AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 2004
REGISTRATION NO. 333-110485
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
ACE GAMING, LLC
(Exact name of each registrant as specified in its charter)
DELAWARE 7011 54-2131349
NEW JERSEY 7011 54-2131351
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
C/O SANDS HOTEL & CASINO
INDIANA AVENUE & BRIGHTON PARK
ATLANTIC CITY, NEW JERSEY 08401
(609) 441-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DOUGLAS S. NIETHOLD
INTERIM VICE-PRESIDENT FINANCE, CHIEF FINANCIAL OFFICER
C/O SANDS HOTEL & CASINO
INDIANA AVENUE & BRIGHTON PARK
ATLANTIC CITY, NEW JERSEY 08401
(609) 441-4432
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
WITH A COPY TO:
JOEL A. YUNIS, ESQ.
WAYNE A. WALD, ESQ.
KATTEN MUCHIN ZAVIS ROSENMAN
575 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 940-8800
--------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE AND THE
CONDITIONS TO THE CONSUMMATION OF THE OFFER DESCRIBED HEREIN HAVE BEEN SATISFIED
OR, TO THE EXTENT PERMITTED, WAIVED.
--------------
If any of the securities being registered on this Form are to be 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 REGISTRANTS HEREBY AMEND 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
--------------
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL, NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
================================================================================
Solicitation Statement and Prospectus Subject to completion, dated May 27, 2004
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
CONSENT SOLICITATION
AND
OFFER TO EXCHANGE
$110,000,000 3% NOTES DUE 2008 OF ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
FOR ANY AND ALL OUTSTANDING 11% NOTES DUE 2005 OF GB PROPERTY FUNDING CORP.
Atlantic Coast Entertainment Holdings, Inc. is a newly formed
wholly-owned subsidiary of Greate Bay Hotel and Casino, Inc., a New Jersey
corporation. Atlantic Holdings is offering to exchange $1,000 principal amount
of its newly issued 3% Notes due 2008 plus $100 in cash for each $1,000
principal amount of 11% Notes due 2005 of GB Property Funding Corp., a Delaware
corporation, that are properly tendered and accepted by Atlantic Holdings for
exchange on the terms and conditions set forth in this solicitation statement
and prospectus and the accompanying Consent and Letter of Transmittal, which are
referred to together as the "exchange offer." In connection with the exchange,
if you tender your 11% Notes you will also receive in cash all accrued but
unpaid interest on the 11% Notes through the date the exchange is completed.
Concurrently with the exchange offer, Atlantic Holdings is also
soliciting consents, on behalf of GB Holdings, Inc., from holders of the 11%
Notes, which is referred to as the "consent solicitation," to the proposed
amendments to the indenture governing the 11% Notes, to release the liens on the
collateral securing the 11% Notes and to consent to the terms of the new
indenture governing the 3% Notes. The consent solicitation and exchange offer is
subject to a variety of conditions, including the receipt of valid consents and
tenders from holders of not less than a majority of the aggregate principal
amount of the 11% Notes outstanding. The valid tender of the 11% Notes in the
exchange offer will automatically be deemed the holders' consent to the matters
referred to above. The holders of approximately 58% of the 11% Notes have
indicated their intent to tender for exchange their 11% Notes, thereby
consenting to the amendments to the indenture governing the 11% Notes and
satisfying the minimum tender condition.
Unless extended, the exchange offer will expire at 12:01 a.m., New York
City time, on July 1, 2004. Atlantic Holdings will announce any extensions by
press release or other form of public announcement no later than 9:00 a.m., New
York City time, on the first business day after the previously scheduled
expiration date. You may withdraw any 11% Notes tendered until the expiration of
the exchange offer.
On April 19, 2004, at the request of GB Holdings the American Stock
Exchange delisted the 11% Notes. On April 16, 2004, the last reported sale price
for $1,000 in principal amount of the 11% Notes was $81.00. Atlantic Holdings
does not believe that the 3% Notes will be publicly-traded or that a trading
market will exist for such 3% Notes.
The Board of Directors of GB Holdings under certain circumstances may
terminate the exchange offer described herein at any time prior to the
expiration of the exchange offer.
See "Risk Factors" beginning on page 31 for a discussion of issues that you
should consider with respect to the consent solicitation and exchange offer.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or this transaction,
passed upon the merits or fairness of this transaction, or passed upon the
adequacy or accuracy of this solicitation statement and prospectus. Any
representation to the contrary is a criminal offense.
The New Jersey Casino Control Commission has not approved or disapproved of
these securities or determined if this solicitation statement and prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The Solicitation Agent for the consent solicitation and exchange offer is:
Innisfree M&A Incorporated
The date of this solicitation statement and prospectus is _________, 2004
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE CONSENT SOLICITATION AND EXCHANGE OFFER....................................................... 1
SUMMARY....................................................................................................................... 9
BACKGROUND OF ATLANTIC HOLDINGS AND ACE GAMING............................................................................. 9
BACKGROUND OF GREATE BAY HOTEL............................................................................................. 9
BACKGROUND OF GB HOLDINGS.................................................................................................. 10
BACKGROUND OF THE TRANSACTION.............................................................................................. 10
REASONS FOR THE CONSENT SOLICITATION AND EXCHANGE OFFER.................................................................... 12
THE CONSENT SOLICITATION AND EXCHANGE OFFER................................................................................ 14
USE OF PROCEEDS............................................................................................................ 18
REPORT OF LIBRA SECURITIES................................................................................................. 19
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE OFFER......................................................................... 19
ACCOUNTING TREATMENT....................................................................................................... 20
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES................................................................................. 20
COMPARATIVE MARKET PRICE INFORMATION....................................................................................... 23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA................................................................. 24
SELECTED PRO FORMA FINANCIAL DATA GB HOLDINGS AND ATLANTIC HOLDINGS GIVING EFFECT TO THE TRANSACTION.......................... 27
CAPITALIZATION................................................................................................................ 32
ATLANTIC HOLDINGS.......................................................................................................... 32
GB HOLDINGS................................................................................................................ 33
RISK FACTORS.................................................................................................................. 34
RISK FACTORS RELATED TO HOLDERS TENDERING IN THE EXCHANGE OFFER............................................................ 34
RISK FACTORS RELATED TO HOLDERS NOT TENDERING IN THE EXCHANGE OFFER........................................................ 40
RISK FACTORS RELATED TO THE BUSINESS OF ATLANTIC HOLDINGS.................................................................. 45
RISK FACTORS RELATED TO THE GAMING INDUSTRY................................................................................ 49
FORWARD-LOOKING STATEMENTS.................................................................................................... 51
USE OF PROCEEDS............................................................................................................... 51
DESCRIPTION OF THE TRANSACTION................................................................................................ 52
BACKGROUND OF THE CONSENT SOLICITATION AND EXCHANGE OFFER.................................................................. 52
BACKGROUND OF THE TRANSACTION.............................................................................................. 52
DESCRIPTION OF THE TRANSACTION............................................................................................. 56
REPORT OF LIBRA SECURITIES................................................................................................. 65
THE CONSENT SOLICITATION AND EXCHANGE OFFER................................................................................... 69
CONDITIONS OF THE CONSENT SOLICITATION AND EXCHANGE OFFER.................................................................. 70
TIMING OF THE CONSENT SOLICITATION AND EXCHANGE OFFER...................................................................... 72
EXTENSION, TERMINATION AND AMENDMENT....................................................................................... 72
EXCHANGE OF THE EXISTING NOTES............................................................................................. 73
PROCEDURES FOR TENDERING AND CONSENTING.................................................................................... 73
TENDER OF EXISTING NOTES HELD THROUGH DTC.................................................................................. 74
BOOK-ENTRY DELIVERY PROCEDURES............................................................................................. 75
GUARANTEED DELIVERY........................................................................................................ 75
EFFECTS OF TENDERS AND CONSENTS............................................................................................ 75
ACCEPTANCE OF THE EXISTING NOTES AND DELIVERY OF THE NEW NOTES............................................................. 76
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS........................................................................... 77
APPRAISAL RIGHTS........................................................................................................... 77
CERTAIN LEGAL AND REGULATORY MATTERS....................................................................................... 77
ACCOUNTING TREATMENT....................................................................................................... 77
SOLICITATION AGENT......................................................................................................... 78
INFORMATION AGENT.......................................................................................................... 78
EXCHANGE AGENT............................................................................................................. 78
TRANSFER TAXES............................................................................................................. 78
