or a Related Party;
(2) the adoption of a plan relating to the liquidation or
dissolution of the issuers;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation), the result of which is that
any "person" (as defined above), other than the Principal or the
Related Parties, becomes the Beneficial Owner, directly or indirectly,
of more than 50% of the Voting Stock of ACEP, measured by voting power
rather than number of shares; or
(4) after an initial public offering of ACEP or any direct or
indirect parent of ACEP (in either case, the "public company"), the
first day on which a majority of the members of the Board of Directors
of the public company are not Continuing Directors.
For purposes of this definition, any holding company whose only
significant asset is the Capital Stock of ACEP shall be disregarded and the
beneficial ownership of such holding company shall be attributed to ACEP and any
Person which has entered into an agreement to acquire any Capital Stock of ACEP
shall not be deemed to have any beneficial ownership of such Capital Stock until
the closing of such acquisition.
"Change of Control Offer" has the meaning assigned to that term in the
indenture governing the notes.
"Collateral Documents" means, collectively, the Pledge and Security
Agreement, the Deeds of Trust and any other agreements, instruments, financing
statements or other documents that evidence, set forth or limit the Lien of the
trustee in the Note Collateral.
"Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period plus,
without duplication:
(1) an amount equal to any extraordinary loss plus any net
loss realized by such Person or any of its Restricted Subsidiaries in
connection with an Asset Sale, to the extent such losses were deducted
in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the extent
that such provision for taxes was deducted in computing such
Consolidated Net Income; plus
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(3) the Fixed Charges of such Person and its Restricted
Subsidiaries for such period, to the extent that such Fixed Charges
were deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of
intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person
and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for
such period, other than the accrual of revenue in the ordinary course
of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or
similar distributions paid in cash to the specified Person or a
Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income
is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its
stockholders;
(3) the cumulative effect of a change in accounting principles
will be excluded; and
(4) notwithstanding clause (1) above, the Net Income of any
Unrestricted Subsidiary will be excluded, whether or not distributed to
the specified Person or one of its Subsidiaries.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of a public company who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of
Directors with the approval of the Principal or any of the Related
Parties or with the approval of a majority of the Continuing Directors
who were members of such Board of Directors at the time of such
nomination or election.
"Credit Facilities" means one or more debt facilities (including,
without limitation, the Bank Credit Facility) or commercial paper facilities, in
each case, with banks or other lenders providing for
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revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced (whether upon
or after termination or otherwise) or refinanced (including by means of sales of
debt securities to institutional investors) in whole or in part from time to
time.
"Deeds of Trust" means each mortgage made by each of Stratosphere
Corporation, Arizona Charlie's, LLC and Fresca, LLC covering the land upon which
each of their respective Properties will be located, as amended, modified or
revised in accordance with its terms.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case, at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require ACEP
to repurchase such Capital Stock upon the occurrence of a change of control,
event of loss, an asset sale or other special redemption event will not
constitute Disqualified Stock if the terms of such Capital Stock provide that
ACEP may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments"
or where the funds to pay for such repurchase was from the cash net proceeds of
such Capital Stock and such net cash proceeds was set aside in a separate
account to fund such repurchase. The amount of Disqualified Stock deemed to be
outstanding at any time for purposes of the indenture will be the maximum amount
that ACEP and its Restricted Subsidiaries may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions of, such
Disqualified Stock, exclusive of accrued dividends.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offer and sale of Capital Stock (other than
Disqualified Stock) of ACEP (other than an offer and sale relating to equity
securities issuable under any employee benefit plan of ACEP) or a capital
contribution in respect of Capital Stock (other than Disqualified Stock) of
ACEP.
"Escrow Agreement" means the Escrow and Security Agreement by and among
the issuers, American Real Estate Holdings Limited Partnership, the trustee, the
Escrow Agent and the securities intermediary.
"Event of Loss" means, with respect to any property or asset (tangible
or intangible, real or personal) of any of the Properties, any of the following:
(1) any loss, destruction or damage of such property or asset; (2) any actual
condemnation, seizure or taking by exercise of the power of eminent domain or
otherwise of such property or asset, or confiscation of such property or asset
or the requisition of the use of such property or asset; or (3) any settlement
in lieu of clause (2) above.
"Existing Indebtedness" means up to $3.9 million in aggregate principal
amount of Indebtedness of ACEP and its Subsidiaries (other than Indebtedness
under the Bank Credit Facility) in existence on the Acquisition Date, until such
amounts are repaid.
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"Fair Market Value" means the value that would be paid by a willing
buyer to an unaffiliated willing seller in a transaction not involving distress
or necessity of either party, determined in good faith by the Board of Directors
of ACEP (unless otherwise provided in the indenture).
"Financing Participations" means a participation in the revenues
generated by specified equipment or a specified amenity that was financed, in
whole or in part, by the person receiving the participation.
"First Lien Obligations" means, at any time, the obligations under any
Indebtedness (including Guarantees and the Bank Credit Facility) of ACEP or any
Restricted Subsidiary permitted to be incurred by the covenant "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" that is secured by a Lien on any
of the Note Collateral that ranks senior in priority to the Lien securing the
obligations under the notes and the Note Guarantees; provided that the holder of
the Indebtedness secured by such Lien has executed the Intercreditor Agreement
or an intercreditor agreement having substantially similar terms as the
Intercreditor Agreement.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the specified Person or any of its Restricted Subsidiaries incurs,
assumes, guarantees, repays, repurchases, redeems, defeases or otherwise
discharges any Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated and on
or prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption, defeasance or other
discharge of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period. For
the purpose of calculating the Fixed Charge Coverage Ratio (or any component
thereof) at any time prior to the completion of the fourth full fiscal quarter
after the Acquisition Date (and the availability of internal financial
statements for such period), the Fixed Charge Coverage Ratio (and each component
thereof) shall be calculated as if the Acquisitions had occurred at a date prior
to the beginning of the fourth full fiscal quarter prior to the date of
determination and shall be based upon the historical combined financial
statements for such period as reflected in the historical combined financial
statements included in the Offering Memorandum; provided that such calculation
shall give pro forma effect to the offering of the notes and the related
interest, fees and expenses incurred in connection with the notes.
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
(1) acquisitions that have been made by the specified Person
or any of its Restricted Subsidiaries, including through mergers or
consolidations, or any Person or any of its Restricted Subsidiaries
acquired by the specified Person or any of its Restricted Subsidiaries,
and including any related financing transactions and including
increases in ownership of Restricted Subsidiaries, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date will be given pro forma effect
(in accordance with Regulation S-X under the Securities Act) as if they
had occurred on the first day of the four-quarter reference period;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses (and ownership interests therein) disposed of prior to the
Calculation Date, will be excluded;
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(3) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
(and ownership interests therein) disposed of prior to the Calculation
Date, will be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following the
Calculation Date;
(4) any Person that is a Restricted Subsidiary on the
Calculation Date will be deemed to have been a Restricted Subsidiary at
all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the
Calculation Date will be deemed not to have been a Restricted
Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest, the
interest expense on such Indebtedness will be calculated as if the rate
in effect on the Calculation Date had been the applicable rate for the
entire period (taking into account any Hedging Obligation applicable to
such Indebtedness if such Hedging Obligation has a remaining term as at
the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all payments
made or received pursuant to Hedging Obligations in respect of interest
rates (excluding any accrued interest or interest paid in kind in
respect of Permitted Affiliate Subordinated Indebtedness); plus
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period
(excluding any capitalized interest in respect of Permitted Affiliate
Subordinated Indebtedness); plus
(3) any interest on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus
(4) the product of (a) all dividends, whether paid or accrued
and whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividends on
preferred stock payable solely in Equity Interests of ACEP (other than
Disqualified Stock) or to ACEP or a Restricted Subsidiary of ACEP,
times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in
each case, determined on a consolidated basis in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United
States set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or
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in such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
Issuance Date. For the purposes of the indenture, the term "consolidated" with
respect to any Person shall mean such Person consolidated with the Restricted
Subsidiaries and shall not include any Unrestricted Subsidiary.
"Gaming Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or other national government, any state, province or any city
or other political subdivision, including without limitation, the State of
Nevada, whether now or hereafter existing, or any officer or official thereof
and any other agency with authority thereof to regulate any gaming operation (or
proposed gaming operation) owned, managed or operated by the Principal, its
Related Parties, the issuers or any of their respective Subsidiaries or
Affiliates.
"Gaming Law" means any gaming law or regulation of any jurisdiction or
jurisdictions to which the issuers or any of their Subsidiaries is, or may at
any time after the issue date be, subject.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct activities of the issuers
or any of the Restricted Subsidiaries, including without limitation, all such
licenses granted under Nevada law, and the regulations promulgated in connection
therewith, and other applicable national, provincial, or local laws.
"Government Instrumentality" means any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, court, tribunal, commission, bureau or
entity or any arbitrator with authority to bind a party at law.
"Government Securities" means securities that are (1) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (2) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of ACEP thereof, and shall
also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such Government
Security or a specific payment of principal of or interest on any such
Government Security held by such custodian for the account of the holder of such
depository receipt; provided, that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Security or the specific payment of principal of or interest on
the Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take or pay or to maintain financial statement
conditions or otherwise).
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to
floating or from floating to fixed), interest rate cap agreements and
interest rate collar agreements;
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(2) other agreements or arrangements designed to manage interest
rates or interest rate risk; and
(3) other agreements or arrangements designed to protect such
Person against fluctuations in currency exchange rates or commodity
prices.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations or Attributable Debt in
respect of sale and leaseback transactions;
(5) representing the balance deferred and unpaid of the purchase
price of any property or services due more than six months after such
property is acquired or such services are completed; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit,
Attributable Debt and Hedging Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured by
a Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (a) the
accreted value thereof, in the case of any Indebtedness with original issue
discount, and (b) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness. Notwithstanding anything in the indenture to the contrary,
Indebtedness of ACEP and the Restricted Subsidiaries shall not include any
Indebtedness that has been either satisfied and discharged or defeased through
covenant defeasance or legal defeasance.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking or financial advisory firm of internationally recognized
standing that is not an Affiliate of the issuers, the Principal or its Related
Parties.
"Intercreditor Agreement" means the Intercreditor Agreement, among a
collateral agent, if any, Bear Stearns Corporate Lending Inc., as agent acting
on behalf of the other lenders pursuant to the Bank Credit Facility and the
trustee, acting on behalf of the holders of the notes, as amended, revised,
modified or restated from time to time in accordance with its terms.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other (including Affiliates) in the forms of loans
(including Guarantees or other obligations),
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advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business and
excluding accounts receivables created or acquired in the ordinary course of
business), purchases or other acquisitions, for cash or property, of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; notwithstanding the foregoing, the right of any Person to
receive payment based upon Financing Participations to the extent made in the
ordinary course of business shall not be deemed to be an Investment. If ACEP or
any Subsidiary of ACEP sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of ACEP such that, after giving effect to any
such sale or disposition, such Person is no longer a Subsidiary of ACEP, ACEP
will be deemed to have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of ACEP's Investments in such
Subsidiary that were not sold or disposed of in an amount determined as provided
in the final paragraph of the covenant described above under the caption " --
Certain Covenants -- Restricted Payments." The acquisition by ACEP or any
Subsidiary of ACEP of a Person that holds an Investment in a third Person will
be deemed to be an Investment by ACEP or such Subsidiary in such third Person in
an amount equal to the Fair Market Value of the Investments held by the acquired
Person in such third Person in an amount determined as provided in the final
paragraph of the covenant described above under the caption " -- Certain
Covenants -- Restricted Payments." Except as otherwise provided in the
indenture, the amount of an Investment will be determined at the time the
Investment is made and without giving effect to subsequent changes in value.
"Issuance Date" means the closing date for the sale and original issuance
of the notes.
"Issuers" means ACEP and ACEP Finance, collectively.
"Lenders" means any of the lenders under the Bank Credit Facility.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing pursuant to
the registration rights agreement.
"Material Gaming License" means any Gaming License that the loss,
suspension, revocation, termination or material impairment of which,
individually or in the aggregate, would materially adversely affect any Property
and such Property is the principal asset of a Significant Subsidiary or if such
Property (considered separately) would constitute a Significant Subsidiary if it
were the only asset in a Significant Subsidiary.
"Net Asset Sale Proceeds" means the aggregate cash proceeds received by
ACEP or any of the Restricted Subsidiaries in respect of any Asset Sale, net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and expenses, consent fees,
employee severance and termination costs, any trade payables or similar
liabilities related to the assets sold and required to be paid by the seller as
a result thereof and sales, finder's or broker's commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (including, without limitation, any taxes paid or payable by an
owner of ACEP or any Restricted Subsidiary), amounts required to be applied to
the repayment of Indebtedness secured by a Lien that ranks prior to the Lien
securing the notes on the asset or assets that are the subject of such Asset
Sale, all
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distributions and other payments required to be made to minority interest
holders in a subsidiary or joint venture as a result of the Asset Sale, any
reserve for adjustment in respect of the sale price of such asset or assets or
any liabilities associated with the asset disposed of in such Asset Sale and the
deduction of appropriate amounts provided by the seller as a reserve in
accordance with GAAP against any liabilities associated with the assets disposed
of in the Asset Sale and retained by ACEP or any Restricted Subsidiary after
that Asset Sale.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries;
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss);
(3) any interest expense from Permitted Affiliate Subordinated
Indebtedness, whether paid or accrued; and
(4) any payments pursuant to the Tax Allocation Agreement.
"Net Loss Proceeds" means the aggregate cash proceeds received by ACEP or
any of the Restricted Subsidiaries in respect of any Event of Loss, including,
without limitation, insurance proceeds, condemnation awards or damages awarded
by any judgment, net of the direct costs in recovery of such Net Loss Proceeds
(including, without limitation, legal, accounting, appraisal and insurance
adjuster fees and expenses), amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Event of Loss and any taxes paid or payable as a result thereof (including,
without limitation, any taxes paid or payable by an owner of ACEP or any
Restricted Subsidiary).