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE OFFER......................................................................... 78
POSSIBLE CONFLICTS OF INTEREST............................................................................................ 79
i
PROPOSED AMENDMENTS........................................................................................................... 80
GENERAL.................................................................................................................... 80
THE AMENDMENTS............................................................................................................. 81
DESCRIPTION OF THE NEW NOTES.................................................................................................. 83
COMPARISON OF THE EXISTING NOTES, THE EXISTING NOTES, AS AMENDED, AND THE NEW NOTES........................................... 88
DESCRIPTION OF ATLANTIC HOLDINGS CAPITAL STOCK................................................................................ 98
GENERAL.................................................................................................................... 98
ATLANTIC HOLDINGS COMMON STOCK............................................................................................. 98
PREFERRED STOCK............................................................................................................ 98
WARRANTS................................................................................................................... 99
GOVERNMENT REGULATION......................................................................................................... 100
NEW JERSEY GAMING REGULATIONS.............................................................................................. 100
DESCRIPTION OF THE BUSINESS OF ATLANTIC HOLDINGS AND ITS SUBSIDIARIES......................................................... 104
GENERAL.................................................................................................................... 104
DESCRIPTION OF THE BUSINESS OF GB HOLDINGS AND ITS SUBSIDIARIES............................................................... 105
GENERAL.................................................................................................................... 105
THE SANDS.................................................................................................................. 106
DESCRIPTION OF PROPERTIES.................................................................................................. 112
LEGAL PROCEEDINGS............................................................................................................. 113
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GB HOLDINGS AND ITS SUBSIDIARIES..... 114
GENERAL.................................................................................................................... 114
LIQUIDITY AND CAPITAL RESOURCES.............................................................................................. 114
RESULTS OF OPERATIONS FOR THE THREE MONTHES ENDED MARCH 31, 2004........................................................... 117
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003................................................................. 121
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................................... 126
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................... 127
MANAGEMENT OF GB HOLDINGS AND ATLANTIC HOLDINGS............................................................................... 128
DIRECTORS AND EXECUTIVE OFFICERS........................................................................................... 128
EXECUTIVE COMPENSATION OF ATLANTIC HOLDINGS, GB HOLDINGS AND ITS SUBSIDIARIES................................................. 130
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION............................................................................. 130
OPTION GRANTS IN LAST FISCAL YEAR.......................................................................................... 131
EMPLOYMENT CONTRACTS....................................................................................................... 132
EMPLOYEE RETIREMENT SAVINGS PLAN........................................................................................... 132
COMPENSATION OF DIRECTORS.................................................................................................. 132
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................................................................ 132
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ATLANTIC HOLDINGS AND GB HOLDINGS........................... 133
ATLANTIC HOLDINGS.......................................................................................................... 133
GB HOLDINGS................................................................................................................ 133
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................................ 134
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES................................................................................. 135
GENERAL.................................................................................................................... 135
ISSUE PRICE AND PUBLICLY TRADED............................................................................................ 136
U.S. HOLDERS............................................................................................................... 138
TREATMENT OF U.S. HOLDERS EXCHANGING THE EXISTING NOTES FOR THE NEW NOTES.................................................. 138
TREATMENT OF U.S. HOLDERS RETAINING THE EXISTING NOTES..................................................................... 140
NON-U.S. HOLDERS........................................................................................................... 141
TREATMENT OF NON- U.S. HOLDERS EXCHANGING THE EXISTING NOTES FOR THE NEW NOTES............................................. 142
TREATMENT OF NON-U.S. HOLDERS RETAINING THE EXISTING NOTES................................................................. 142
BACKUP WITHHOLDING AND INFORMATION REPORTING............................................................................... 143
LEGAL MATTERS................................................................................................................. 143
ii
EXPERTS....................................................................................................................... 143
WHERE YOU CAN FIND MORE INFORMATION........................................................................................... 143
INDEX TO FINANCIAL STATEMENTS................................................................................................. F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM....................................................................... F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT....................................................................................... F-2
GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2003 AND 2002.... F-3
INDEPENDENT AUDITOR'S REPORT.................................................................................................. F-21
UNAUDITED CONSOLIDATED FINANCIAL STATEMENT OF GB HOLDINGS, INC. AND SUBSIDIARY................................................ F-23
GB HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................ P-1
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.... P-15
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS............................................................................... II-1
Annex A: Certificate of Incorporation of Atlantic Coast Entertainment Holdings, Inc.
Annex B: By-Laws of Atlantic Coast Entertainment Holdings, Inc.
Annex C: Form of Contribution Agreement by and among GB Holdings, Inc., Greate Bay Hotel and Casino, Inc., Atlantic Coast
Entertainment Holdings, Inc. and ACE Gaming LLC
Annex D: Form of Warrant Agreement
Annex E: The Amended and Restated Indenture, dated as of October 12, 2001, among GB Property Funding Corp., as issuer, GB
Holdings, Inc. and Greate Bay Hotel and Casino, Inc., as guarantors, and Wells Fargo Bank Minnesota, National
Association, as trustee
Annex F: Form of Amendment to the Amended and Restated Indenture and Form of Second Amended and Restated Indenture among GB
Holdings, Inc., as obligor, and Wells Fargo Bank Minnesota, National Association, as trustee, which is attached as
Exhibit A thereto
Annex G: Form of Indenture among Atlantic Coast Entertainment Holdings, Inc., as issuer, ACE Gaming LLC, as guarantor, and
Wells Fargo Bank, National Association, as trustee
iii
QUESTIONS AND ANSWERS ABOUT
THE CONSENT SOLICITATION AND EXCHANGE OFFER
The following are some questions regarding the consent
solicitation and exchange offer that you may have as a holder of 11% Notes due
2005 (which we refer to as the "Existing Notes") of GB Property Funding Corp., a
wholly-owned subsidiary of GB Holdings, Inc., and the answers to those
questions. We urge you to read carefully the remainder of this solicitation
statement and prospectus and the related Consent and Letter of Transmittal
because the information in this section is not complete. Additional important
information is contained in the remainder of this solicitation statement and
prospectus and the Consent and Letter of Transmittal.
Q: Who is currently obligated to make payments under the Existing Notes?
A: The Existing Notes were issued by GB Property and guaranteed by GB
Holdings and Greate Bay Hotel and Casino, Inc., a wholly-owned
subsidiary of GB Holdings. The Existing Notes are governed by the
Amended and Restated Indenture (which we refer to as the "Existing
Indenture"), dated as of October 12, 2001, among GB Property, as issuer,
GB Holdings and Greate Bay Hotel, as guarantors, and Wells Fargo Bank
Minnesota, National Association, as trustee.
Q: Who is making the exchange offer for the Existing Notes?
A: The exchange offer is being made by Atlantic Coast Entertainment
Holdings, Inc. (referred to herein as "we," "us" or "our"). Atlantic
Holdings is a newly formed wholly-owned subsidiary of Greate Bay Hotel.
Q: What is being offered in exchange for the Existing Notes?
A: Atlantic Holdings is offering the holders of the outstanding Existing
Notes the opportunity to exchange the Existing Notes for (i) $100 in
cash (which we refer to as the "Cash Payment") for each $1,000 principal
amount of Existing Notes exchanged; (ii) on a dollar for dollar basis,
3% Notes due 2008 (which we refer to as the "New Notes") issued by
Atlantic Holdings; and (iii) the accrued but unpaid interest on the
Existing Notes. The New Notes will, at the election of the holders of a
majority of the aggregate principal amount of the New Notes, be payable
at or prior to maturity by issuance of up to 72.5% of the outstanding
common stock, par value $0.01 per share, of Atlantic Holdings (which we
refer to as the "Atlantic Holdings Common Stock") or a lesser
proportionate amount if less than all of the holders of the Existing
Notes participate in the exchange offer.
Q: What is the effect of the Exchange?
A: The exchange of Existing Notes for New Notes will result in the
cancellation of all of the Existing Notes that are tendered for exchange
and accepted. Additionally, any holder that elects to exchange the
Existing Notes for New Notes will automatically be deemed to have
consented to (i) the proposed amendments to the Existing Indenture; (ii)
the release of the liens on the collateral securing the Existing Notes;
and (iii) the terms of the indenture governing the New Notes.
Q: If I own $1,000 of Existing Notes, what will I receive in the exchange
offer if I elect to exchange?