"Nevada Gaming Authorities" means the Nevada State Gaming Control Board,
the Nevada Gaming Commission, Clark County, Nevada and the City of Las Vegas,
Nevada.
"Non-Recourse Debt" means Indebtedness or Disqualified Stock, as the case
may be, or that portion of Indebtedness or Disqualified Stock, as the case may
be:
(1) as to which neither ACEP nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise;
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness of ACEP or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment of the Indebtedness to be accelerated or payable prior to its
Stated Maturity; and
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(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of ACEP or any of its
Restricted Subsidiaries.
"Non-Recourse Financing" means Indebtedness incurred in connection with
the construction, purchase or lease of personal or real property or equipment
(1) as to which the lender upon default may seek recourse or payment against
ACEP or any Restricted Subsidiary only through the return or foreclosure or sale
of the property or equipment so constructed, purchased or leased and to any
proceeds of such property and Indebtedness and the related collateral account in
which such proceeds are held and (2) may not otherwise assert a valid claim for
payment on such Indebtedness against ACEP or any Restricted Subsidiary or any
other property of ACEP or any Restricted Subsidiary except in each case in the
case of fraud and other customary non-recourse exceptions.
"Note Collateral" means all assets, now owned or hereafter acquired, of
ACEP or any Note Guarantor defined as Collateral in the Collateral Documents.
"Note Guarantee" means the Guarantee of the notes by a Note Guarantor.
"Note Guarantor" means each Subsidiary that provides a Guarantee of the
notes.
"Note Proceeds Account" means the Account (as defined in the Escrow
Agreement).
"Notes" means the issuers" 7.85% senior secured notes issued under the
indenture, including any Additional Notes issued.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means this offering memorandum dated January 15,
2004.
"Officers' Certificate" means a certificate signed on behalf of ACEP, ACEP
Finance or a Note Guarantor, as the case may be, by two Officers (or if a
limited liability company, two Officers of the managing member of such limited
liability company) of ACEP, ACEP Finance or a Note Guarantor, as the case may
be, one of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of ACEP, ACEP Finance
or a Note Guarantor, as the case may be, that meets the requirements set forth
in the indenture.
"Other Liquidated Damages" means liquidated damages arising from a
registration default under a registration rights agreement with respect to the
registration of subordinated Indebtedness permitted to be incurred under the
indenture.
"Parent" means AREP, American Real Estate Holdings Limited Partnership or
American Entertainment Properties Corp.
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"Permitted Affiliate Subordinated Indebtedness" means any Indebtedness of
ACEP or any of the Restricted Subsidiaries to an Affiliate of ACEP other than a
Subsidiary of ACEP (1) for which no installment of principal or installment of
interest may be made if a Default or Event of Default exists or is continuing
(except that interest may accrue on Permitted Affiliate Subordinated
Indebtedness or be paid in the form of additional Permitted Affiliate
Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified
Stock), (2) for which no installment of principal matures earlier than the date
that is three months after the final maturity date of the notes, (3) for which
the payment of principal and interest is subordinated in right of payment to the
notes or any note at least to the extent set forth in Appendix A-2 to the
Indenture and (4) under which no interest, premium or penalty is due or payable
(other than interest, premium and penalty payable in the form of additional
Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is
not Disqualified Stock and except that interest may accrue on Permitted
Affiliate Subordinated Indebtedness) unless such amount may be paid as a
Restricted Payment.
"Permitted Investments" means:
(1) any Investments in ACEP, or any Note Guarantor or in any
Restricted Subsidiary that is not a Note Guarantor if the Investments in
such Restricted Subsidiary that is not a Note Guarantor from ACEP, any
Note Guarantor or any of the other Restricted Subsidiaries aggregate less
than $1.0 million;
(2) any Investments in Cash Equivalents;
(3) Investments by ACEP or any Restricted Subsidiary of ACEP in a
Person, if as a result of such Investment (a) such Person becomes a Note
Guarantor or (b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, one of ACEP or a Note Guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "Repurchase
at the Option of Holders -- Asset Sales" or " -- Event of Loss;"
(5) any acquisition of assets or Capital Stock solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of
ACEP;
(6) receivables owing to ACEP or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as ACEP
or any such Restricted Subsidiary deems reasonable under the
circumstances;
(7) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(8) loans or advances to employees, former employees or directors of
ACEP or the Restricted Subsidiaries (a) to fund the exercise price of
options granted under the employment agreements or ACEP's stock option
plans or agreements, in each case, as approved by ACEP's Board of
Directors or (b) for any other purpose not to exceed $2.0 million in the
aggregate at any one time outstanding under this clause (b);
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(9) Investments received (a) in settlement of debts created in the
ordinary course of business and owing to ACEP and any Restricted
Subsidiary (including gaming debts in the ordinary course of business owed
by a patron or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of any trade creditor or
customer), (b) in satisfaction of judgments or (c) settlement of
litigation, arbitrations or other disputes;
(10) Investments in any person engaged in the Principal Business
which Investment is made by the issuance of Equity Interests (other than
Disqualified Stock) of ACEP;
(11) any Investments having an aggregate Fair Market Value (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (11) since the Issuance Date not
to exceed the sum of $20.0 million, plus the amount of cash repaid on any
loan made pursuant to this clause (11) not to exceed the respective
original principal amounts of such loans;
(12) any grant to any Subsidiary of ACEP of gaming or other rights
derivative of any Material Gaming License;
(13) Investments represented by Hedging Obligations;
(14) any Investments or loans made to third parties in connection
with such third parties' build out and development of property located at
any of the Properties not to exceed $10.0 million in the aggregate at any
one time outstanding;
(15) repurchases of the notes; and
(16) Investments existing on the Issuance Date and any Investments
of the funds in the Note Proceeds Account in accordance with the
investment limitations in the Escrow Agreement.
"Permitted Liens" means:
(1) Liens in favor of the issuers or any Note Guarantor; provided
that if such Liens are on any Note Collateral, that such Liens are either
collaterally assigned to the trustee or a collateral agent for the trustee
or subordinate to the Lien in favor of the trustee securing the notes or
any Note Guarantee;
(2) Liens on property of a Person existing at the time such Person
became a Restricted Subsidiary, is merged into or consolidated with or
into, or wound up into, one of ACEP or any Restricted Subsidiary of ACEP;
provided, that such Liens were in existence prior to the consummation of,
and were not entered into in contemplation of, such merger or
consolidation or winding up and do not extend to any other assets other
than those of the Person acquired by, merged into or consolidated with one
of ACEP or such Restricted Subsidiary;
(3) Liens on property existing at the time of acquisition thereof by
ACEP or any Restricted Subsidiary of ACEP; provided that such Liens were
in existence prior to the consummation of, and were not entered into in
contemplation of, such acquisition;
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(4) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business and in the improvement or
repair of any of the Properties and which obligations are not expressly
prohibited by the indenture; or if such Lien arises in the ordinary course
of business and in the improvement or repair of any of the Properties,
which ACEP shall have bonded within a reasonable time after becoming aware
of the existence of such Lien subject to customary rights of set off upon
deposit of cash in favor of a bank or other depositary institution in
which such cash is maintained in the ordinary course of business;
(5) Liens securing obligations in respect of the indenture, the
notes, including Additional Notes, and any Note Guarantee;
(6) Liens on assets that are not part of the Note Collateral to
secure Indebtedness (including Guarantees) permitted to be incurred under
the covenant " -- Incurrence of Indebtedness and Issuance of Preferred
Stock;" provided, that such Indebtedness is not contractually subordinated
in right of payment to the notes;
(7) (a) Liens for taxes, assessments or governmental charges or
claims or (b) statutory Liens of landlords, and carriers, warehousemen,
mechanics, suppliers, material men, repairmen or other similar Liens
arising in the ordinary course of business or in the improvement or repair
of any of the Properties, in the case of each of (a) and (b), with respect
to amounts that either (i) are not yet delinquent or (ii) are being
contested in good faith by appropriate proceedings as to which appropriate
reserves or other provisions have been made in accordance with GAAP;
(8) easements, rights-of-way, aviational or navigational servitudes,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances which do not interfere in any material respect
with the ordinary conduct of business of ACEP and the Restricted
Subsidiaries;
(9) leases or a leasehold mortgage in favor of a party financing the
lease of space, including, without limitation, construction or
improvements thereto within a Property; provided that (a) such lease or
the lease affected by such leasehold mortgage is permitted pursuant to the
covenant entitled " -- Restrictions on Leasing and Dedication of
Property," (b) neither ACEP nor any Restricted Subsidiary is liable for
the payment of any principal of, or interest or premium on, such financing
and (c) the affected lease and leasehold mortgage are expressly made
subject and subordinate to the Lien of the Deed of Trust, subject to the
provisions of the last paragraph in the covenant described under the
caption " -- Restrictions on Leasing and Dedication of Property;"
(10) Liens securing all Obligations under the Credit Facilities
incurred pursuant to clause (1) or (15) of the second paragraph of the
covenant described above under the caption " -- Incurrence of Indebtedness
and Issuance of Preferred Stock," which Liens may be senior in right of
payment to the Liens securing the obligations under the notes pursuant to
the terms of the Intercreditor Agreement;
(11) Liens incurred in connection with Hedging Obligations
permitted to be incurred under the indenture, including first-priority
Liens on the Note Collateral if the underlying obligations subject to the
Hedging Obligations are secured by a first-priority Lien on the Note
Collateral or second-priority Liens on the Note Collateral if the
underlying obligations subject to the Hedging Obligations are secured by
second-priority Liens on the Note Collateral;
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(12) licenses of patents, trademarks and other intellectual
property rights granted by ACEP or any Restricted Subsidiary of ACEP in
the ordinary course of business and not interfering in any material
respect with the ordinary conduct of the business of such ACEP or such
Restricted Subsidiary;
(13) any judgment attachment or judgment Lien not constituting an
Event of Default;
(14) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(15) Liens incurred or deposits made in connection with workers'
compensation, unemployment insurance and other types of social security,
or to secure performance of tenders, bids, leases, statutory obligations,
surety and appeal bonds, government contracts, trade contracts performance
and return of money bonds and other obligation of a like nature incurred
in the ordinary course;
(16) Liens arising from filing financing statements or other
instruments or documents relating to leases;
(17) any zoning or similar law or right reserved to or vested in
any governmental office or agency to control or regulate the use of any
real property;
(18) Liens on the assets of ACEP or any of the Restricted
Subsidiaries incidental to the conduct of their respective businesses or
the ownership of their respective Properties which were not created in
connection with the incurrence of Indebtedness or the obtaining of
advances or credit and which do not in the aggregate materially detract
from the value or saleability of their respective Properties or materially
impair the use thereof in the operation of their respective businesses;
(19) Liens to secure Indebtedness permitted by clause (11) of the
second paragraph of the covenant entitled " -- Incurrence of Indebtedness
and Issuance of Preferred Stock" and extending only to the personal or
real property as purchased or leased; provided, however, that, such Lien
does not extend over the real property secured under the Deeds of Trust;
(20) Liens to secure Indebtedness permitted by the first paragraph
and clause (13) and (15) of the second paragraph of the covenant entitled
" -- Incurrence of Indebtedness and Issuance of Preferred Stock"; provided
that the notes will be secured equally and ratably by a pari passu Lien
ranking equally in priority on any collateral subject to the Liens
permitted by this clause (20);
(21) Liens to secure any Permitted Refinancing Indebtedness
permitted to be incurred under the indenture; provided, however, that:
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(a) (a) the new Lien shall be limited to all or part of the
same property and assets that secured or, under the
written agreements pursuant to which the original Lien
arose, could secure the original Lien (plus improvements
and accessions to, such property or proceeds or
distributions thereof) and the priority of the new Lien
with respect to the Lien securing the obligations under
the notes is no greater than the priority of the Lien
securing the Indebtedness so refinanced;
(b) the Indebtedness secured by the new Lien is not
increased to any amount greater than the sum of (x) the
outstanding principal amount, or, if greater, committed
amount, of the Permitted Refinancing Indebtedness and
(y) an amount necessary to pay any fees and expenses,
including premiums, related to such renewal, refunding,
refinancing, replacement, defeasance or discharge; and
(c) the Indebtedness secured by the new Lien is subject to
and bound by the Intercreditor Agreement;
(22) Liens to secure a deposit or deposits in connection with
workers' compensation obligations or requirements, provided that such
deposit or deposits do not exceed $1.0 million in the aggregate; and
(23) Liens incurred in the ordinary course of business of ACEP or
any Subsidiary of ACEP with respect to obligations that do not exceed $5.0
million at any one time outstanding.
"Permitted Payments to Parent" means, without duplication as to amounts:
(1) payments to the Parent not to exceed $100,000 per annum; and
(2) payments pursuant to the Tax Allocation Agreement.
"Permitted Refinancing Indebtedness" means any Indebtedness of ACEP or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to renew, refund, refinance, replace, defease or discharge other
Indebtedness of ACEP or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness renewed,
refunded, refinanced, replaced, defeased or discharged (plus all accrued
interest on the Indebtedness and the amount of all fees and expenses,
including premiums, and Other Liquidated Damages, incurred in connection
therewith);
(2) in the case of Indebtedness other than First Lien Obligations
or notes redeemed in accordance with " -- Mandatory Disposition Pursuant
to Gaming Laws", such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged;
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(3) if the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged is subordinated in right of payment to
the notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right
of payment to, the notes on terms at least as favorable to the holders of
notes as those contained in the documentation governing the Indebtedness
being renewed, refunded, refinanced, replaced, defeased or discharged;
(4) such Indebtedness is incurred either by ACEP or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
renewed, refunded, refinanced, replaced, defeased or discharged;
(5) if the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged are First Lien Obligations and secured by
any part of the Note Collateral, such Permitted Refinancing Indebtedness
may be First Lien Obligations or Indebtedness secured by a Lien ranking
equally and ratably with the Lien securing the notes, provided that such
Permitted Refinancing Indebtedness is subject to and bound by the
appropriate Intercreditor Agreement, or shall be unsecured Indebtedness;
(6) if the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged is Indebtedness secured by a Lien ranking
equally and ratably with the Lien securing the notes and secured by any
part of the Note Collateral, such Permitted Refinancing Indebtedness may
be secured by a Lien ranking equally and ratably with the Lien securing
the notes, provided that such Permitted Refinancing Indebtedness is
subject to and bound by the appropriate Intercreditor Agreement, or shall
be unsecured Indebtedness; and
(7) if the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged is Indebtedness secured by a Permitted
Lien on collateral that is not Note Collateral, then such Permitted
Refinancing Indebtedness may be secured by a Lien on such other
collateral.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principal" means AREP.