A: You will receive (i) $1,000 of New Notes; (ii) a Cash Payment equal to
$100; and (iii) a cash payment for all interest which has accrued but
has not been paid on the Existing Notes. Prior to or at maturity of the
New Notes, upon the election of the holders of a majority of the
aggregate principal amount of the New Notes outstanding, you will
receive 65 shares of Atlantic Holdings Common Stock that represents
0.0000065% (on a fully diluted basis) of the outstanding Atlantic
Holdings Common Stock as full payment of the principal and accrued
interest due under the New Notes. Prior to the election of the holders
of a majority of the aggregate principal amount of the New Notes to be
paid in the form of Atlantic Holdings Common Stock, holders of the New
Notes will own no Atlantic Holdings Common Stock in Atlantic Holdings
with respect to their New Notes and (i) if less than 100% of the
Existing Notes are exchanged, GB Holdings will own 100% of the
outstanding Atlantic Holdings Common Stock or (ii) if 100% of the
Existing Notes are exchanged, the stockholders of GB Holdings will own
100% of the Atlantic Holdings Common Stock. We describe the terms of the
exchange offer in more detail in the section entitled "THE CONSENT
SOLICITATION AND EXCHANGE OFFER" as set forth on page 60. In addition,
you may, at the election of the holders of a majority of the aggregate
principal amount of the New Notes outstanding, be allowed to convert
your New Notes, in whole or in part, into Atlantic Holdings Common Stock
at your election.
1
Q: Can either Atlantic Holdings or GB Holdings estimate how many holders of
the Existing Notes will elect to exchange for New Notes?
A: No. Neither Atlantic Holdings nor GB Holdings can estimate how many
holders of the Existing Notes will elect to exchange for New Notes.
Affiliates of Carl C. Icahn own approximately 58% of the Existing Notes
and have indicated that they intend to consent to (i) the proposed
amendments to the Existing Indenture; (ii) the release of the liens on
the collateral securing the Existing Notes; and (iii) the terms of the
indenture governing the New Notes and tender their Existing Notes for
exchange. If such affiliates exchange, they will own at least 58% of the
aggregate principal amount of the New Notes outstanding. Furthermore, if
they elect to consent and tender for exchange, the consent and tender of
the holders of a majority of the aggregate principal amount of the
Existing Notes outstanding will be assured.
Affiliates of Mr. Icahn have not entered into any agreements or other
arrangements requiring such affiliates to consent or tender their
Existing Notes for exchange and such affiliates are free to decide not
to consent and tender their Existing Notes for exchange. If such
affiliates elect not to consent and tender, Atlantic Holdings will be
unable to obtain the consent and tender of the holders of a majority of
the aggregate principal amount of the Existing Notes outstanding and the
exchange offer will terminate. See "THE CONSENT SOLICITATION AND
EXCHANGE OFFER--Timing of the Consent Solicitation and Exchange Offer"
as set forth on page 72. If Atlantic Holdings is forced to terminate the
exchange offer, GB Holdings will have to pursue other alternatives,
including attempting to refinance the Existing Notes in the capital
markets, or seeking additional financing or other methods of
restructuring the Existing Notes. If GB Holdings is unable to refinance
the Existing Notes on favorable terms, or at all, or accumulate enough
cash to pay the principal amount and accrued interest of the Existing
Notes when the Existing Notes are due, GB Holdings may file for, or be
forced to resort to, bankruptcy protection. See "RISK FACTORS -- Risk
Factors Related to Holders Not Tendering in the Exchange Offer" as set
forth on page 40.
Q: Who may participate in the exchange offer?
A: All holders of the Existing Notes may participate in the exchange offer.
Q: What are the risks to me if I tender my Existing Notes in this consent
solicitation and exchange offer?
A: There are a number of risks if you tender Existing Notes in the consent
solicitation and exchange offer, including:
- The maturity date of the New Notes is later than the maturity
date of the Existing Notes.
- The New Notes bear interest at 3% per annum which accrues
annually, but is only payable at maturity in 2008, while the
Existing Notes bear interest at 11% per annum which accrues and
is payable semi-annually.
- If a majority in aggregate principal amount of the New Notes
outstanding elects to be paid in the form of Atlantic Holdings
Common Stock, the New Notes (including all principal and accrued
interest thereon) will be paid in full through the delivery of
Atlantic Holdings Common Stock. The decision to be paid in
Atlantic Holdings Common Stock prior to or at maturity instead
of in cash at maturity will be made by the holders of a majority
in aggregate principal amount of the New Notes outstanding.
Affiliates of Carl C. Icahn own approximately 58% of the
Existing Notes and have indicated their intent to consent to (i)
the proposed amendments to the Existing Indenture; (ii) the
release of the liens on the collateral securing the Existing
Notes; and (iii) the terms of the indenture governing the New
Notes and tender for exchange their Existing Notes and if they
exchange they will own at least 58% of the aggregate principal
amount of the New Notes outstanding. As such, if such affiliates
exchange, they will, in their sole discretion, have the ability
to determine whether and when the New Notes will be paid in
Atlantic Holdings Common Stock or cash. Affiliates of Mr. Icahn,
as holders of a majority of the principal amount of the New
Notes outstanding have the power to cause the New Notes to be
paid in Atlantic Holdings Common Stock at any time, in their
sole discretion (thereby allowing the Warrants to be exercised).
Although they reserve such right to exercise such power at any
time, such affiliates have advised Atlantic Holdings that they
have not determined the form and timing of the payment of the
New Notes. In determining whether or when they elect for the New
Notes to be payable in Atlantic Holdings Common Stock, they may
consider a variety of factors,
2
including, but not limited to, the results of operations and the
financial condition of Atlantic Holdings and ACE Gaming, LLC, a
New Jersey limited liability company and a wholly-owned
subsidiary of Atlantic Holdings, the general market conditions
affecting Atlantic Holdings and ACE Gaming, the business and
financial prospects of The Sands Hotel and Casino in Atlantic
City, New Jersey, Atlantic Holdings and ACE Gaming, whether such
affiliates want to obtain ownership of such shares in order to
be in a position to exercise their respective rights as
stockholders, whether such affiliates find it advantageous to
themselves to eliminate the debt created by the New Notes, and
other economic factors generally affecting the country and the
gaming industry in particular. However, such affiliates have
advised Atlantic Holdings that they have not determined
benchmarks or standards in this regard and reserve the right to
cause the New Notes to be paid in or convertible into Atlantic
Holdings Common Stock at any time in their sole discretion.
For a discussion of these and other risks, see "RISK FACTORS -- Risk
Factors Related to Holders Tendering in the Exchange Offer" as set forth
on page 34.
Q: When does the consent solicitation and exchange offer expire?
A: Unless we extend this consent solicitation and exchange offer, it will
expire at 12:01 a.m., New York City time, on July 1, 2004. We do not
currently intend to extend the expiration date of the consent
solicitation and exchange offer. See "THE CONSENT SOLICITATION AND
EXCHANGE OFFER -- Timing of the Consent Solicitation and Exchange Offer"
as set forth on page 72.
Q: How will I be notified if the consent solicitation and exchange offer is
extended?
A: If we decide to extend the consent solicitation and exchange offer, we
will notify the information agent. We also will issue a press release or
make another form of public announcement of the extension no later than
9:00 a.m., New York City time, on the first business day after the
previously scheduled expiration date. See "THE CONSENT SOLICITATION AND
EXCHANGE OFFER -- Extension, Termination and Amendment" as set forth on
page 72.
Q: Can the Transaction be terminated?
A: Yes. GB Holdings can choose to terminate the Transaction at any point
prior to the consummation of the Transaction, including by the Board of
Directors (the "Board") of GB Holdings in the exercise of its business
judgment and fiduciary duty pursuant to Delaware law, based on the
recommendation of the Special Committee (the "Special Committee") of the
Board, has the ability, in its sole discretion, to terminate the
Transaction at any time prior to the expiration of the exchange offer
based on (i) (a) the availability of financing on terms more favorable
to GB Holdings than the Transaction and (b) the availability of an
alternative transaction that is more favorable to GB Holdings or (ii) a
material adverse change in (a) the business, assets, liabilities, or
prospects of GB Holdings, or its subsidiaries; (b) the gaming industry;
(c) tourism in Atlantic City; or (d) general economic conditions. See
"THE CONSENT SOLICITATION AND EXCHANGE OFFER-- Extension, Termination
and Amendment" as set forth on page 72.
Q: How do I consent to the amendments to the Existing Indenture and the
release of the collateral?
A: By tendering for exchange your Existing Notes (whether directly by you,
your broker or your depository), you will automatically be deemed to
have given your consent to the amendments to the Existing Indenture,
agreed to release the lien on the collateral for the Existing Notes
which is currently restricted by the Existing Indenture and consented to
the terms of the Indenture governing the New Notes (which we refer to as
the "New Indenture") among Atlantic Holdings, as issuer, and ACE Gaming,
as guarantor. You cannot tender your Existing Notes without consenting
to the amendments to the Existing Indenture, agreeing to release the
lien on the collateral securing the Existing Notes and agreeing to
accept the terms of the New Indenture. See "THE CONSENT SOLICITATION AND
EXCHANGE OFFER-- Procedures for Tendering and Consenting" as set forth
on page 73.
Q: What are the New Notes?
A: Our newly issued 3% Notes due 2008. The New Notes will be guaranteed by
ACE Gaming to which we will transfer (i) all of our cash (except for an
amount of cash that Atlantic Holdings will pay to the holders of the
Existing Notes that elect to exchange for New Notes) which was
transferred to Atlantic Holdings by GB
3
Holdings and Greate Bay Hotel and (ii) substantially all of the assets
of Greate Bay Hotel and GB Holdings contributed to Atlantic Holdings
which includes the collateral released from the Existing Indenture. The
New Notes will be issued under the New Indenture and secured by all of
the assets of Atlantic Holdings and ACE Gaming including The Sands Hotel
and Casino (located in Atlantic City, New Jersey). We describe the New
Notes in more detail in the section entitled "DESCRIPTION OF THE NEW
NOTES" beginning on page 83 of this solicitation statement and
prospectus.
Q: Are the New Notes payable in the form of Atlantic Holdings Common Stock?
A: Yes, at the election of the holders of a majority in aggregate principal
amount of the New Notes outstanding, the holders of the New Notes will
receive payment for such notes in the form of Atlantic Holdings Common
Stock in full satisfaction and full payment for the principal and
accrued interest of the New Notes, in which event you will not be paid
in cash. See "DESCRIPTION OF THE NEW NOTES" as set forth on page 83.
Q: Can I be paid in Atlantic Holdings Common Stock for the New Notes at any
time at my option?
A: No. Holders of the New Notes will not be paid in the form of Atlantic
Holdings Common Stock at their option. It is necessary for the holders
of a majority of the aggregate principal amount of the New Notes
outstanding to approve payment in the form of Atlantic Holdings Common
Stock. A holder or a group of holders that own less than a majority of
the aggregate principal amount of the New Notes outstanding does not
have the option to unilaterally determine whether or not to be paid in
Atlantic Holdings Common Stock. Affiliates of Carl C. Icahn hold
approximately 58% of the aggregate principal amount of the Existing
Notes outstanding and have indicated their intent to consent to (i) the
proposed amendments to the Existing Indenture; (ii) the release of the
liens on the collateral securing the Existing Notes; and (iii) the terms
of the New Indenture and tender for exchange their Existing Notes.
Therefore, if they exchange, they will own at least 58% of the aggregate
principal amount of the New Notes outstanding and, as holders of a
majority of the principal amount of the New Notes outstanding, will have
the power to cause the New Notes to be paid in Atlantic Holdings Common
Stock or cash at any time, in their sole discretion (thereby allowing
the Warrants to be exercised). Although they reserve the right to
exercise such power at any time, such affiliates of Mr. Icahn have
advised Atlantic Holdings that they have not determined the form and
timing of the payment of the New Notes. Also, such affiliates have
advised Atlantic Holdings that they have not determined any benchmarks
or standards in this regard and reserve the right to cause the New Notes
to be paid in or convertible into Atlantic Holdings Common Stock at any
time, in their sole discretion. See "DESCRIPTION OF THE NEW NOTES" as
set forth on page 83.
Q: Is payment of the principal and the accrued interest of the New Notes
automatically due and payable in cash upon maturity in 2008?
A: No. The holders of a majority of the aggregate principal amount of the
New Notes outstanding can elect, at any time following consummation of
the series of events pursuant to which the refinancing of the Existing
Notes will be accomplished (the "Transaction"), to determine whether the
New Notes (including all principal and accrued interest) (i) will be
paid in the form of Atlantic Holdings Common Stock or (ii) will be
convertible, in whole or in part, at the election of the holders into
Atlantic Holdings Common Stock. If the New Notes are convertible into or
payable in the form of Atlantic Holdings Common Stock, (i) the holders
of all of the New Notes will receive their pro rata percentage of
Atlantic Holdings Common Stock, in the aggregate, expressed as a
percentage equal to 72.5% (on a fully diluted basis) of the total
outstanding Atlantic Holdings Common Stock, multiplied by a fraction,
the numerator of which is the aggregate principal amount of the Existing
Notes outstanding exchanged for the New Notes and the denominator of
which is the aggregate principal amount of the Existing Notes
outstanding immediately prior to the consummation of the exchange offer
and (ii) the holders of the New Notes will receive payment for such
notes in the form of Atlantic Holdings Common Stock in full satisfaction
and full payment of the New Notes and immediately thereafter the New
Notes will be cancelled. See "RISK FACTORS-- Risk Factors Related to
Holders Tendering in the Exchange Offer" as set forth on page 34 and
"DESCRIPTION OF THE NEW NOTES" as set forth on page 83.
Q: May I tender for exchange a portion of the Existing Notes that I hold?
A: Yes. You do not have to tender for exchange all of the Existing Notes
that you hold in order to participate in the consent solicitation and
exchange offer. See "THE CONSENT SOLICITATION AND EXCHANGE OFFER" as set
forth on page 69.
4
Q: Can I tender for exchange my Existing Notes without consenting to the
proposed amendments or consent to the proposed amendments without
tendering for exchange my Existing Notes?
A: No. If you tender for exchange your Existing Notes (whether directly by
you, your broker or your depository), you will automatically be deemed
to have given your consent to (i) the proposed amendments to the
Existing Indenture; (ii) the release of the liens on the collateral
securing the Existing Notes; and (iii) the terms of the New Indenture.
If you decide not to exchange your Existing Notes, you will
automatically be deemed to not have given your consent. See "THE CONSENT
SOLICITATION AND EXCHANGE OFFER" as set forth on page 69.
Q: Will my rights as a holder of the Existing Notes change if I tender for
exchange my Existing Notes in this consent solicitation and exchange
offer?
A: Yes. Currently, your rights as a holder of the Existing Notes are
governed by the Existing Indenture. If you exchange your Existing Notes
for New Notes, your rights as a holder of the New Notes will be governed
by the New Indenture, the terms of which are described in this
solicitation statement and prospectus under "DESCRIPTION OF THE NEW
NOTES" as set forth on page 83.
Q: How will the consent solicitation and exchange offer affect my rights as
a holder of Existing Notes if I do not tender for exchange my Existing
Notes in this consent solicitation and exchange offer?
A: If you do not tender for exchange your Existing Notes in the exchange
offer and we successfully complete the consent solicitation and exchange
offer, your Existing Notes will no longer be secured by collateral, and
you will no longer be entitled to the benefits of the restrictive
covenants that will be eliminated or modified by the proposed
amendments. The New Notes will be secured by a mortgage on all of the
assets of ACE Gaming. GB Holdings, as the obligor of the Existing Notes,
will have no assets other than that portion of the Atlantic Holdings
Common Stock, representing that portion of the unexchanged Existing
Notes, which has the effect of structurally subordinating the
unexchanged Existing Notes to the New Notes. The New Indenture will
contain restrictive covenants similar to those that will be eliminated
from the Existing Indenture. In addition, the sole payments that are
permitted under the New Indenture are payments for interest on the
Existing Notes, operating expenses and payments and reimbursements to
the trustee under the Existing Indenture, as amended by the proposed
amendments. Payments to GB Holdings by Atlantic Holdings for the payment
of principal on the Existing Notes will be a "restricted payment" under
the New Indenture and are not permissible. Actions by Atlantic Holdings
or its subsidiaries which are a violation of these covenants will be an
event of default under the New Indenture, giving the trustee and the
holders of a majority of the aggregate principal amount of the New Notes
outstanding a right to declare the New Notes immediately due and
payable. However, such actions may not cause an event of default under
the Existing Indenture, as amended by the proposed amendments, and
holders of the Existing Notes may not have a corresponding right to
declare the remaining Existing Notes due and payable. The Existing Notes
will likely have a limited marketability due to GB Holdings' decision to
delist the Existing Notes and because of the material reduction in the
principal amount, or "float," of the Existing Notes outstanding if we
complete the exchange offer. A debt security with a smaller outstanding
float may command a lower price than a comparable debt security with a
larger float. The reduced float may also make trading prices, if any,
more volatile. Moreover, the market for the Existing Notes also may be
adversely affected by the existence of a market for the New Notes. See
"RISK FACTORS-- Risk Factors Related to Holders Not Tendering in the
Exchange Offer" as set forth on page 40. In addition, you should, for
U.S. federal income tax purposes, be deemed to have exchanged your
Existing Notes for the Existing Notes, as amended. This deemed exchange
may have U.S. federal income tax consequences for holders of Existing
Notes. See "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES-- Treatment of
U.S. Holders Retaining the Existing Notes" as set forth on page 140.