"Principal Business" means the casino gaming, hotel, retail, conference
center and entertainment mall and resort business (including, without
limitation, the business contemplated by the Properties in the Offering
Memorandum) and any activity or business incidental, directly related or similar
thereto (including owning interests in Subsidiaries, operating a conference
center and meeting facilities and owning and operating or licensing the
operation of a retail and entertainment facilities), or any business or activity
that is a reasonable extension, development or expansion thereof or ancillary
thereto.
"Project Assets" means, at any time, all of the assets then in use on the
Properties including any real estate assets, any buildings or improvements
thereon, and all equipment, furnishings and fixtures, but excluding: (1) any
obsolete property determined by ACEP's Board of Directors to be no longer useful
or necessary to the operations or support of such Property and (2) any personal
property leased from a third party in the ordinary course of business.
"Properties" means the Stratosphere, Arizona Charlie's Decatur and Arizona
Charlie's Boulder. A "Property" means any of the foregoing Properties and other
properties that may be acquired.
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"Property Improvement" means any improvement to, or addition or
acquisition or construction of, the property, plant or equipment of any of the
Properties, or any other property for the benefit of any of the Properties,
including any land acquisition costs, financing costs, planning or development
costs, construction costs, ancillary costs, fees and expenses.
"Related Parties" means (1) Carl Icahn, any spouse and any child,
stepchild, sibling or descendant of Carl Icahn, (2) any estate of the Carl Icahn
or any person under clause (1), (3) any person who receives a beneficial
interest in the Principal from any estate under clause (2) to the extent of such
interest, (4) any executor, personal administrator or trustee who holds such
beneficial interest in ACEP for the benefit of, or as fiduciary for, any person
under clauses (1), (2) or (3) to the extent of such interest, (5) any
corporation, partnership, limited liability company, trust, or similar entity,
directly or indirectly owned or controlled by Carl Icahn or any other person or
persons identified in clauses (1) or (2).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of ACEP that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such regulation is in effect on
the Issuance Date.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest, accreted value, or principal
prior to the date originally scheduled for the payment or accretion thereof.
"Stratosphere" means that certain hotel, casino and tower located on
approximately 31 acres at 2000 Las Vegas Boulevard South, Las Vegas, Nevada,
together with all other improvements (including any buildings) and property
thereon.
"Subordinated Indebtedness" means any Indebtedness that by its terms is
expressly subordinated in right of payment in any respect (either in the payment
of principal or interest) to the payment of principal, Liquidated Damages or
interest on the notes.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total Voting Stock is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
155
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
"Tax Allocation Agreement" means that certain tax allocation agreement to
be entered into between American Entertainment Properties Corp., ACEP and the
Subsidiaries of ACEP.
"Unrestricted Subsidiary" means any Subsidiary of ACEP (other than any
Subsidiary that owns Project Assets) that is designated by the Board of
Directors of ACEP as an Unrestricted Subsidiary pursuant to a resolution of the
Board of Directors, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above under the
caption " -- Certain Covenants -- Transactions with Affiliates," is not
party to any agreement, contract, arrangement or understanding with ACEP
or any Restricted Subsidiary of ACEP unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to
ACEP or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of ACEP;
(3) is a Person with respect to which neither ACEP nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of ACEP or any of its
Restricted Subsidiaries.
"Voting Stock" means, with respect to any Person that is a corporation,
any class or series of capital stock of such Person that is ordinarily entitled
to vote in the election of directors thereof at a meeting of stockholders called
for such purpose, without the occurrence of any additional event or contingency
and with respect to any other Person that is a limited liability company,
membership interests entitled to manage the operations or business of the
limited liability company.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or Disqualified Stock, as the case may be, at any date, the number
of years (calculated to the nearest one-twelfth) obtained by dividing (1) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal or liquidation preference, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.
"Wholly-Owned Restricted Subsidiary" of any specified Person means a
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) will at
the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.
156
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain material United States
federal income tax consequences that apply to beneficial owners of the old notes
who:
(1) acquired the old notes at their original issue price for cash,
(2) exchange the old notes for new notes in this exchange offer,
and
(3) held the old note, and hold the new notes, as a "capital
asset" (generally, for investment) as defined in the Internal Revenue Code
of 1986, as amended, which we refer to as the Code.
This summary, however, does not consider state, local or foreign tax laws.
In addition, special United States federal income tax rules not discussed here
may apply to you if you are:
- A broker-dealer, a dealer in securities or a financial institution;
- An S corporation;
- A bank;
- A thrift;
- An insurance company;
- A tax-exempt organization;
- A partnership or other pass-through entity;
- Subject to the alternative minimum tax provisions of the Code;
- Holding the old notes or the new notes as part of a hedge, straddle
or other risk reduction or constructive sale transaction;
- A person with a "functional currency" other than the U.S. dollar; or
- A United States expatriate.
If you are a partner in a partnership which holds the new notes, you
should consult your own tax advisor regarding special rules that may apply.
This summary is based on the Code and applicable Treasury Regulations,
rulings, administrative pronouncements and decisions as of the date hereof, all
of which are subject to change or differing interpretations at any time with
possible retroactive effect. We have not sought and will not seek any rulings
from the Internal Revenue Service with respect to the statements made and the
conclusions reached in this summary, and there can be no assurance that the
Internal Revenue Service will agree with such statements and conclusions.
EACH HOLDER IS URGED TO CONSULT HIS TAX ADVISOR REGARDING THE SPECIFIC
FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF
PARTICIPATING IN THIS EXCHANGE OFFER AND HOLDING THE NEW
157
NOTES.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of the old notes for the new notes pursuant to this exchange
offer should not be a taxable event for U.S. federal income tax purposes.
Accordingly, holders participating in this exchange offer should not recognize
any income, gain or loss in connection with the exchange. In addition,
immediately after the exchange, any such holder should have the same adjusted
tax basis and holding period in the new notes as it had in the old notes,
immediately before the exchange.
CONSEQUENCES OF HOLDING THE NEW NOTES
UNITED STATES HOLDERS
If you are a "United States Holder," as defined below, this section
applies to you. Otherwise, the section "Non-United States Holders," applies to
you.
DEFINITION OF UNITED STATES HOLDER
You are a "United States Holder" if you are the beneficial owner of a new
note and you are, for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation organized under the laws of the United States or any
political subdivision thereof;
- an estate the income of which is subject to U.S. federal income tax
regardless of its sources; or
- a trust if a court within the United States can exercise primary
supervision over the administration of the trust and one or more
U.S. persons has authority to control all substantial decisions of
the trust, or if the trust was in existence on August 20, 1996, and
treated as a domestic trust on August 19, 1996, and it has elected
to continue to be treated as a domestic trust.
TAXATION OF STATED INTEREST
Generally, you must include the interest on the new notes in income as
ordinary income:
- when it accrues, if you use the accrual method of accounting for
United States federal income tax purposes; or
- when you receive it, if you use the cash method of accounting for
United States federal income tax purposes.
SALE OR OTHER TAXABLE DISPOSITION OF THE NEW NOTES
You will generally recognize taxable gain or loss on the sale, exchange,
redemption, retirement or other taxable disposition of a new note. The amount of
your gain or loss equals the difference between the amount you receive for the
new note (in cash or other property, valued at fair market value), except to the
extent amounts received are attributable to accrued interest on the note, and
your adjusted tax basis in the new note. Your tax basis in the new note
generally should equal the price you paid for the old note that was exchanged
for the new note.
158
Your gain or loss will generally be long-term capital gain or loss if your
holding period for the note is more than one year at the time of the sale,
exchange, redemption, retirement or other taxable disposition. Otherwise, it
will be short-term capital gain or loss. For this purpose, your holding period
for the new note should include your holding period for the old note that was
exchanged for the new note. Long-term capital gains recognized in years
beginning before December 31, 2008 by certain non-corporate holders are
generally taxed at a maximum rate of 15%. The use of capital losses is subject
to limitations. Payments attributable to accrued interest which you have not yet
included in income will be taxed as ordinary interest income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will report to certain non-corporate holders of the new notes and to
the IRS the amount of any interest paid on the new notes in each calendar year
and the amounts of tax withheld, if any, with respect to such payments. You may
be subject to a backup withholding tax when you receive interest payments on a
new note or proceeds upon the sale or other disposition of the new note. Certain
holders (including, among others, corporations, financial institutions and
certain tax-exempt organizations) are generally not subject to information
reporting or backup withholding. In addition, the backup withholding tax will
not apply to you if you provide to us or our paying agent your correct social
security or other taxpayer identification number, or TIN, in the prescribed
manner unless:
- the IRS notifies us or our paying agent that the TIN you provided is
incorrect;
- you underreport interest and dividend payments that you receive on
your tax return and the IRS notifies us or our paying agent that
withholding is required; or
- you fail to certify under penalties of perjury that you are not
subject to backup withholding.
The backup withholding tax rate is currently 28%.
Any amounts withheld from a payment to you under the backup withholding
rules may be credited against your United States federal income tax liability,
and may entitle you to a refund.
You should consult your tax advisor as to your qualification for exemption
from backup withholding and the procedures for obtaining such exemption.
NON-UNITED STATES HOLDERS
The following general discussion is limited to the United States federal
income tax consequences relevant to a "Non-United States Holder." A "Non-United
States Holder" is any beneficial owner of a new note if such owner is, for
United States federal income tax purposes, a nonresident alien, or a
corporation, estate, or trust that is not a United States Holder.
INTEREST
Portfolio Interest Exemption. You will generally not be subject to United
States federal income tax or withholding tax on interest paid or accrued on the
new notes if:
- you do not own, actually or constructively, 10% or more of the total
combined voting power of all classes of the capital stock entitled
to vote of American Entertainment Properties Corp., our parent
corporation;
- you are not a controlled foreign corporation with respect to which
American Entertainment
159
Properties Corp., our parent corporation, is a "related person"
within the meaning of Section 864(d)(4) of the Code;
- you are not a bank receiving interest described in Section
881(c)(3)(A) of the Code;
- such interest is not effectively connected with the conduct by you
of a trade or business in the United States; and
- either (i) you represent that you are not a United States person for
United States federal income tax purposes and you provide your name
and address to us or our paying agent on a properly executed IRS
Form W-8BEN (or a suitable substitute form) signed under penalties
of perjury, or (ii) a securities clearing organization, bank, or
other financial institution that holds customers' securities in the
ordinary course of its business holds the new note on your behalf,
certifies to us or our paying agent under penalties of perjury that
it has received IRS Form W-8BEN (or a suitable substitute form) from
you or from another qualifying financial institution intermediary,
and provides a copy of the Form W-8BEN (or a suitable substitute
form) to us or our paying agent.
United States Federal Income or Withholding Tax If Interest Is Not
Portfolio Interest. If you do not claim, or do not qualify for, the benefit of
the portfolio interest exemption described above, you may be subject to a 30%
withholding tax on the gross amount of interest payments, unless reduced or
eliminated by an applicable income tax treaty.
However, income from payments or accruals of interest that is effectively
connected with the conduct by you of a trade or business in the United States
will be subject to United States federal income tax on a net basis at a rate
applicable to United States persons generally (and, if paid to corporate
holders, may also be subject to a 30% branch profits tax). If payments are
subject to United States federal income tax on a net basis in accordance with
the rules described in the preceding sentence, such payments will not be subject
to United States withholding tax so long as you provide us or our paying agent
with a properly executed IRS Form W-8ECI.
Non-United States Holders should consult any applicable income tax
treaties, which may provide for a lower rate of withholding tax, exemption from
or reduction of the branch profits tax, or other rules different from those
described above. Generally, in order to claim any treaty benefits you must
submit a properly executed IRS Form W-8BEN.
SALE OR OTHER DISPOSITION OF NEW NOTES
You will generally not be subject to United States federal income tax or
withholding tax on gain recognized on a sale, exchange, redemption, retirement,
or other disposition of a new note unless such gain is effectively connected
with the conduct by you of a trade or business within the United States. Any
gain that is effectively connected with the conduct by you of a trade or
business within the United States will be subject to United States federal
income tax on a net basis at the rates applicable to United States persons
generally.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments From United States Office. If you receive payment of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, you may be subject to both backup withholding and
information reporting.
With respect to interest payments made on the new notes, however, backup
withholding and information reporting will not apply if you certify, generally
on a Form W-8BEN (or Form W-8ECI) or
160
suitable substitute form, that you are not a United States person in the manner
described above under the heading " -- Non-United States Holders -- Interest."
Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of a new note, backup withholding or
information reporting generally will not apply if you properly provide,
generally on Form W-8BEN (or Form W-8ECI) or a suitable substitute form, a
statement that you are an "exempt foreign person" for purposes of the broker
reporting rules, and other required information. If you are not subject to
United States federal income or withholding tax on the sale or other disposition
of a new note, as described above under the heading " -- Non-United States
Holders-Interest -- Sale or Other Disposition of New Notes," you will generally
qualify as an "exempt foreign person" for purposes of the broker reporting
rules.