Additionally, upon the consummation of the Transaction, the common stock
of GB Holdings will be delisted and you will own a debt security of a
company for which there is no active public trading market. When the
common stock of GB Holdings is delisted, it may affect GB Holdings'
ability to refinance the Existing Notes prior to or upon maturity
through the issuance of additional shares of common stock of GB
Holdings.
Q: What are the conditions of the consent solicitation and exchange offer?
A: This consent solicitation and exchange offer are conditioned upon:
o GB Holdings receiving the approval of a majority of its
stockholders for the Transaction;
5
o Greate Bay Hotel receiving the required governmental consent
from the New Jersey Casino Control Commission (relating to
the Transaction and the issuance of a casino license to ACE
Gaming on substantially the same terms and conditions as the
casino license issued to Greate Bay Hotel) and receiving
consents from the city of Atlantic City and certain third
parties;
o holders of a majority of the aggregate principal amount of
the Existing Notes outstanding exchanging their Existing
Notes for New Notes;
o no legal prohibition to consummation of the Transaction shall
have been in effect; and
o the effectiveness of the Amendment to the Amended and
Restated Indenture among GB Property, as issuer, GB Holdings
and Greate Bay Hotel, as guarantors, and Wells Fargo Bank
Minnesota, National Association, as trustee; the Second
Amended and Restated Indenture, among GB Holdings, as issuer,
and Wells Fargo Bank Minnesota, National Association, as
trustee; and the New Indenture.
See "THE CONSENT SOLICITATION AND EXCHANGE OFFER -- Conditions of the
Consent Solicitation and Exchange Offer" as set forth on page 70.
Q: What happens if the exchange offer is not completed?
A: If the exchange offer is not completed, GB Holdings will have to pursue
other alternatives, including attempting to refinance the Existing Notes
in the capital markets, seeking additional financing or other methods of
restructuring the Existing Notes. If GB Holdings is unable to refinance
the Existing Notes on favorable terms, or at all, or accumulate enough
cash to pay the principal amount and accrued interest of the Existing
Notes when the Existing Notes are due, the Existing Notes will be in
default and it is reasonably likely that GB Holdings will file for, or
be forced to resort to, bankruptcy protection. In that event, no
assurances can be given as to the amount of assets, if any, which will
be realized by the holders of the Existing Notes. See "RISK FACTORS --
Risk Factors Related to Holders Not Tendering in the Exchange Offer" as
set forth on page 40.
Q: Will I have to pay any fees or commissions if I elect to participate in
the exchange offer and tender for exchange my Existing Notes?
A: If you are the record owner of your Existing Notes and you tender for
exchange your Existing Notes (whether directly by you, your broker or
your depository) directly to the exchange agent, you will not have to
pay any fees or commissions. If you hold your Existing Notes through a
broker, bank or other nominee, and your broker trades the Existing Notes
on your behalf, your broker may charge you a fee for doing so. You
should consult your broker or nominee to determine whether any charges
will apply. See "THE CONSENT SOLICITATION AND EXCHANGE OFFER -- Effects
of Tenders and Consents" as set forth on page 75.
Q: Has the Board of Directors of Atlantic Holdings, GB Property or any
other party recommended that I tender my Existing Notes under this
consent solicitation and exchange offer?
A: No. Neither the Special Committee of the Board of Directors of GB
Holdings (which we refer to as the "Special Committee"), nor the Board
of Directors of GB Holdings, the Board of Directors of GB Property, the
Board of Directors of Greate Bay Hotel, the Board of Directors of
Atlantic Holdings, the trustee, the solicitation agent, the exchange
agent or the information agent expresses any opinion, and each is
remaining neutral, regarding any recommendation to you whether or not to
tender your Existing Notes. In addition, we have not authorized anyone
to make a recommendation regarding this consent solicitation and
exchange offer. You must make your own decision whether to tender for
exchange your Existing Notes based upon your own assessment of the
market value of those notes and the likely value of the New Notes, your
liquidity needs and your investment objectives. You should consult your
financial advisor as to whether you should tender for exchange your
Existing Notes for New Notes. See "THE CONSENT SOLICITATION AND EXCHANGE
OFFER" as set forth on page 69.
Q: If I tender for exchange my Existing Notes and consent to the proposed
amendments, will I be able to revoke this decision if I later change my
mind?
A: Yes. You may validly withdraw Existing Notes that you tender for
exchange before the consent solicitation and exchange offer expires. A
valid withdrawal of tendered Existing Notes will revoke the related
consents.
6
After the expiration date, you cannot withdraw Existing Notes that you
previously tendered or withdraw your consent to the proposed amendment.
For a withdrawal to be effective:
- If you hold your Existing Notes through The Depository
Trust Company, known as DTC, you must comply with the
appropriate procedures of DTC's automated program.
- If you do not hold your Existing Notes through DTC, you
must send written notice of withdrawal to the exchange
agent at its address on the inside back cover of this
solicitation statement and prospectus.
For additional information regarding a withdrawal of Existing Notes,
please see the section of this solicitation statement and prospectus
entitled "THE CONSENT SOLICITATION AND EXCHANGE OFFER -- Withdrawal of
Tenders and Revocation of Consents" as set forth on page 77.
Q: If I tender for exchange my Existing Notes, will I automatically receive
the cash payment and the New Notes?
A: No. The exchange of New Notes and cash for Existing Notes is conditioned
upon a number of factors, including:
- The completion of the conditions described above; and
- Receipt from you of a properly executed Consent and
Letter of Transmittal for the Transaction, or if your
Existing Notes are held by DTC, the receipt of an agent's
message.
For additional information regarding the exchange of Existing Notes,
please see the section of this solicitation statement and prospectus
entitled "THE CONSENT SOLICITATION AND EXCHANGE OFFER -- Conditions of
the Consent Solicitation and Exchange Offer" as set forth on page 70.
Q: How do I tender for exchange the Existing Notes that I hold?
A: To tender for exchange your Existing Notes you must comply with one of
the following procedures before the expiration date:
- If you hold your position through DTC, you must provide a
timely confirmation of a book entry transfer of your
Existing Notes into the account of the exchange agent and
either properly complete and execute the Consent and
Letter of Transmittal or have DTC transmit an agent's
message;
- If you hold your position through a broker dealer,
commercial bank, trust company or other nominee, you must
contact the holder of record promptly and instruct the
holder of record to tender your Existing Notes and
deliver your consent on your behalf to DTC, and deliver a
properly completed and executed Consent and Letter of
Transmittal or an agent's message, which may be required
in the case of a book-entry transfer. "Agent's message"
means a message, transmitted by DTC and received by the
exchange agent and forming part of a book-entry
confirmation, which states that DTC has received an
express acknowledgment from a participant tendering
Existing Notes that are the subject of the book-entry
confirmation that the participant has received and agrees
to be bound by the terms of the Consent and Letter of
Transmittal, and that Atlantic Holdings may enforce that
agreement against the participant. Delivery of the
agent's message will satisfy the terms of the consent
solicitation and exchange offer as to execution and
delivery of a Consent and Letter of Transmittal by the
participant identified in the agent's message; or
- If you do not hold your position through any of the above
options you must send certificates for your Existing
Notes to the exchange agent along with a properly
completed and duly executed Consent and Letter of
Transmittal including any required signature guarantees.
For more detailed information regarding the tender of your notes, please see the
section of this solicitation statement and prospectus entitled "THE CONSENT
SOLICITATION AND EXCHANGE OFFER -- Procedures for Tendering and Consenting" as
set forth on page 73.
7
Q: Do I have appraisal rights?
A: No, you do not have any appraisal rights under the Existing Indenture or
Delaware law. See "THE CONSENT SOLICITATION AND EXCHANGE OFFER" as set
forth on page 69.
Q: Where can I find more information about Atlantic Holdings and GB
Holdings?
A: You can find more information about Atlantic Holdings and GB Holdings
from various sources. Please see the section of this solicitation
statement and prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION"
as set forth on page 143.
Q: Who can answer my questions?
A: If you have any questions about the consent solicitation and exchange
offer, you should contact:
Innisfree M&A Incorporated
--------------------------------------------
Banks and Brokers Call Collect: 212-750-5833
All others Call Toll-Free: 1-888-750-5834
If you need additional copies of this solicitation statement and
prospectus and the Consent and Letter of Transmittal, and for copies of
the incorporated documents, you should contact:
Innisfree M&A Incorporated
--------------------------------------------
Banks and Brokers Call Collect: 212-750-5833
All others Call Toll-Free: 1-888-750-5834
8
SUMMARY
This summary highlights material information from this document. To
understand the transaction fully and for a more complete description of the
legal terms of the transaction, you should carefully read this entire document,
including the annexes, and the other documents to which we have referred you.
For information on how to obtain the documents that we have filed with the
Securities and Exchange Commission, see "WHERE YOU CAN FIND MORE INFORMATION" as
set forth on page 143. For a discussion of the risk factors that you should
consider in evaluating the transaction, see "RISK FACTORS" beginning on page 34.
In this solicitation statement and prospectus, unless the context
otherwise requires and except with respect to any description of the New Notes,
the words "we," "us," and "our" refer to Atlantic Coast Entertainment Holdings,
Inc. All percentages expressed in this solicitation statement and prospectus,
unless otherwise stated, are measured immediately following consummation of the
Transaction (as defined below) and do not reflect or account for any issuance of
Atlantic Holdings Common Stock (as defined below) that may occur following
consummation of the Transaction. Any such issuances may result in the percentage
ownership being reduced at any given point. For a more complete understanding of
this offering, we encourage you to read this entire document and the documents
we have referred you to. See "WHERE YOU CAN FIND MORE INFORMATION" as set forth
on page 143.
The Certificate of Incorporation of Atlantic Holdings; the By-Laws of
Atlantic Holdings; the form of Contribution Agreement by and among GB Holdings,
Inc., Greate Bay Hotel and Casino, Inc., Atlantic Holdings and ACE Gaming, LLC;
the form of Warrant Agreement; the Amended and Restated Indenture, dated as of
October 12, 2001, among GB Property Funding Corp., as issuer, GB Holdings and
Greate Bay Hotel, as guarantors, and Wells Fargo Bank Minnesota, National
Association, as trustee; the form of Amendment to the Amended and Restated
Indenture among GB Property, as issuer, GB Holdings and Greate Bay Hotel, as
guarantors, and Wells Fargo Bank Minnesota, National Association, as trustee
(the "Amendment to the Indenture"), and the form of the Second Amended and
Restated Indenture, among GB Holdings, as obligor, and Wells Fargo Bank
Minnesota, National Association, as trustee (the "Second Amended and Restated
Indenture" which is attached to the Amendment to the Indenture as Exhibit A
thereto), and the form of Indenture among Atlantic Holdings, as issuer, ACE
Gaming, as guarantor, and Wells Fargo Bank, National Association, as trustee
(collectively, the "Transaction Documents"), are attached as Annexes A, B, C, D,
E, F and G, respectively, to this document. We encourage you to read the
Transaction Documents carefully and in their entirety. They are the principal
documents governing the transaction.
BACKGROUND OF ATLANTIC HOLDINGS AND ACE GAMING
Atlantic Holdings was incorporated in the State of Delaware on October
31, 2003, and is currently a wholly-owned subsidiary of Greate Bay Hotel. ACE
Gaming was formed in the State of New Jersey on November 5, 2003 and is a
wholly-owned subsidiary of Atlantic Holdings. Following the consummation of the
Transaction (as defined below), our sole asset will be 100% of the membership
interests in ACE Gaming. As a result of the Transaction, ACE Gaming will own
substantially all of the assets and cash currently owned by Greate Bay Hotel and
GB Holdings, which includes The Sands Hotel and Casino located in Atlantic City,
New Jersey ("The Sands") (except for the cash that Atlantic Holdings will pay to
the holders of the outstanding 11% Notes due 2005 (the "Existing Notes")
exchanged for our newly-registered 3% Notes due 2008 (the "New Notes" and
collectively with the Existing Notes, the "Notes")). Atlantic Holdings' and ACE
Gaming's principal executive offices are located at c/o Sands Hotel & Casino,
Indiana Avenue & Brighton Park, Atlantic City, New Jersey 08401 and their
telephone number is (609) 441-4633.
BACKGROUND OF GREATE BAY HOTEL
Greate Bay Hotel was incorporated in the State of New Jersey on October
30, 1978 and became a wholly-owned subsidiary of GB Holdings in February 1994.
Greate Bay Hotel's principal business activity is its ownership of The Sands.
Greate Bay Hotel's principal executive offices are located at c/o Sands Hotel &
Casino, Indiana Avenue & Brighton Park, Atlantic City, New Jersey 08401 and its
telephone number is (609) 441-4517. For more detailed information regarding
Greate Bay Hotel, please see "DESCRIPTION OF THE BUSINESS OF GB HOLDINGS AND ITS
SUBSIDIARIES" as set forth on page 105.
9
BACKGROUND OF GB HOLDINGS
GB Holdings is a Delaware corporation. In February 1994, GB Holdings
acquired Greate Bay Hotel. Greate Bay Hotel's principal business activity is its
ownership of The Sands. GB Property, a wholly-owned subsidiary of GB Holdings,
was incorporated in September 1993 as a special purpose subsidiary of GB
Holdings for the purpose of borrowing funds for the benefit of Greate Bay Hotel.
GB Holdings has no operating activities and its only source of income, other
than income derived from the business of Greate Bay Hotel, is interest on cash
equivalent investments. GB Holdings' only significant assets are its investment
in Greate Bay Hotel and GB Holdings' cash balance was $12.5 million on March 31,
2004.
GB Holdings has two wholly-owned subsidiaries: GB Property and Greate
Bay Hotel. Its principal executive offices are located at c/o Sands Hotel &
Casino, Indiana Avenue & Brighton Park, Atlantic City, New Jersey 08401 and its
telephone number is (609) 441-4517. For more detailed information regarding GB
Holdings, please see "DESCRIPTION OF THE BUSINESS OF GB HOLDINGS AND ITS
SUBSIDIARIES" as set forth on page 105.
BACKGROUND OF THE TRANSACTION
The consent solicitation (which Atlantic Holdings is making on behalf
of GB Holdings, GB Property, and Greate Bay Hotel) and exchange offer are two
aspects of a series of events (the "Transaction") initiated by GB Holdings to
enable it to refinance its existing debt on terms more favorable than GB
Holdings believes is available to it in the capital markets. The outstanding
principal of the Existing Notes is due and payable, together with accrued but
unpaid interest, on September 29, 2005. If GB Holdings is not able to refinance
the Existing Notes on favorable terms, or at all, or accumulate enough cash to
pay the principal amount of the Existing Notes when the Existing Notes become
due in 2005, GB Property and the guarantors of the Existing Notes will be in
default under the Amended and Restated Indenture, dated as of October 12, 2001,
among GB Property, as issuer, GB Holdings and Greate Bay Hotel, as guarantors,
and Wells Fargo Bank Minnesota, National Association, as trustee (the "Existing
Indenture").
We will offer to the holders of the Existing Notes the opportunity to
exchange their Existing Notes on a dollar for dollar basis for (i) the New
Notes; (ii) $100 in cash (the "Cash Payment") for each $1,000 principal amount
of Existing Notes exchanged; and (iii) accrued but unpaid interest on the
Existing Notes. By exchanging their Existing Notes (whether directly by the
noteholders, their brokers or their depositories), noteholders will
automatically be deemed to have given their consent to (i) the proposed
amendments to the Existing Indenture; (ii) the release of the liens on the
collateral securing the Existing Notes; and (iii) the terms of the Indenture
governing the New Notes among Atlantic Holdings, as issuer, ACE Gaming, as
guarantor, and the trustee (the "New Indenture").