Payments From Foreign Office. If payments of principal and interest are
made to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of the
sale of a new note through a foreign office of a "broker," as defined in the
pertinent United States Treasury Regulations, you will generally not be subject
to backup withholding or information reporting. You will however, be subject to
backup withholding and information reporting if the foreign custodian, nominee,
agent or broker has actual knowledge or reason to know that you are a United
States person. You will also be subject to information reporting, but not backup
withholding, if the payment is made by a foreign office of a custodian, nominee,
agent or broker that has certain relationships to the United States unless the
broker has in its records documentary evidence that you are a Non-United States
Holder and certain other conditions are met.
Refunds. Any amounts withheld from a payment to you under the backup
withholding rules may be credited against your United States federal income tax
liability, and may entitle you to a refund.
The information reporting requirements may apply regardless of whether
withholding is required. Copies of the information returns reporting interest
and withholding also may be made available to the tax authorities in the country
in which a Non-United States Holder is a resident under the provisions of an
applicable income tax treaty or other agreement.
THE SUMMARY DOES NOT COMPLETELY DESCRIBE THE WITHHOLDING REGULATIONS.
PLEASE CONSULT YOUR TAX ADVISOR TO DETERMINE HOW THE WITHHOLDING REGULATIONS
APPLY TO YOUR PARTICULAR CIRCUMSTANCES.
161
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We and the guarantors have agreed that, starting on the
expiration date and ending on the close of business 270 days after the
expiration date (or such shorter period during which participating
broker-dealers are required by law to deliver such prospectus), we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until , all dealers
effecting transactions in the new notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of new notes and any
commissions or concessions received any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Furthermore, any broker-dealer that acquired any of its old notes directly
from us:
- may not rely on the applicable interpretation of the staff of the
Commission's position contained in Exxon Capital Holdings Corp., SEC
no-action letter (May 13, 1988), Morgan, Stanley & Co. Inc., SEC
no-action letter (June 5, 1991) and Shearman & Sterling, SEC
no-action letter (July 2, 1983); and
- must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities
Act relating to any resale transaction.
For a period of 270 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holder of the old notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the old notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
162
LEGAL MATTERS
The validity of the notes offered by this prospectus and certain legal
matters in connection with the exchange offer will be passed upon for us by
Piper Rudnick LLP, New York, New York.
EXPERTS
The combined financial statements of American Casino & Entertainment
Properties LLC as of December 31, 2002 and 2003 and for each of the three years
in the period ended December 31, 2003 has been included in this prospectus, in
reliance upon the report of KPMG LLP, independent registered public accounting
firm, appearing elsewhere herein, and upon the authority of said firm as experts
in auditing and accounting.
On April 1, 2004, KPMG LLP advised our indirect parent, American Real
Estate Partners, L.P., or AREP, that it would not seek re-election as AREP's
independent auditor for 2004, and that the client-auditor relationship between
AREP and KPMG had ceased and, therefore, our relationship with KPMG has also
ceased. None of KPMG's reports on our combined financial statements for the
years ended December 31, 2002 or 2003 contained an adverse opinion or a
disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope or accounting principles. During the two most recent
fiscal years and the interim period preceding receipt of KPMG's letter, there
was no (1) disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreements in connection with
its report or (2) "reportable events" as such term is defined in Item
304(a)(1)(v) of Regulation S-K under the Securities Act of 1934.
Effective as of April 26, 2004, AREP's audit committee engaged Grant
Thornton LLP as its independent public accountant and, therefore, our
independent public accountant. During the years ended December 31, 2002 and
2003, and from January 1, 2004 through April 26, 2004 (the date Grant Thornton
LLP was appointed), neither we, AREP nor AREP's audit committee consulted Grant
Thornton LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed; or any matter that was
either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K).
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4, together with any
amendments thereto, with the SEC under the Securities Act of 1933, as amended,
with respect to the new notes. This prospectus, which constitutes a part of the
registration statement, omits certain information contained in the registration
statement and reference is made to the registration statement and the exhibits
and schedules thereto for further information with respect to us and the new
notes offered hereby.
Upon effectiveness of the registration statement, we will be subject to
the informational reporting requirements of the Securities Act of 1934, as
amended, and we will file annual, quarterly and current reports and other
information with the SEC. These reports do not constitute a part of this
prospectus, and we are not incorporating by reference into this prospectus any
of the reports we file with the SEC. We have agreed that, whether or not
required to do so by the rules and regulations of the SEC (and within the time
periods that are or would be prescribed thereby), for so long as any of the
notes remain outstanding, we will furnish to the holders of the notes and file
with the Commission (unless the SEC will not accept such a filing because, for
example, we are no longer subject to the reporting requirements of the Exchange
Act and are filing such reports on a voluntary basis):
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K
if we were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on our
consolidated financial statements by an independent registered public
accounting firm and
(2) all reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports. In addition, for so
long as any of the notes remain outstanding, we have agreed to make
available, upon request, to any prospective purchaser or beneficial owner
of the notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act.
The registration statement (including the exhibits and schedules thereto)
and the periodic reports and other information we will file following
effectiveness of the registration statement may be inspected and copied at the
public reference facilities of the SEC, located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of such
material can also be obtained from the SEC by mail at prescribed rates. In
addition, the SEC maintains a website (http://www.sec.gov) that contains such
reports and other information that we have filed.
163
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm............................................. F-2
Consolidated Balance Sheets as of December 31, 2002 and 2003 and as of June 30, 2004 (unaudited)... F-3
Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003 and for the six
month periods ended June 30, 2003 and 2004 (unaudited)............................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003 and for the
six month periods ended June 30, 2003 and 2004 (unaudited)........................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2002 and 2003
and for the six month period ended June 30, 2004 (unaudited)......................................... F-6
Notes to Consolidated Financial Statements........................................................... F-7
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Member
American Casino & Entertainment Properties LLC
We have audited the accompanying combined balance sheets of American Casino &
Entertainment Properties LLC (the "Company") as of December 31, 2002 and 2003,
and the related combined statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2003.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of American
Casino & Entertainment Properties LLC as of December 31, 2002 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
March 5, 2004
Los Angeles, California
F-2
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
------------------------ -----------
(In thousands) 2002 2003 2004
---------- ---------- -----------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 59,343 $ 77,258 $ 49,231
Cash and cash equivalents-restricted 1,926 - 447
Marketable securities 4,200 4,200 -
Investments-restricted 2,683 2,973 2,921
Accounts receivable, net (note 2) 4,298 4,051 4,549
Related party receivables 32 233 189
Deferred income taxes (note 8) 372 2,982 3,232
Other current assets (note 3) 7,993 9,213 10,677
---------- ---------- -----------
Total Current Assets 80,847 100,910 71,246
---------- ---------- -----------
Property and Equipment, at cost (note 4) 313,210 324,548 321,989
---------- ---------- -----------
Other Assets:
Debt issuance and deferred financing costs, net 610 272 7,532
Lessee incentive 767 567 467
Other receivable 2,401 84 -
Deferred income taxes (note 8) - 54,357 60,738
---------- ---------- -----------
Total Other Assets 3,778 55,280 68,737
---------- ---------- -----------
TOTAL ASSETS $ 397,835 $ 480,738 $ 461,972
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade $ 3,674 $ 5,048 $ 2,166
Accounts payable-construction 805 805 805
Accrued expenses (note 5) 17,338 17,801 22,482
Accrued payroll and related expenses 10,267 12,395 10,185
Current portion of capital lease obligation (note 6) 55 436 439
Current portion of notes payable to related party (note 9) 15,421 14,796 -
---------- ---------- -----------
Total Current Liabilities 47,560 51,281 36,077
---------- ---------- -----------
Long-Term Liabilities:
Notes payable to related party (note 9) 85,230 86,456 -
Notes payable - - 215,000
Accrued lessee incentive 818 568 568
Capital lease obligations, less current portion (note 6) 949 3,555 3,527
Deferred income taxes (note 8) 3,325 5,134 -
Other - 3,399 5,257
---------- ---------- -----------
Total Long-Term Liabilities 90,322 99,112 224,352
---------- ---------- -----------
TOTAL LIABILITIES 137,882 150,393 260,429
---------- ---------- -----------
Commitments and Contingencies (notes 11 and 12)
Stockholders' Equity (note 7):
Common stock 10 10 -
Additional paid-in-capital 243,750 293,460 171,396
Retained earnings 16,193 36,875 30,147
---------- ---------- -----------
Total Stockholders' Equity 259,953 330,345 201,543
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 397,835 $ 480,738 $ 461,972
========== ========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
(In thousands) 2001 2002 2003 2003 2004
--------- --------- --------- --------- ---------
(UNAUDITED)
REVENUES:
Casino $ 142,919 $ 143,057 $ 147,888 $ 73,998 $ 82,391
Hotel 38,326 44,263 47,259 23,572 27,723
Food and beverage 55,453 56,349 59,583 29,847 33,420
Tower, retail and other income 29,512 28,247 30,336 14,540 16,580
--------- --------- --------- --------- ---------
Gross Revenues 266,210 271,916 285,066 141,957 160,114
Less promotional allowances 23,737 21,893 22,255 11,404 11,745
--------- --------- --------- --------- ---------
NET REVENUES 242,473 250,023 262,811 130,553 148,369
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Casino 60,026 59,879 61,284 30,620 31,182
Hotel 17,190 20,142 22,074 10,565 11,536
Food and beverage 42,806 43,393 44,990 22,133 23,664
Other operating expenses 15,640 14,934 14,008 7,291 6,566
Selling, general and administrative 78,692 80,019 74,985 37,787 37,327
Depreciation and amortization 17,209 20,209 20,222 10,272 12,314
--------- --------- --------- --------- ---------
Total Costs and Expenses 231,563 238,576 237,563 118,668 122,589
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS 10,910 11,447 25,248 11,885 25,780
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 1,640 667 426 270 955
Interest expense (5,971) (5,990) (5,389) (2,755) (9,747)
Gain (Loss) on sale of assets 23 (354) (1,401) 85 144
--------- --------- --------- --------- ---------
Total Other Expense, net (4,308) (5,677) (6,364) (2,400) (8,648)
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 6,602 5,770 18,884 9,485 17,132
Provision (benefit) for Income Taxes
(note 8) 4,908 4,907 (1,798) 4,394 5,944
--------- --------- --------- --------- ---------
NET INCOME $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188
========= ========= ========= ========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ------------------------
(In thousands) 2001 2002 2003 2003 2004
--------- --------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,209 20,209 20,222 10,272 12,314
(Gain) Loss on sale or disposal of assets (23) 354 1,401 (85) (144)
Provision benefit for deferred income taxes 1,237 1,804 (5,448) - 2,830
Changes in operating assets and liabilities:
Restricted Cash - - 1,926 173 (447)
Accounts receivable, net (1,119) (108) 247 415 (498)
Other current assets 1,613 1,750 1,653 1,218 (678)
Accounts payable - trade (277) (403) 1,374 (494) (2,882)
Accrued expenses 783 5,766 2,341 5,613 2,455
Other - - 3,399 - -
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,117 30,235 47,797 22,203 24,138
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (decrease) in investments - restricted 161 (1,623) (290) (1,000) 52
Sale of marketable securities 259 - - - 4,200
Acquisition of property and equipment (50,631) (22,085) (30,423) (3,837) (9,925)
Payments for CIP (5,345) (793) - - -
Related party receivables (411) 373 (201) (45) 44
Cash proceeds from sale of property and equipment - 1 521 85 398
--------- --------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (55,967) (24,127) (30,393) (4,797) (5,231)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance and deferred financing costs - (855) (90) - (1,060)
Proceeds from related part note payable 45,750 17,220 7,780 - -
Proceeds from notes payable - - - - 215,000
Member contribution 5,150 598 - 28,219
Proceeds from capital lease obligations 1,004 - -
Capital distribution - - - - (187,816)
Payments of related party notes payable (10,696) (9,277) (7,179) (2,138) (101,252)
Payments of long term debt (3,369) (38) - - -
Payments on capital lease obligation (2,759) (3,280) - - (25)
Cash acquired from subsidiary contributed by parent - 280 - - -
--------- --------- --------- --------- ---------
NET CASH (PROVIDED BY) USED IN FINANCING ACTIVITIES 35,080 4,648 511 (2,138) (46,934)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 230 10,756 17,915 15,268 (28,027)
Cash and cash equivalents - beginning of period 48,357 48,587 59,343 59,343 77,258
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 48,587 $ 59,343 $ 77,258 $ 74,611 $ 49,231
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 5,058 $ 5,790 $ 5,422 $ 3,295 $ 2,342
========= ========= ========= ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized lease obligation incurred in the
acquisition of property and equipment $ - $ - $ 3,042 $ - $ -
Net assets contributed by parent $ - $ 233 $ - $ - $ 6,886
Change in tax asset related to acquisition $ - $ - $ - $ - $ 12,721
Change in deferred tax asset valuation allowance
related to book-tax differences existing at time
of bankruptcy $ 628 $ 2,412 $ 49,710 $ - $ -
Cancellation of common stock shares pursuant
to the plan of merger $ - $ 20 $ - $ - $ -
========= ========= ========= ========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL
COMMON ADDITIONAL RETAINED STOCKHOLDERS'
--------- --------------- --------- -------------
STOCK PAID-IN-CAPITAL EARNINGS EQUITY
--------- --------------- --------- -------------
BALANCES AT DECEMBER 31, 2000 $ 30 $ 234,709 $ 13,636 $248,375
CHANGE IN DEFERRED TAX ASSET VALUATION ALLOWANCE
RELATED TO BOOK-TAX DIFFERENCES EXISTING AT
TIME BANKRUPTCY - 628 - 628
MEMBER CONTRIBUTIONS - 5,150 - 5,150
NET INCOME - - 1,694 1,694
--------- --------- --------- --------
BALANCES AT DECEMBER 31, 2001 $ 30 $ 240,487 $ 15,330 $255,847
CHANGE IN DEFERRED TAX ASSET VALUATION ALLOWANCE
RELATED TO BOOK-TAX DIFFERENCES EXISTING AT
TIME BANKRUPTCY - 2,412 - 2,412
NET ASSETS CONTRIBUTED BY PARENT - 233 - 233
MEMBER CONTRIBUTIONS - 598 - 598
CANCELLATION OF COMMON SHARES (20) 20 - -
NET INCOME - - 863 863
BALANCES AT DECEMBER 31, 2002 $ 10 $ 243,750 $ 16,193 $259,953
CHANGE IN DEFERRED TAX ASSET VALUATION ALLOWANCE
RELATED TO BOOK-TAX DIFFERENCES EXISTING AT
TIME BANKRUPTCY - 49,710 - 49,710
NET INCOME - - 20,682 20,682
--------- --------- --------- --------
BALANCES AT DECEMBER 31, 2003 $ 10 $ 293,460 $ 36,875 $330,345
CANCELLATION OF COMMON SHARES (UNAUDITED) (10) 10 - -
CHANGE IN DEFERRED TAX ASSET RELATED TO
ACQUISITION - 12,721 - 12,721
CONTRIBUTIONS (UNAUDITED) - 35,105 35,105
DISTRIBUTIONS (UNAUDITED) (169,900) (17,916) (187,816)
NET INCOME (UNAUDITED) - - 11,188 11,188
--------- --------- --------- --------
BALANCES AT JUNE 30, 2004 (UNAUDITED) $ - $ 171,396 $ 30,147 $201,543
========= ========= ========= ========
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003 AND JUNE 30, 2003
(UNAUDITED) AND 2004 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
American Casino & Entertainment Properties LLC (ACEP) was formed in Delaware on
December 29, 2003. ACEP is comprised of American Casino & Entertainment
Properties LLC, American Casino & Entertainment Properties Finance Corp.,
Stratosphere Corporation and its wholly-owned subsidiaries, Stratosphere Gaming
Corporation, Stratosphere Land Corporation, Stratosphere Advertising Agency,
Stratosphere Leasing, LLC, and Stratosphere Development, LLC, an entity
controlled by Stratosphere Corporation; Arizona Charlie's, LLC, and its wholly
owned subsidiary, Jetset Tours, LLC; and Fresca, LLC (collectively the
"Company"). The Company operates integrated casinos, hotels, a retail and
entertainment facility and a 1,149 foot, free-standing observation tower located
in Las Vegas, Nevada. All significant intercompany balances and transactions
have been eliminated in consolidation.
ACEP owns and operates three gaming and entertainment properties in Las Vegas;
Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. ACEP
entered into a membership interest purchase agreement with Starfire Holding
Corporation, which is wholly-owned by Mr. Icahn, in which ACEP agreed to
purchase all of the membership interests in Charlie's Holding LLC, a
newly-formed entity that owns Arizona Charlie's Decatur and Arizona Charlie's
Boulder. The closing of this acquisition was approved by the Nevada Gaming
Commission upon the recommendation of the Nevada State Gaming Control Board and
was completed on May 26, 2004. The purchase price was $125.9 million.
Additionally, ACEP entered into a contribution agreement with its direct parent,
American Entertainment Properties Corp., and its direct parent, American Real
Estate Holdings Limited Partnership, or AREH, in which AREH agreed to contribute
100% of the outstanding capital stock of Stratosphere Corporation, which was
approved by the Nevada Gaming Commission upon the recommendation of the Nevada
State Gaming Control Board. These transactions represent a merger of entities
under the common control of Carl C. Icahn. Accordingly, the historical cost
basis of the underlying net assets was retained in the combination for all dates
prior to May 26, 2004. These statements were presented on a combined basis. As a
result of obtaining the formal approval from the gaming commission, the legal
presentation now requires consolidation. Accordingly, the financial statements
are referred to as consolidated
On January 29, 2004, the Company issued $215,000,000 in aggregate principal
amount of 7.85% Senior Secured Notes due 2012. The net proceeds from the sale of
the notes have been used in connection with the acquisition of three Las Vegas,
Nevada gaming and entertainment properties from affiliated parties described
above, to repay intercompany debt and for distributions. The notes have a fixed
annual interest rate of 7.85%, which will be paid every six months on February 1
and August 1, commencing August 1, 2004. Pending consummation of the
acquisitions, the perfection of security interests in the assets of the
properties acquired, the receipt of all necessary approvals of the Nevada Gaming
Commission upon the recommendation of the Nevada State Gaming Control Board and
certain other events, the net proceeds of the offering, together with an
additional amount sufficient to fund a special redemption obligation, were held
in escrow in a note proceeds account.
The consolidated financial statements as of June 30, 2004 and for the six months
ended June 30, 2003 and 2004 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the respective interim periods. All such adjustments are of a normal
recurring nature.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
During the first quarter, 2001, the Emerging Issues Task Force reached a
consensus on the portion of Issue 00-22, "Accounting for `Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
F-7
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Free Products or Services to be Delivered in the Future," which addressed the
income statement classification of the value of the points redeemable for cash
awarded under point programs similar to the Company's Player's Club and
Guaranteed Refund programs. The consensus states the cost of these programs
should be reported as a reduction of casino revenue, rather than an expense and
is retroactive to January 1, 2001, with prior year restatement required. The
Company has adopted the current consensus recommendations on Issue 00-22. Prior
to the release of the new consensus, the Company historically reported the costs
of such points as an expense. In accordance with the consensus, the Company
recorded these costs of $6.7 million, $5.0 million and $12.8 million for the
fiscal years ended December 31, 2001, 2002 and 2003, respectively, and $5.5
million (unaudited) and $10.3 million (unaudited) for the six months ended June
30, 2003 and 2004 as a reduction of casino revenues in the consolidated
Statements of Income.
The Company recognizes revenues in accordance with industry practice. Casino
revenue is the net win from gaming activities (the difference between gaming
wins and losses). Casino revenues are net of accruals for anticipated payouts of
progressive and certain other slot machine jackpots. Revenues include the retail
value of rooms, food and beverage and other items that are provided to customers
on a complimentary basis. A corresponding amount is deducted as promotional
allowances. The cost of such complimentaries included as casino expenses is as
follows (in thousands):
DECEMBER 31, JUNE 30,
------------------------ ---------------
2001 2002 2003 2003 2004
------ ------ ------ ------ ------
(UNAUDITED)
Food and Beverage $7,367 $6,858 $6,879 $3,420 $3,707
Rooms 229 104 76 40 16
Other 66 53 32 22 19
------ ------ ------ ------ ------
$7,662 $7,015 $6,987 $3,482 $3,742
====== ====== ====== ====== ======
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in banks, interest bearing
deposits, money market funds and debt instruments purchased with an original
maturity of 90 days or less. Cash and cash equivalents-restricted at December
31, 2002 consist primarily of funds reserved for final settlement of unsecured
claims pursuant to the Restated Second Amended Plan of Bankruptcy. In 2003, the
unsecured claims were settled and the funds were disbursed.
MARKETABLE SECURITIES
The Company's marketable securities represent investments in Moody's AA2 rated
Portland, Oregon and Moody's and Standard and Poor's AAA rated New York City
bonds. These securities are currently reported at cost, which approximates fair
market value, and are considered available-for-sale. The changes in fair values
of these securities have historically been immaterial to the consolidated
financial statements.
INVESTMENTS RESTRICTED
Investments-restricted consist primarily of funds pledged for Nevada sales and
use tax, unpaid sports book tickets and workers' compensation benefits.
F-8
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories, consisting primarily of food and beverage, retail merchandise and
operating supplies, are stated at the lower of cost or market and included in
other current assets. Cost is determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment purchased are stated at cost. Capitalized lease assets
are stated at the lower of the present value of the future minimum lease
payments or fair value at the inception of the lease (see Notes 4 and 6).
Expenditures for additions, renewals and improvements are capitalized and
depreciated over their useful lives. Costs of repairs and maintenance are
expensed when incurred. Leasehold acquisition costs are amortized over the
shorter of their estimated useful lives or the term of the respective leases
once the assets are placed in service.
Depreciation and amortization of property and equipment are computed using the
straight-line method over the following useful lives:
Buildings and improvements.......................... 36-39 years
Furniture, fixtures and equipment................... 3-15 years
Land improvements................................... 15 years
The Company's policy is to capitalize interest incurred on debt during the
course of qualifying construction projects. Such costs are added to the asset
base and amortized over the related assets' estimated useful lives. The Company
capitalized interest of $1,857,200 for 2001. There was no capitalized interest
during fiscal year 2002 and 2003 and the six months ended June 30, 2004.
RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
The Company adopted SFAS No. 144 on January 1, 2002. SFAS No. 144 requires the
Company to review its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset or a
group of assets may not be recoverable. Assets are grouped and evaluated for
impairment at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets. The Company
deems an asset to be impaired if a forecast of undiscounted future operating
cash flows directly related to the asset, including disposal value if any, is
less than its carrying amount. If an asset is determined to be impaired, the
loss is measured as the amount by which the carrying amount of the asset exceeds
fair value. The Company generally estimates fair value by discounting estimated
cash flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates. Prior to January 1, 2002, the Company utilized SFAS No. 121 to
assess impairment of long-lived assets.
SALES, ADVERTISING AND PROMOTION
Sales, advertising and promotion costs are expensed as incurred and totaled
$20.4 million, $18.1 million and $22.9 million for the years ended December 31,
2001, 2002 and 2003, respectively, and $10.9 million (unaudited) and $14.6
million (unaudited) for the six months ended June 30, 2003 and 2004,
respectively, and are included in selling, general and administrative expenses
in the accompanying consolidated statements of income.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, management evaluates its estimates and
assumptions based upon historical experience and various other factors and
circumstances. Management believes its estimates and assumptions are reasonable
in the circumstances; however, actual results may differ from these estimates
under different future conditions.
F-9
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENTS
The Company has determined that it operates as one segment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the
Company to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also
records a corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation is to be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
The Company was required to adopt SFAS No. 143 on January 1, 2003. The adoption
of SFAS No. 143 did not have a material effect on the Company's financial
statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain least modifications that have
economic effects similar to sale-leaseback transactions. The provision of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 did not have a material effect on the
Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. The
provisions of this Statement were effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. The
adoption of SFAS No. 146 did not have a material effect on the Company's
financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation were
applicable to guarantees issued or modified after December 31, 2002 and did not
have a material effect on the Company's financial statements. The disclosure
requirements were effective for financial statements of interim and annual
periods ending after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation to provide alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement No. 123
to require prominent disclosures of the effect of the fair value method in both
annual and interim financial statements. The Company adopted the disclosure
provisions of this Statement on January 1, 2003 and includes the disclosure
modifications in these consolidated financial statements as applicable.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51, which was then
revised in December 2003. This Interpretation addresses the consolidation by
business enterprises of variable interest entities as defined in the
Interpretation. The Interpretation
F-10
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
applies immediately to variable interests in variable interest entities created
after January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For nonpublic enterprises, such as the Company,
with a variable interest in a variable interest entity created before February
1, 2003, the Interpretation is applied to the enterprise no later than the end
of the first annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective. The
Company does not believe it has any variable interest entities and therefore
expects the impact of this statement to have an immaterial impact on the
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that companies classify a financial instrument that is within its scope
as a liability (or an asset in some circumstance). Many of those instruments
were previously classified as equity. The provisions of this Statement are
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise are effective at the beginning of the first interim period
beginning after June 15, 2003. The impact of this Statement did not have a
significant effect on the Company's financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years consolidated
financial statements to conform to the current fiscal year presentation.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
DECEMBER 31, JUNE 30,
--------------- --------
2002 2003 2004
------ ------ ------
(UNAUDITED)
Hotel and related $2,535 $3,030 $3,669
Gaming 575 523 504
Other 2,018 971 822
------ ------ ------
5,128 4,524 4,995
Less allowance for doubtful accounts 830 473 446
------ ------ ------
$4,298 $4,051 $4,549
====== ====== ======
The Company recorded bad debt expense and allowance for doubtful accounts for
the years ended December 31, 2001, 2002 and 2003 and the six months ended June
30, 2003 and 2004 as follows:
DECEMBER 31, JUNE 30,
----------------------------------- ------------------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
(UNAUDITED)
Balance at beginning of period $ 409 $ 499 $ 830 $ 830 $ 473
Bad debt expense 134 524 395 149 269
Deductions and write-offs (44) (193) (752) (451) (296)
--------- -------- --------- ---------- -------
Balance at end of period $ 499 $ 830 $ 473 $ 528 $ 446
========= ======== ========= ========== =======
F-11
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) OTHER CURRENT ASSETS
Other current assets consist of the following (in thousands):
DECEMBER 31, JUNE 30,
----------------------- -----------
2002 2003 2004
-------- -------- -----------
(UNAUDITED)
Inventories $ 2,397 $ 2,683 $ 2,425
Prepaid Expenses 4,989 4,435 6,154
Other 607 2,095 2,098
-------- -------- --------
$ 7,993 $ 9,213 $ 10,677
======== ======== ========
(4) PROPERTY AND EQUIPMENT - NET
Property and equipment consist of the following (in thousands):
DECEMBER 31, JUNE 30,
----------------------- -----------
2002 2003 2004
-------- -------- -----------
(UNAUDITED)
Land and improvements, including land held
for development $ 50,239 $ 50,299 $ 50,299
Building and improvements 230,459 235,538 237,093
Furniture, fixtures and equipment 93,846 105,415 112,680
Construction in progress 361 7,724 7,249
-------- -------- --------
374,905 398,976 407,321
Less accumulated depreciation and amortization 61,695 74,428 85,332
-------- -------- --------
$313,210 $324,548 $321,989
======== ======== ========
Assets recorded under capital leases were $1.0 million and $4.0 million at
December 31, 2002 and 2003, respectively, and $4.0 million (unaudited) at June
30, 2004. Accumulated depreciation and amortization at December 31, 2002 and
2003 includes amounts recorded for capital leases of $0.1 million and $0.1
million and at June 30, 2004 of $0.2 million (unaudited).