GB Holdings will transfer all of its assets (except the stock of GB
Property and Greate Bay Hotel) and liabilities (except its obligations under the
Existing Notes) to Greate Bay Hotel, and Greate Bay Hotel will transfer all of
the assets and liabilities it received from GB Holdings and all of its assets
(except the stock of Atlantic Holdings) and certain of its liabilities to
Atlantic Holdings (which will agree to issue New Notes in exchange for the
Existing Notes that are tendered for exchange and cancel such Notes) (the "Asset
Transfer") and Atlantic Holdings will subsequently transfer such assets (except
for an amount of cash that Atlantic Holdings will pay to the holders of the
Existing Notes that elect to exchange their Existing Notes for New Notes) and
liabilities to ACE Gaming. The holders of the New Notes, under certain
circumstances, will have the right to acquire up to 72.5% (on a fully diluted
basis) of the outstanding common stock, par value $0.01 per share, of Atlantic
Holdings (the "Atlantic Holdings Common Stock"), in exchange for all of the New
Notes (or a pro rata amount of Atlantic Holdings Common Stock if less than all
of the Existing Notes are exchanged). Atlantic Holdings will issue to Greate Bay
Hotel (i) Atlantic Holdings Common Stock equal to a pro rata amount of 72.5% (on
a fully diluted basis) of the outstanding Atlantic Holdings Common Stock which
shall be proportional to the number of Existing Notes that are not exchanged and
(ii) either (a) Atlantic Holdings Common Stock (the "Holders Equity") or (b)
warrants to purchase shares of Atlantic Holdings Common Stock at a purchase
price of $0.01 per share ("Warrants," and collectively with the Holders Equity,
the "Atlantic Holdings Securities"), representing 27.5% (on a fully diluted
basis) of the outstanding Atlantic Holdings Common Stock and Atlantic Holdings
will cancel the Existing Notes that it receives in the exchange offer. Prior to
the election of the holders of a majority of the aggregate principal amount of
the New Notes outstanding to be paid in the form of Atlantic Holdings Common
Stock, holders of the New Notes will have no equity interest, with respect to
their New Notes, in Atlantic Holdings and (i) if less than 100% of the Existing
Notes are exchanged, GB
10
Holdings will own 100% of the Atlantic Holdings Common Stock or (ii) if 100% of
the Existing Notes are exchanged, the stockholders of GB Holdings will own 100%
of the Atlantic Holdings Common Stock.
Under the terms of the New Notes, upon the election of the holders of a
majority of the aggregate principal amount of the New Notes outstanding, the
holders of the New Notes will receive 65.909 shares of Atlantic Holdings Common
Stock for each $1,000 of principal amount of New Notes, as full payment of the
principal and accrued interest on such Notes. The number of shares of Atlantic
Holdings Common Stock that $1,000 of principal amount of New Notes will be
payable in or convertible into is determined by dividing (i) 7,250,000, the
aggregate number of shares of Atlantic Holdings Common Stock into which the New
Notes will be paid or converted (assuming 100% of the Existing Notes are
converted) by (ii) $110,000,000, the principal amount of the New Notes (assuming
100% of the Existing Notes are converted) and multiplying the quotient by
$1,000. At this time, it is impossible to estimate the value of Atlantic
Holdings Common Stock. However, it is possible that the value of such stock,
following payment, would be less than the cash payment to which the holders of
the New Notes would otherwise be entitled to at the maturity of the New Notes.
In connection with the Transaction, the stockholders of GB Holdings will receive
an aggregate of 27.5% or 2,750,000 of the outstanding Atlantic Holdings Common
Stock on a fully diluted basis. Each of GB Holdings and Atlantic Holdings will
have 10 million shares of common stock outstanding, on a fully diluted basis,
following consummation of the Transaction. For each share of common stock of GB
Holdings, stockholders of GB Holdings will receive 0.275 shares of Atlantic
Holdings Common Stock either immediately following consummation of the
Transaction (if 100% of the Existing Notes are exchanged) or upon exercise of
the Warrants. Such an amount is determined by dividing (i) 2,750,000, which is
the aggregate number of shares of Atlantic Holdings Common Stock to be
distributed to the stockholders of GB Holdings by (ii) 10,000,000 which is the
number of shares of common stock of GB Holdings outstanding, on a fully diluted
basis.
Through a series of mergers, GB Property, Greate Bay Hotel and GB
Holdings will merge (the "Merger"), with GB Holdings as the surviving entity and
the Existing Notes will be exchanged and cancelled, GB Holdings will be the sole
obligor of the Existing Notes and will own the Holders Equity or the Atlantic
Holdings Common Stock and the Warrants, which had been issued by Atlantic
Holdings, and Atlantic Holdings will be a wholly-owned subsidiary of GB
Holdings. GB Holdings will distribute (the "Distributor of Atlantic Holdings
Securities") Warrants (if less than 100% of the holders of the Existing Notes
elected to exchange for New Notes) or Holders Equity (if all of the Existing
Notes are exchanged), as the case may be, representing 27.5% (on a fully diluted
basis) of the outstanding Atlantic Holdings Common Stock to the stockholders of
GB Holdings. As soon as reasonably practicable following the consummation of the
Transaction, GB Holdings will apply to delist the common stock of GB Holdings
from trading on the American Stock Exchange by filing an application with the
American Stock Exchange and the Securities and Exchange Commission. Also, if
100% of the Existing Notes are exchanged, the Board will take the steps
necessary to dissolve GB Holdings, satisfy any obligations or liabilities with
its assets, and distribute any remaining assets to its stockholders. Following
such dissolution, Atlantic Holdings will be the only entity with common stock
registered under the Securities Act of 1933, as amended, and Atlantic Holdings
will, through its wholly-owned subsidiary, continue to hold all of the cash of
GB Holdings (less the cash which Atlantic Holdings paid to the holders of
Existing Notes that elected to exchange such Existing Notes for New Notes) and
substantially all of the assets of Greate Bay Hotel.
On April 12, 2004, the Securities and Exchange Commission granted GB
Holdings application to delist the Existing Notes from trading on the American
Stock Exchange and on April 19, 2004, the American Stock Exchange delisted the
Existing Notes.
This consent solicitation and exchange offer are conditioned upon (i)
GB Holdings receiving the approval of a majority of its stockholders for the
Transaction; (ii) Greate Bay Hotel receiving the required governmental consents
from the New Jersey Casino Control Commission ("CCC") and receiving consents
from the city of Atlantic City and certain third parties; (iii) holders of not
less than a majority of the aggregate principal amount of the Existing Notes
outstanding exchanging their Existing Notes; and (iv) the Amendment to the
Indenture, the Second Amended and Restated Indenture and the New Indenture being
effective. If GB Holdings does not obtain the approval of a majority of its
stockholders, we are unable to obtain the required consents or if holders of
less than a majority of the aggregate principal amount outstanding exchange
their Existing Notes, GB Holdings will be unable to complete the Transaction. As
indicated, holders of approximately 77% of the outstanding common stock of GB
Holdings and approximately 58% of the aggregate principal amount of the Existing
Notes outstanding have indicated their intention to vote in favor of the
Transaction; consent to (i) the proposed amendments to the
11
Existing Indenture; (ii) the release of the liens on the collateral securing the
Existing Notes; and (iii) the terms of the New Indenture; and tender for
exchange their Existing Notes.
Immediately following consummation of the Transaction, if (i) 100% of
the Existing Notes are exchanged, no Warrants will be issued to the stockholders
of GB Holdings, an aggregate of 2,750,000 shares of Atlantic Holdings Common
Stock will be issued to the stockholders of GB Holdings (of which approximately
2,117,500 shares of Atlantic Holdings Common Stock will be issued to the
Affiliates (as defined herein)), and a Cash Payment equal to $11 million, in the
aggregate, will be made to the holders of the Existing Notes who exchange their
Existing Notes (of which approximately $6,380,000 will be paid to the
Affiliates); (ii) 80% of the Existing Notes are exchanged, an aggregate of
1,450,000 shares of Atlantic Holdings Common Stock will be issued to GB
Holdings, an aggregate of 10 million Warrants exercisable for 2,750,000 shares
of Atlantic Holdings Common Stock will be issued pro rata to the stockholders of
GB Holdings, (of which the Affiliates will receive approximately 7,700,000
Warrants exercisable for approximately 2,117,500 shares of Atlantic Holdings
Common Stock), and a Cash Payment equal to $8,800,000, in the aggregate, will be
made to the holders of the Existing Notes who exchange their Existing Notes (of
which approximately $6,380,000 will be paid to the Affiliates); and (iii) 58% of
the Existing Notes are exchanged, an aggregate of 3,045,000 shares of Atlantic
Holdings Common Stock will be issued to GB Holdings, an aggregate of 10 million
Warrants exercisable for 2,750,000 shares of Atlantic Holdings Common Stock will
be issued pro rata to the stockholders of GB Holdings (of which the Affiliates
will receive approximately 7,700,000 Warrants exercisable for approximately
2,117,500 shares of Atlantic Holdings Common Stock), and a Cash Payment equal to
$6,380,000, in the aggregate, will be made to the holders of the Existing Notes
who exchange their Existing Notes (of which approximately $6,380,000 will be
paid to the Affiliates). Assuming consummation of the Transaction on July 1,
2004, an aggregate of approximately $1,740,000, $2,400,000, and $3 million in
interest payments will be paid to holders who exchange Existing Notes assuming
58%, 80%, and 100%, respectively, of the Existing Notes are exchanged for New
Notes.