In mid-1996, Stratosphere Corporation suspended construction of the 1,000-room
hotel tower (the "Hotel Expansion"), which had reached a height of approximately
14 stories. In April 2000, construction was resumed to complete the unfinished
hotel tower with a total construction budget of $65.0 million. In June 2001, the
Company completed construction of the new hotel tower that includes 1,000 new
guestrooms and amenities including a 67,000-square foot pool and recreation area
with a new snack and cocktail bar, private cabanas and a large spa. "Lucky's
Cafe" a 350-seat coffee shop, a new porte-cochere and valet parking entrance,
gift shop and new tour bus entrance and lobby have also been completed. The
Company refurbished and expanded the "Stratosphere Courtyard Buffet" as well as
remodeled "Montana's Steak House" and converted it into the "Crazy Armadillo"
featuring Tex-Mex cuisine and an oyster bar.
F-12
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following (in thousands):
DECEMBER 31, JUNE 30,
------------------- -----------
2002 2003 2004
-------- -------- -----------
(UNAUDITED)
Vacation packages $ 2,634 $ 2,478 $ 2,449
Accrued liabilities 6,298 9,135 5,658
Accrued restructuring costs 341 - -
Cash reserve for unpaid bankruptcy claims 1,926 - -
Accrued taxes 1,411 1,885 3,242
Accrued/unclaimed sports tickets/prizes 820 981 246
Accrued interest 445 2 7,121
Other 3,463 3,320 3,766
-------- -------- --------
$ 17,338 $ 17,801 $ 22,482
======== ======== ========
(6) LEASES, INCOME AND CAPITAL LEASE OBLIGATIONS
In connection with the purchase of the Master Lease from Strato-Retail, the
Company assumed lessor responsibilities for various non-cancelable operating
leases for certain retail space. The future minimum lease payments to be
received under these leases for years subsequent to December 31, 2003 are as
follows (in thousands):
Years ending December 31,
- -------------------------
2004 $ 3,138
2005 2,644
2006 1,853
2007 1,488
2008 708
Thereafter 1,616
--------
Total payments $ 11,447
========
The Company is reimbursed by lessees for certain operating expenses.
Future minimum lease payments under capital leases with initial or remaining
terms of one year or more consist of the following at December 31, 2003 (in
thousands):
Years ending December 31,
- --------------------------------------------
2004 $ 665
2005 665
2006 665
2007 665
2008 1,288
Thereafter 7,488
------
Total minimum lease payments 11,436
Less: amount representing interest ranging
from 5% to 10% 7,445
------
Present value of net minimum lease payments 3,991
Less: current portion 436
------
Long-term capital lease obligation $3,555
======
The Company had no operating leases as of December 31, 2002 and 2003 and June
30, 2004.
F-13
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) STOCKHOLDERS' EQUITY
Common stock includes the capital stock issued and outstanding for Stratosphere
Corporation and Arizona Charlie's, Inc. and is summarized as follows (in
thousands):
AMOUNT ISSUED AND
PAR VALUE AMOUNT AUTHORIZED OUTSTANDING
--------- ----------------- -----------------
Stratosphere Corporation
December 31, 2002 $0.01 $ 100 $ 100
December 31, 2003 0.01 100 100
June 30, 2004 (unaudited) 0.01 100 100
Arizona Charlie's, Inc.
December 31, 2002 $0.01 $5,000,000 $1,000,000
December 31, 2003 0.01 5,000,000 1,000,000
June 30, 2004 (unaudited) - - -
Additional paid-in capital includes amounts related to members' equity for
Fresca, LLC, Arizona Charlie's, LLC and ACEP and is summarized as follows (in
thousands):
DECEMBER 31, 2002 DECEMBER 31, 2003 JUNE 30, 2004
----------------- ----------------- -------------
(UNAUDITED)
Fresca, LLC $ 64,677 $ 64,677 $ 86,402
Arizona Charlie's, LLC - - 59,719
ACEP - - (75,175)
Fresca, LLC is a Nevada limited liability company that was formed on January 26,
2000. It was formed for the purpose of acquiring and operating certain property
in Las Vegas, Nevada, including a casino, hotel, and recreational vehicle rental
park, referred to as Arizona Charlie's Boulder. Hotel operations commenced on
February 5, 2000 (date of inception) and gaming operations commenced on May 23,
2000. The members of Fresca, LLC are Mr. Icahn and Starfire Holding Corporation
(a company controlled by Mr. Icahn). Earnings and losses are distributed based
on the original capital contribution amounts. Members of an LLC are not
personally liable for debts, obligations or liabilities of the Company beyond
the amount of the member's capital contributions. The latest date on which
Fresca, LLC is to dissolve is December 31, 2099.
On October 4, 1999, AREH, a common-ownership related party, purchased 985,286
shares of the Stratosphere's common stock from entities owned or controlled by
Mr. Icahn. On March 24, 2000, AREH purchased 50,000 shares of the Stratosphere's
common stock from NYBOR, a company owned by Mr. Icahn. Upon completion of the
transaction, Mr. Icahn controlled approximately 89.6% of the Company's Common
Stock. AREH is the subsidiary limited partnership of American Real Estate
Partners, L.P. ("AREP"), a master limited partnership whose units are traded on
the New York Stock Exchange. Mr. Icahn currently owns over 86% of AREP's
outstanding depository units and preferred units.
On February 1, 2002, the Stratosphere announced that it entered into a merger
agreement under which AREP, through an affiliate, would acquire the remaining
shares of Stratosphere that AREP did not own. AREP owned approximately 51% of
Stratosphere and Mr. Icahn owned approximately 38.6%. The initial determination
to engage in the transaction at the prices set forth below was previously
announced by AREP in September 2000.
On December 19, 2002, the stockholders of Stratosphere Corporation approved the
plan of merger dated February 1, 2002. Under the Merger Plan, AREP acquired the
remaining 49% interest in Stratosphere. Under the agreement, the stockholders
who were unaffiliated with AREP and Mr. Icahn received a cash price of $45.32
per share, and the Icahn-related stockholders (other than AREP) received a cash
price of $44.33 per share. AREP paid an aggregate of approximately $44.3 million
for the 49% of the shares of Stratosphere that it did not already own.
Subsequent to the merger, all but 100 shares of Stratosphere were cancelled, and
the par value of the cancelled shares transferred to additional paid in capital.
F-14
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACEP entered into a membership interest purchase agreement with Starfire Holding
Corporation, which is wholly-owned by Mr. Icahn, in which ACEP agreed to
purchase all of the membership interests in Charlie's Holding LLC, a
newly-formed entity that owns Arizona Charlie's Decatur and Arizona Charlie's
Boulder. The closing of this acquisition was approved by the Nevada Gaming
Commission upon the recommendation of the Nevada State Gaming Control Board and
was completed on May 26, 2004. The purchase price was $125.9 million. As a
result of this transaction, Arizona Charlie's Inc. was reorganized as Arizona
Charlie's LLC and all shares of common stock were cancelled. Charlie's Holding
LLC became the sole member of both Fresca LLC and Arizona Charlie's LLC.
Additionally, ACEP entered into a contribution agreement with its' direct
parent, American Entertainment Properties Corp., and our indirect parent, AREH,
in which AREH agreed to contribute 100% of the outstanding capital stock of
Stratosphere Corporation, which was approved by the Nevada Gaming Commission
upon the recommendation of the Nevada State Gaming Control Board. These
transactions represent a merger of entities under the common control of Carl C.
Icahn.
The Company has not implemented a stock option plan.
(8) INCOME TAXES
The income tax provision (benefit) attributable to income from operations for
the fiscal years ended December 31, 2002 and 2003 and for the six months ended
June 30, 2003 and 2004 is comprised of the following (in thousands):
DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
2001 2002 2003 2003 2004
------- ------- -------- ------- -----------
(UNAUDITED)
Current $ 3,176 $ 311 $ 3,650 $ 1,992 $ 3,114
Deferred 1,732 4,596 (5,448) 2,402 2,830
------- ------- ------- ------- -------
$ 4,908 $ 4,907 $(1,798) $ 4,394 $ 5,944
======= ======= ======= ======= =======
DEFERRED TAX ASSETS AND LIABILITIES
The tax effect of significant temporary differences and carryforwards
representing deferred tax assets and liabilities (the difference between
financial statement carrying values and the tax basis of assets and liabilities)
for the Company is as follows at December 31, 2002 and 2003 and June 30, 2004
(in thousands):
DECEMBER 31, JUNE 30,
--------------------------- ----------
2002 2003 2004
-------- -------- ----------
(UNAUDITED)
TEMPORARY DIFFERENCES
Current: $ 270 $ 126 $ 131
Allowance for doubtful accounts
Gaming related 567 661 915
Accrued vacation and employee related 2,326 2,005 1,815
Outstanding chip and token liability 112 112 137
Deferred income 55 46 48
Other 228 10 (165)
-------- -------- --------
3,558 2,960 3,211
Long-term:
Excess of tax over book basis of assets
due primarily to write down of assets 62,834 39,859 50,897
-------- -------- --------
66,392 42,819 50,897
-------- -------- --------
Carryforwards:
Net Operating Loss (including Section 382
limitation) 12,942 9,984 8,423
Alternative minimum tax credit 450 521 623
Other credits 1,048 739 816
-------- -------- --------
F-15
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, JUNE 30,
-------------------- --------
2002 2003 2004
-------- -------- --------
(UNAUDITED)
Total Carryforwards 14,440 11,244 9,862
-------- -------- --------
Total temporary differences and carryforwards 80,832 54,063 63,970
Valuation allowance (83,785) (1,858) -
-------- -------- --------
Total deferred tax assets (liabilities) $ (2,953) $ 52,205 $ 63,970
======== ======== ========
At December 31, 2003, the Company had net operating loss carryforwards available
for federal income tax purposes of approximately $28.5 million which begin
expiring in 2019.
SFAS 109 requires a "more likely than not" criterion be applied when evaluating
the realizability of a deferred tax asset. As of December 31, 2002, given the
Company's history of losses for income tax purposes, the volatility of the
industry within which the Company operates, and certain other factors, the
Company has established a valuation allowance principally for the deductible
temporary differences, including the excess of the tax basis of the Company's
assets over the basis of such assets for financial purposes. However, during the
year ended December 31, 2003, based on various factors including the current
earnings trend and future taxable income projections, the Company determined
that it was more likely than not that most of the deferred tax assets will be
realized. Accordingly, the valuation allowance for these assets was reversed.
In accordance with SFAS 109, the tax benefit of any deferred tax asset that
existed on the effective date of a reorganization should be reported as a direct
addition to contributed capital. The Company has deferred tax assets relating to
both before and after the Company emerged from bankruptcy in September of 1998.
The net decrease in the valuation allowance was $81,927,000, of which
$49,710,000 was credited directly to additional paid-in-capital in accordance
with SFAS 109 and the requirements for recording tax benefits associated with
emergence from bankruptcy.
Additionally, the Company's acquisition of Arizona Charlie's, Inc. and the
entity reclassification of Fresca, LLC in May 2004 resulted in a net increase in
the tax basis of assets in excess of book basis. As a result, the Company
recognized an additional deferred tax asset of approximately $12.7 million from
the transaction. Pursuant to SFAS 109, the benefit of the deferred tax asset
from this transaction is credited directly to equity.
The provision for income taxes differs from the amount computed at the federal
statutory rate as a result of the following:
DECEMBER 31, JUNE 30,
---------------------- -------------
2001 2002 2003 2003 2004
---- ---- ----- ---- ----
(UNAUDITED)
Federal statutory rate 35.0% 35.0% 35.0% 35.0% 35.0%
Other -0.4% 5.4% 1.8% 0.0% 0.5%
Permanent differences 1.6% 0.7% 0.5% 0.5% 0.3%
Federal income tax credits -3.9% -3.5% -1.4% -1.4% -0.8%
Tax deduction not given book
benefit 0.0% 0.0% 18.0% 19.7% 0.0%
Valuation allowance 2.1% -7.4% -74.3% -20.6% -0.5%
Income not subject to taxation 40.0% 54.8% 10.9% 13.1% 0.2%
---- ---- ----- ----- ----
74.4% 85.0% -9.5% 46.3% 34.7%
==== ==== ===== ===== ====
SECTION 382 LIMITATION
As of December 31, 2002 and 2003 and June 30, 2004 (unaudited), the Company had
a tax basis in its assets in excess of its basis for financial reporting
purposes that will generate substantial tax deductions in future periods. As a
F-16
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
result of a "change in ownership" under Internal Revenue Code Section 382, the
Company's ability to utilize depreciation and other tax attributes was limited
to approximately $6,400,000 per year commencing fiscal year 1998 and for the
five subsequent years. This limitation is applied to all built-in losses which
exist on the "change of ownership" date, including all items giving rise to a
deferred tax asset.
For the year ended December 31, 2001, a portion of the Company's depreciation
and other tax attributes in the amounts of $1.6 million that existed on the
"change of ownership" date was limited under Section 382. Pursuant to Section
382, the limited depreciation and other tax attributes are treated as a net
operating loss, which the Company may utilize in subsequent years.
(9) NOTES PAYABLE
Related party debt consists of the following (in thousands):
DECEMBER 31, JUNE 30,
------------------- --------
2002 2003 2004
-------- -------- --------
(UNAUDITED)
Construction loan note payable (A) $ 68,757 $ 65,106 $ -
Lease purchase note payable (B) 11,770 11,146 -
Arnos loan note payable (C) 2,904 - -
Starfire loan note payable (D) 17,220 25,000 -
-------- -------- ------
100,651 101,252 -
Less current portion 15,421 14,796 -
-------- -------- ------
Long-term debt-less current portion $ 85,230 $ 86,456 $ -
======== ======== ======
(A) On May 1, 2001, the Company delivered a $73.0 million promissory note for
a construction loan to AREH, a common-ownership related party, in order to
finance the construction of the 1,000-room hotel tower, Lucky's Cafe and
new pool area (the "Hotel Expansion"). The promissory note is secured by a
deed of trust on certain real property. Demand notes bearing interest at
9.5% per annum and totaling $48.0 million, as of April 18, 2001, were
replaced by this note. During 2001 AREH provided additional advances of
$25.0 million against the $73.0 million note. In November 2001 the Company
began making principal payments on the loan in equal monthly installments
based on a 20 year amortization schedule, with the remaining balance due
and payable June 2002. Interest accrues at a variable rate per annum equal
to the sum of (i) 300 basis points plus (ii) the 90 day London Interbank
Offered Rate ("LIBOR"). This interest rate at December 31, 2002 was 4.66%.
On July 3, 2002, the Company paid AREH one point or $730,000 to obtain a
24 month extension of the loan term. The extension fee is being amortized
over the remaining term of the loan. On September 1, 2003 the term was
extended to September 6, 2005. The note was repaid and the fees expensed
to interest expense during May 2004 (unaudited).
(B) On May 1, 2001, the Company delivered a $12.5 million promissory note to
AREH to replace the $12.5 million demand note used to acquire the property
under the Master Lease from Strato-Retail, LLC. The promissory note is
secured by a deed of trust on certain real property. In November 2001 the
Company began making principal payments on the loan in equal installments
based on a 20 year amortization schedule with the remaining balance due
and payable July 2002. Interest accrues at a variable rate per annum equal
to the sum of (i) 350 basis points plus (ii) the 90 day LIBOR. This
interest rate at December 31, 2002 was 5.16% per annum. On July 4, 2002
the Company paid AREH one point or $125,000 to obtain a 12 month extension
of the loan term. The loan extension fee is being amortized over the
remaining term of the loan. The term was extended to August 31, 2004. The
note was repaid and the fees expensed during May 2004 (unaudited).
(C) On September 24, 2001, Arizona Charlie's, Inc., refinanced the remaining
principal balance of $7,904,000 on a prior note payable to Amos Corp., a
company related through common ownership. The note bears interest at the
prime rate plus 1.50% (5.75% per annum at December 31, 2002), with a
maturity of June
F-17
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2004, and was collateralized by all assets of the Arizona Charlie's, Inc.
The note was repaid during November 2003.
(D) During fiscal year 2002, Fresca, LLC, entered into an unsecured line of
credit in the amount of $25,000,000 with Starfire Holding Corporation
(Starfire), a common-ownership related party. The outstanding balance,
including accrued interest, was due and payable on January 2, 2007. As of
December 31, 2003, Fresca, LLC, had $25,000,000 outstanding. The note
bears interest on the unpaid principal balance from January 2, 2002 until
maturity at the rate per annum equal to the prime rate, as established by
Fleet Bank, from time to time, plus 2.75%. Interest is payable
semi-annually in arrears on the first day of January and July, and at
maturity. The note is guaranteed by Mr. Icahn. The note was repaid during
May 2004 (unaudited).
The future aggregate annual maturities of notes payable to related party at
December 31, 2003 are as follows (in thousands):
Years ending
December 31,
- ------------
2004 $ 14,796
2005 61,456
2006 -
2007 25,000
---------
Total $ 101,252
=========
OTHER NOTES PAYABLE
On January 29, 2004, the Company issued $215,000,000 in aggregate principal
amount of 7.85% Senior Secured Notes due 2012. The net proceeds from the sale of
the notes have been used in connection with the acquisition of three Las Vegas,
Nevada gaming and entertainment properties from affiliated parties described
above, to repay intercompany debt described above and for distributions. The
notes have a fixed annual interest rate of 7.85%, which will be paid every six
months on February 1 and August 1, commencing August 1, 2004.
A syndicate of lenders has provided a non-amortizing $20.0 million revolving
credit facility. The commitments are available to the Company in the form of
revolving loans, and include a letter of credit facility (subject to a $10.0
million sublimit). The proceeds of loans under the senior secured revolving
credit facility will be available to provide working capital and other general
corporate purposes. Loans made under the senior secured revolving facility will
mature and the commitments under them will terminate on January 29, 2008.
The payment obligations under the $215.0 million 7.85% Senior Secured Notes due
2012 issued by ACEP are fully and unconditionally guaranteed by all but one
subsidiary of ACEP. In accordance with positions established by the Securities
and Exchange Commission, separate information with respect to the parent,
guarantor subsidiaries and non-guarantor subsidiaries is not required as the
parent has no independent assets or operations, the guarantees are full and
unconditional and joint and several, and the total assets, stockholders' equity,
revenues, income from operations before income taxes and cash flows from
operating activities of the non-guarantor subsidiary is less than 3% of ACEP's
consolidated amounts.
(10) EMPLOYEE BENEFIT PLAN
Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and
defined benefit pension plans. The Company recorded expenses for such plans of
$4,921,851 and $6,517,487 and $7,619,495 for the years ended December 31, 2001,
2002 and 2003, and $3,534,726 (unaudited) and $4,085,565 (unaudited) for the six
months ended June 30, 2003 and 2004, respectively. The Company has no obligation
for funding the plan beyond payments made for hours worked.
The Company has a retirement savings plan under Section 401(k) of the Internal
Revenue Code covering its non-union employees. The plan allows employees to
defer, within prescribed limits, up to 15% of their income on a pre-tax basis
through contributions to the plan. The Company currently matches, within
prescribed limits, 50% of eligible employees' contributions up to 4% of their
individual earnings. The Company recorded $813,000, $815,000 and $559,000 for
matching contributions for the years ended December 31, 2001, 2002 and 2003,
respectively, and $362,000 (unaudited) and $244,000 (unaudited) for the six
months ended June 30, 2003 and 2004, respectively.
F-18
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) COMMITMENTS
The Company and Mr. Richard Brown, President and Chief Executive Officer of
Stratosphere Corporation entered into a two-year employment agreement effective
April 1, 2004 (the "Brown Agreement"). The Brown Agreement provides that Mr.
Brown will be paid a base annual compensation of $500,000. The agreement also
provides Mr. Brown receive an annual bonus of up to 50% of base compensation.
The Brown Agreement further provides that if Mr. Brown is terminated without
"Cause" (as defined in the Brown Agreement) or there is a "Change of Control"
(as defined in the Brown Agreement), then Mr. Brown will receive an immediate
severance payment in the amount equal to the then current Base Salary. Mr. Brown
was paid a $20,000 bonus in 2003 and 2004 for the years ended December 31, 2002
and 2003, respectively.
(12) CONTINGENCIES
The Company filed a complaint for the avoidance of preferential transfers made
to Grand Casinos, Inc. ("Grand"). Included in the complaint are approximately
$5.9 million of payments made to Grand prior to the Company beginning bankruptcy
proceedings. On December 31, 2002, the Bankruptcy Court entered its Memorandum
of Decision; Findings of Facts and Conclusions of Law; and Judgment awarding the
Stratosphere approximately $2.3 million. This amount was collected during May
2003.
On January 31, 2001, the Company was named in an action styled Disabled Rights
Action Committee v. Stratosphere Gaming Corp., Case No A430070, in the Eighth
Judicial District Court of the State of Nevada. The complaint alleges a number
of violations of the Americans with Disabilities Act ("ADA"), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. The Company removed the action to the United States
District Court in Nevada, and it is now styled Disabled Rights Action Committee
v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL). The federal
district court held a hearing on plaintiffs' Motion for Preliminary Injunction
and denied the motion, focusing upon what the Court believed to be the
plaintiffs' lack of irreparable injury. The federal district court also granted
the Company's Motion to Dismiss the plaintiffs' state law claims, leaving in
place only the ADA claims. The Company and the Plaintiffs then filed Motions for
Summary Judgment. The District Court granted and denied in part each of the
parties' respective motions. The Court ordered that the Company must make
certain renovations to 532 rooms that were opened in 1996. The renovations were
completed by July, 2002 and cost $765,000.
Tiffiny Decorating Company ("Tiffiny"), a subcontractor to Great Western Drywall
("Great Western"), filed a legal action against Stratosphere Corporation,
Stratosphere Development, LLC, American Real Estate Holdings Limited Partnership
(Stratosphere Corporation, Stratosphere Development, LLC and American Real
Estate Holdings Limited Partnership are herein collectively referred to as the
"Stratosphere Parties"), Great Western, Nevada Title and Safeco Insurance, Case
No. A443926 in the Eighth Judicial District Court of the State of Nevada. The
legal action asserts claims that include breach of contract, unjust enrichment
and foreclosure of lien. The Stratosphere Parties have filed a cross-claim
against Great Western in that action. Additionally, Great Western has filed a
separate legal action against the Stratosphere Parties setting forth the same
disputed issues. That separate action, Case No. A448299 in the Eighth Judicial
Court of the State of Nevada has been consolidated with the case brought by
Tiffiny.
The initial complaint brought by Tiffiny asserts that Tiffiny performed certain
services on construction at the Stratosphere and was not fully paid for those
services. Tiffiny claims the sum of $521,562 against Great Western, the
Stratosphere Parties, and the other defendants, which the Stratosphere Parties
contend have been paid to Great Western for payment to Tiffiny.
Great Western is alleging that it is owed payment from the Stratosphere Parties
for work performed and for delay and disruption damages. Great Western is
claiming damages in the sum of $3,935,438 plus interest, costs and legal fees
from the Stratosphere Parties. This amount apparently includes the Tiffiny
claim.
The Stratosphere Parties have evaluated the project and have determined that the
amount of $1,004,059, of which $195,953 and $371,973 were disbursed on October
29, 2002 to Tiffiny and Great Western, respectively, is properly
F-19
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
due and payable to satisfy all claims for the work performed, including the
claim by Tiffiny. The remaining amount has been segregated in a separate
interest bearing account and is classified in Accounts Payable - Construction on
the Consolidated Balance Sheet. As a result, the Great Western base claim has
been reduced to $3,213,579, the Tiffiny base claim has been reduced to $327,434
and the escrow balance has been reduced to $443,579.
The Early Case Conference in the Tiffiny case has already been concluded and
initial documents and witnesses have been exchanged which has been the discovery
to date, however, it is not possible to give an opinion as to probable outcome
of the action. The case will proceed with discovery from this point forward
until such time as a resolution is reached or the matter is brought to trial.
The matter was preliminarily set for trial on April 14, 2003 but has been
continued to February 25, 2005. The Stratosphere Parties intend to vigorously
defend the action for claims in excess of $1,004,059.
On May 3, 2001, the Company was named in an action brought by Harrah's
Entertainment, Inc. and Harrah's Operating Company, Inc. (collectively
"Harrah's") alleging infringement of a purported patent covering a business
method allegedly developed by Harrah's. The use of an allegedly similar business
method by the Company in its advertising and promotions is said by plaintiff to
infringe upon its patent rights.
In January 2002, the parties entered into a sealed Consent Judgment resolving
the dispute, which was the subject matter of this action. In December 2001, the
Company paid Harrah's the settlement for this action.
In addition, in the ordinary course of business, the Company is party to various
legal actions. In management's opinion, the ultimate outcome of such legal
actions will not have a material effect on the results of operations or the
financial position of the Company.
(13) SUBSEQUENT EVENTS (UNAUDITED)
On May 26, 2004, upon closing of the acquisitions, perfection of such security
interests, receipt of necessary approvals of the Nevada Gaming Commission upon
the recommendation of the Nevada State Gaming Control Board and certain other
events, the funds held in escrow in the note proceeds account and additional
cash on hand were used in connection with the acquisitions, to repay
intercompany indebtedness, to fund distributions to ACEP's parent company and to
pay related fees and expenses.
F-20
Until, 2004, all dealers that effect transactions in these securities,
whether or not participating in this exchange offer, may be required to deliver
a prospectus. Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. American Casino &
Entertainment Properties LLC, American Casino & Entertainment Properties Finance
Corp. and the guarantors have agreed that, starting on the expiration date and
ending on the close of business 270 days after the expiration date (or such
shorter period during which participating broker-dealers are required by law to
deliver such prospectus), they will make this prospectus available to any
broker-dealer for use in connection with any such resale.
PROSPECTUS
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
AND
AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP.
OFFER TO EXCHANGE OUR 7.85% SENIOR SECURED NOTES DUE 2012, WHICH
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR
ANY AND ALL OF OUR OUTSTANDING 7.85% SENIOR SECURED NOTES DUE
2012.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification Under the Delaware Limited Liability Company Act (the "Delaware
Act") and the American Casino & Entertainment Properties LLC Limited Liability
Company Agreement (the "Agreement")
American Casino & Entertainment Properties LLC (the "Company") is a
limited liability company organized under the laws of the State of Delaware.
Section 18-108 of the Delaware Act provides that a limited liability company
may, and shall have the power to, indemnify and hold harmless any member or
manager or other person from and against any and all claims and demands
whatsoever, subject to such standards and restrictions, if any, as are set forth
in its limited liability company agreement.
The Agreement provides that the Company shall indemnify American
Entertainment Properties Corp., a Delaware corporation and sole member and
manager of the Company, and each of its officers, directors, stockholders,
employees and agents, whether or not then in office (and his or her executor,
administrator or heirs) (each, an "Indemnified Person"), against all reasonable
expenses actually and necessarily incurred, including, but not limited to,
judgments, costs and counsel fees, in connection with the defense of any civil,
criminal or administrative action, suit or proceeding to which it, he or she may
have been or become a party because it, he or she is or was a member or officer
of the Company or designated to act on behalf of the Company. It, he or she
shall have no right to reimbursement, however, in relation to matters as to
which it, he or she is adjudicated to have engaged in willful misconduct, bad
faith or gross negligence. The right to indemnity for expenses shall also apply
to expenses of actions that are compromised or settled. The foregoing right of
indemnification shall be in addition to, and not exclusive of, all other rights
to which any Indemnified Person may be entitled.
Indemnification Under the Delaware General Corporation Law (the "DGCL") and the
Amended and Restated Certificate of Incorporation and Bylaws of American Casino
& Entertainment Properties Finance Corp. (the "Bylaws")
American Casino & Entertainment Properties Finance Corp. ("ACEP Finance"),
the co-issuer of the exchange notes, is a corporation incorporated under the
laws of the State of Delaware. Section 102(b)(7) of the DGCL permits a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided, however, that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, which relates to the liability of directors
for unlawful payment of dividends and unlawful stock purchases and redemptions,
or (iv) for any transaction from which the director derived an improper personal
benefit.
Section 145(a) of the DGCL provides that a corporation may indemnify any
person who was or is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that he or she is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
corporation may include
II-1
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Section 145(g) of the DGCL further authorizes a corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising our of his or her status
as such, whether or not the corporation would otherwise have the power to
indemnify him or her under Section 145 of the DGCL.
The Bylaws of ACEP Finance further provide that ACEP Finance shall
indemnify any director, officer, employee or agent (each, an "Indemnitee") who
was or is, or is threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of ACEP Finance), by
reason of the fact that he or she is or was an Indemnitee, or is or was serving
at the request of the ACEP Finance as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
Bylaws also provide that the indemnification and advancement of expenses rights
provided therein are not exclusive of any other rights to which an Indemnitee
may be entitled under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office.
21. Exhibits and Financial Statement Schedules
EXHIBIT NO. DESCRIPTION
- ------- --- -----------
3.1* Second Amended and Restated Certificate of Formation of American Casino & Entertainment
Properties LLC
3.2* Limited Liability Company Agreement of American Casino & Entertainment Properties LLC
3.3* Amended and Restated Certificate of Incorporation of American Casino & Entertainment
Properties Finance Corp.
3.4* By-Laws of American Casino & Entertainment Properties Finance Corp.
4.1* Indenture, dated as of January 29, 2004, among American Casino & Entertainment
Properties LLC, American Casino & Entertainment Properties Finance Corp., the
guarantors from time to time party thereto and Wilmington Trust Company, as Trustee
4.2* Supplemental Indenture, dated as of May 26, 2004, among American Casino & Entertainment
Properties LLC, American Casino & Entertainment Properties Finance Corp., certain
subsidiaries of American Casino & Entertainment Properties LLC and Wilmington Trust
Company, as Trustee.
4.3* Form of 7.85% Senior Secured Note due 2012 (included in Exhibit 4.1).
4.4* Registration Rights Agreement, dated as of January 29, 2004, among American Casino &
Entertainment Properties LLC, American Casino & Entertainment
II-2
Properties Finance Corp., certain subsidiaries of American Casino & Entertainment
Properties LLC and Bear, Stearns & Co. Inc.
5.1 Opinion of Piper Rudnick LLP
10.1* Credit Agreement, dated as of January 29, 2004, among American Casino & Entertainment
Properties LLC, certain subsidiaries of American Casino & Entertainment Properties
LLC, the several lenders from time to time parties thereto and Bear Stearns Corporate
Lending Inc., as syndication agent and administrative agent.
10.2* Pledge and Security Agreement, dated as of May 26, 2004, among American Casino &
Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp.,
certain subsidiaries of American Casino & Entertainment Properties LLC and Bear Stearns
Corporate Lending Inc.
10.3 Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing
dated as of May 26, 2004, made by Stratosphere Land Corporation, as Trustor, to Lawyers
Title of Nevada, as Trustee, for the benefit of Wilmington Trust Company, in its
capacity as Indenture Trustee, for the benefit of the Secured Parties, as
Beneficiary.
10.4* Employment Agreement, effective as of April 1, 2004, by and between American Casino &
Entertainment Properties LLC and Richard P. Brown.
10.5* Membership Interest Purchase Agreement, dated as of January 5, 2004, by and among
American Casino & Entertainment Properties LLC, Starfire Holding Corporation and Carl
C. Icahn (incorporated by reference to American Real Estate Partners, L.P.'s Exhibit
99.2 to Form 8-K (SEC File No. 1-9516), filed on January 5, 2004).
10.6* First Amendment to Credit Agreement, dated as of January 29, 2004 among American Casino &
Entertainment Properties LLC, as the Borrower, certain subsidiaries of the Borrower, as
Guarantors, The Several Lenders, Bear Stearns Corporate Lending Inc. as Syndication
Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent, dated as of May
26, 2004, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner.
10.7 Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated
as of May 26, 2004, made by Stratosphere Corporation, as Trustor, to Lawyers Title of Nevada,
as Trustee, for the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee,
for the benefit of the Secured Parties, as Beneficiary.
10.8 Deed of Trust, Assignment of Rents and Leases, Security Agreements and Fixture Filing, dated
as of May 26, 2004, made by Arizona Charlie's, LLC, as Trustor, to Lawyers Title of Nevada, as
Trustee, for the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee, for
the benefit of the Secured Parties, as Beneficiary.
10.9 Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated as
of May 26, 2004, made by Fresca, LLC, as Trustor, to Lawyers Title of Nevada, as Trustee, for
the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee, for the benefit
of the Secured Parties, as Beneficiary.
12.1* Statements re computation of ratio of earnings to fixed charges.
21.1* Subsidiaries
23.1 Consent of KPMG LLP
23.2 Consent of Piper Rudnick LLP (included in exhibit 5.1)
24.1* Power of Attorney
25.1* Statement of Eligibility of Trustee
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Letter to Clients
II-3
99.4 Letter to Brokers
99.5 Form of Exchange Agent Agreement by and between American Casino & Entertainment
Properties LLC and Wilmington Trust Company
- ------------------
* Previously filed.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(a)(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of a prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
AMERICAN CASINO & ENTERTAINMENT
PROPERTIES LLC
By: American Entertainment Properties
Corp., its sole member
By: /s/ Richard P. Brown
--------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated with respect to the Board of Directors of American
Entertainment Properties Corp., the sole member of American Casino &
Entertainment Properties LLC, and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
* Director October 11, 2004
- ----------------------------------------
Jack G. Wasserman
* Director October 11, 2004
- ----------------------------------------
William A. Leidesdorf
*
- ---------------------------------------- Director October 11, 2004
James L. Nelson
* Director October 11, 2004
- ----------------------------------------
Keith A. Meister
* By: /s/ Denise Barton
- ----------------------------------------
Denise Barton
Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
AMERICAN CASINO & ENTERTAINMENT
PROPERTIES FINANCE CORP.
By: /s/ Richard P. Brown
------------------------------------
Richard P. Brown
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
* Director October 11, 2004
- ----------------------------------------
Jack G. Wasserman
* Director October 11, 2004
- ----------------------------------------
William A. Leidesdorf
*
- ---------------------------------------- Director October 11, 2004
James L. Nelson
* Director October 11, 2004
- ----------------------------------------
Keith A. Meister
*By: /s/ Denise Barton
- ---------------------------------------
Denise Barton
Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
STRATOSPHERE CORPORATION
By: /s/ Richard P. Brown
------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
* Director October 11, 2004
- ----------------------------------------
Jack G. Wasserman
* Director October 11, 2004
- ----------------------------------------
William A. Leidesdorf
* Director October 11, 2004
- ----------------------------------------
James L. Nelson
* Director October 11, 2004
- ----------------------------------------
Keith A. Meister
*By: /s/ Denise Barton
- ----------------------------------------
Denise Barton
Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
STRATOSPHERE GAMING CORP.
By: /s/ Richard P. Brown
-------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
* Director October 11, 2004
- ----------------------------------------
James L. Nelson
* Director October 11, 2004
- ----------------------------------------
Keith A. Meister
*By: /s/ Denise Barton
- ----------------------------------------
Denise Barton
Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
STRATOSPHERE ADVERTISING AGENCY
By: /s/ Richard P. Brown
-------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
* Director October 11, 2004
- ----------------------------------------
Jack G. Wasserman
* Director October 11, 2004
- ----------------------------------------
William A. Leidesdorf
* Director October 11, 2004
- ----------------------------------------
James L. Nelson
* Director October 11, 2004
- ----------------------------------------
Keith A. Meister
*By: /s/ Denise Barton
- ----------------------------------------
Denise Barton
Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
STRATOSPHERE LAND CORPORATION
By:/s/ Richard P. Brown
--------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
* Director October 11, 2004
- ----------------------------------------
Jack G. Wasserman
* Director October 11, 2004
- ----------------------------------------
William A. Leidesdorf
* Director October 11, 2004
- ----------------------------------------
James L. Nelson
* Director October 11, 2004
- ----------------------------------------
Keith A. Meister
*By: /s/ Denise Barton
- ----------------------------------------
Denise Barton
Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
CHARLIE'S HOLDING LLC
By: American Casino & Entertainment
Properties LLC, its sole member
By: /s/ Richard P. Brown
-------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ---------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
STRATOSPHERE DEVELOPMENT LLC
By: Stratosphere Corporation, member
Arizona Charlie's, LLC, member
Fresca, LLC, member
By: /s/ Richard P. Brown
----------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
STRATOSPHERE LEASING, LLC
By: Stratosphere Corporation,
its sole member
By: /s/ Richard P. Brown
------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
ARIZONA CHARLIE'S, LLC
By: Charlie's Holding LLC,
its sole member
By: /s/ Richard P. Brown
--------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ------------------------------------- and Secretary (Principal Financial and Accounting Officer) October 11, 2004
Denise Barton
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on
October 11, 2004.
FRESCA, LLC
By: Charlie's Holding LLC,
its sole member
By: /s/ Richard P. Brown
--------------------------------------
Richard P. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ Richard P. Brown President, Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer) October 11, 2004
Richard P. Brown
/s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer
- ------------------------------------- and Secretary (Principal Financial and Accounting Officer October 11, 2004
Denise Barton
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1* Second Amended and Restated Certificate of Formation of American Casino & Entertainment
Properties LLC
3.2* Limited Liability Company Agreement of American Casino & Entertainment Properties LLC
3.3* Amended and Restated Certificate of Incorporation of American Casino & Entertainment
Properties Finance Corp.
3.4* By-Laws of American Casino & Entertainment Properties Finance Corp.
4.1* Indenture, dated as of January 29, 2004, among American Casino & Entertainment
Properties LLC, American Casino & Entertainment Properties Finance Corp., the
guarantors from time to time party thereto and Wilmington Trust Company, as Trustee.
4.2* Supplemental Indenture, dated as of May 26, 2004, among American Casino & Entertainment
Properties LLC, American Casino & Entertainment Properties Finance Corp., certain
subsidiaries of American Casino & Entertainment Properties LLC and Wilmington Trust
Company, as Trustee.
4.3* Form of 7.85% Senior Secured Note due 2012 (included in Exhibit 4.1).
4.4* Registration Rights Agreement, dated as of January 29, 2004, among American Casino &
Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp.,
certain subsidiaries of American Casino & Entertainment Properties LLC and Bear, Stearns
& Co. Inc.
5.1 Opinion of Piper Rudnick LLP
10.1* Credit Agreement, dated as of January 29, 2004, among American Casino & Entertainment
Properties LLC, certain subsidiaries of American Casino & Entertainment Properties
LLC, the several lenders from time to time parties thereto and Bear Stearns Corporate
Lending Inc., as syndication agent and administrative agent.
10.2* Pledge and Security Agreement, dated as of May 26, 2004, among American Casino &
Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp.,
certain subsidiaries of American Casino & Entertainment Properties LLC and Bear Stearns
Corporate Lending, Inc.
10.3 Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing
dated as of May 26, 2004, made by Stratosphere Land Corporation, as Trustor, to Lawyers
Title of Nevada, as Trustee, for the benefit of Wilmington Trust Company, in its
capacity as Indenture Trustee, for the benefit of the Secured Parties, as Beneficiary.
10.4* Employment Agreement, effective as of April 1, 2004, by and between American Casino &
Entertainment Properties LLC and Richard P. Brown.
10.5* Membership Interest Purchase Agreement, dated as of January 5, 2004, by and among
American Casino & Entertainment Properties LLC, Starfire Holding Corporation and Carl
C. Icahn (incorporated by reference to American Real Estate Partners, L.P.'s Exhibit
99.2 to Form 8-K (SEC File No. 1-9516), filed on January 5, 2004).
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.6* First Amendment to Credit Agreement, dated as of January 29, 2004 among American Casino &
Entertainment Properties LLC, as the Borrower, certain subsidiaries of the Borrower, as
Guarantors, The Several Lenders, Bear Stearns Corporate Lending Inc. as Syndication
Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent, dated as of May
26, 2004, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner.
10.7 Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated
as of May 26, 2004, made by Stratosphere Corporation, as Trustor, to Lawyers Title of Nevada,
as Trustee, for the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee,
for the benefit of the Secured Parties, as Beneficiary.
10.8 Deed of Trust, Assignment of Rents and Leases, Security Agreements and Fixture Filing, dated
as of May 26, 2004, made by Arizona Charlie's, LLC, as Trustor, to Lawyers Title of Nevada, as
Trustee, for the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee,
for the benefit of the Secured Parties, as Beneficiary.
10.9 Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated as
of May 26, 2004, made by Fresca, LLC, as Trustor, to Lawyers Title of Nevada, as Trustee, for
the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee, for the benefit
of the Secured Parties, as Beneficiary.
12.1* Statements re computation of ratio of earnings to fixed charges.
21.1* Subsidiaries
23.1 Consent of KPMG LLP
23.2 Consent of Piper Rudnick LLP (included in exhibit 5.1)
24.1* Power of Attorney
25.1* Statement of Eligibility of Trustee
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Letter to Clients
99.4 Letter to Brokers
99.5 Form of Exchange Agent Agreement by and between American Casino & Entertainment
Properties LLC and Wilmington Trust Company
- ------------------
* Previously filed.