For more detailed information regarding the background of the consent
solicitation and exchange offer, please see the section of this solicitation
statement and prospectus entitled "DESCRIPTION OF THE TRANSACTION -- Background
of the Consent Solicitation and Exchange Offer" as set forth on page 52.
REASONS FOR THE CONSENT SOLICITATION AND EXCHANGE OFFER
The consent solicitation and exchange offer are an integral part of the
Transaction. As a result of its review of the business, financial condition, and
prospects of GB Holdings and its subsidiaries, the Special Committee determined
that it is reasonably likely that GB Holdings would not have sufficient funds to
pay the $110 million principal, plus accrued interest, due on the Existing Notes
at maturity in 2005 and that refinancing the Existing Notes now was in the best
interests of GB Holdings. The Special Committee also determined that it was
reasonably likely that prior to maturity in September 2005, GB Holdings would
not be able to refinance the Existing Notes on favorable terms or at all and
that such inability could result in a default on the Existing Notes and the
possibility of being forced to seek the bankruptcy protection. For this reason,
the Special Committee believed that it was necessary to refinance the Existing
Notes by means of the Transaction. The Transaction is being undertaken to allow
GB Holdings to refinance its existing long-term debt, represented by the
Existing Notes, on favorable terms which include interest at a rate of 3% (which
is substantially below the Existing Notes and the rates currently available in
the capital markets) which accrues and is not payable until maturity in 2008.
Also, holders of a majority of the aggregate principal amount outstanding of the
New Notes may elect to have the New Notes paid in Atlantic Holdings Common Stock
at any time up to and including the date of maturity. If such election is made,
the holders of the New Notes will receive equity in Atlantic Holdings in full
payment of the principal and accrued interest due under the New Notes. Also, as
interest on the New Notes is not payable semi-annually, but rather accrues and
is payable only at maturity and if such notes are paid in Atlantic Holdings
Common Stock, the accrued interest will also not be paid in cash.
In determining the structure of the Transaction, the Special Committee
determined that to refinance the Existing Notes on terms favorable to GB
Holdings (including lowering the interest rate, extending the maturity date, and
having the interest accrue and be payable only at maturity), GB Holdings needed
to obtain the consent of the holders of a majority of the aggregate principal
amount of the Existing Notes outstanding, pursuant to the Indenture governing
the Existing Notes, to transfer the assets of GB Holdings and its subsidiaries
to Atlantic Holdings. In order to obtain such consent, the Transaction provides
for a cash payment of $100 per $1,000 principal amount of Existing Notes
tendered for exchange and allows the holders to receive up to an aggregate of
72.5% (on a fully
12
diluted basis) of the equity of Atlantic Holdings at the election of the holders
of a majority of the aggregate principal of the New Notes, as full payment for
the New Notes. The Special Committee determined that it was necessary to
transfer the assets of GB Holdings and Greate Bay Hotel to Atlantic Holdings
(and subsequently to ACE Gaming) in order to provide collateral that will secure
the New Notes because the Special Committee did not believe that holders of the
Existing Notes would tender their Existing Notes for exchange if the New Notes
were not secured and believed that by transferring the assets to a new entity
which would guarantee the New Notes, the holders of the Existing Notes (which
after consummation of the Transaction would be unsecured) would be encouraged to
exchange. The Special Committee also determined that the approval of the
stockholders of GB Holdings is required under Delaware law because the
Transaction is, in effect, a transfer of substantially all of the assets of GB
Holdings to a company which, the current stockholders of GB Holdings would own
only 27.5% of the outstanding common stock (on a fully diluted bases). The
Special Committee determined that upon consummation of the Transaction, the
distribution of the Atlantic Holdings Securities to the stockholders of GB
Holdings is necessary to allow the stockholders of GB Holdings to own an
aggregate 27.5% of the Atlantic Holdings Common Stock, on a fully diluted basis
and receive adequate consideration or value for such transfer of assets.
As soon as reasonably practicable following the consummation of the
Transaction, GB Holdings will apply to delist the common stock of GB Holdings
from trading on the American Stock Exchange. GB Holdings will apply to delist
the common stock of GB Holdings because GB Holdings has concluded that the
existing listing has not resulted in an active trading market and GB Holdings
does not want to incur the continued cost of listing on the American Stock
Exchange. There are only 10 holders of record of the common stock of GB
Holdings, affiliates of GB Holdings own approximately 77.5% of the outstanding
common stock of GB Holdings, in the past 30 days on average 4,727 shares of
common stock of GB Holdings were traded per day on the American Stock Exchange,
and approximately 85% of the common stock of GB Holdings is held by two
different groups of stockholders (including the affiliates of Carl C. Icahn).
Also, if 100% of the Existing Notes are exchanged, the Board will take the steps
necessary to dissolve GB Holdings, satisfy any obligations or liabilities with
its assets and distribute any remaining assets to its stockholders.
The exchange ratio was determined following discussions between the
Special Committee and Cyprus, LLC, an entity affiliated with Carl C. Icahn that
owns common stock of GB Holdings and Existing Notes. Initially, a memorandum was
submitted by Cyprus to the Board. Such memorandum set forth a refinancing
transaction with respect to the Existing Notes that Cyprus believed would be
beneficial to GB Holdings in which the holders of the New Notes would receive
approximately 75% of the outstanding equity of Atlantic Holdings, at the
election of the holders of a majority of the aggregate principal of the New
Notes, as full payment for the New Notes. Cyprus believed that after payment of
the Existing Notes, the value of the remaining equity would approximate 25% of
the enterprise value of GB Holdings and its subsidiaries and the holders of the
New Notes, upon payment in or conversion into common stock, should be entitled
to equity interest representing the remaining 75% of the enterprise value.
Following receipt of this memorandum, as a result of discussions between the
Special Committee and Cyprus, it was agreed that the holders of the New Notes
would be eligible to receive up to 72.5%, on a fully diluted basis, of the
outstanding equity of Atlantic Holdings and the stockholders of GB Holdings
would receive 27.5% of the outstanding common stock, on a fully diluted basis.
In addition to giving the holders of the New Notes the right to an equity
interest in Atlantic Holdings, the Transaction was designed to extend the
maturity date of the indebtedness represented by the Existing Notes, which are
exchanged from 2005 to 2008, and to reduce the current interest payment
obligation by providing that the New Notes bear interest at the rate of 3% per
annum which accrues and is not payable until maturity. The terms of the New
Notes were initially included in the memorandum submitted by Cyprus and after
review by the Special Committee, the Special Committee determined that for the
Transaction to be successful, non-financial and non-payment related terms of the
New Notes must be substantially similar to the terms of the Existing Notes.
The Special Committee determined that if less than 100% of the Existing
Notes are exchanged, Atlantic Holdings will issue Warrants to Greate Bay Hotel,
which will subsequently be distributed by GB Holdings to its stockholders and
100% of the outstanding Atlantic Holdings Common Stock would be issued to and
held by GB Holdings. The Special Committee determined that Warrants should
initially be issued to the stockholders of GB Holdings, rather than Atlantic
Holdings Common Stock, after consultation with its legal advisor, in light of
the fact that upon consummation of the Transaction, such stockholders would
continue to own common stock of GB Holdings and GB Holdings would own all of the
outstanding Atlantic Holdings Common Stock. The Warrants would provide such
stockholders the opportunity for direct ownership in Atlantic Holdings if, among
other things,
13
the holders of the New Notes obtained direct equity interests in Atlantic
Holdings, and thereby changed the equity position of the stockholders of GB
Holdings in Atlantic Holdings.
For more detailed information regarding the reasons for the consent
solicitation and exchange offer and the New Indenture, see "DESCRIPTION OF THE
TRANSACTION -- Description of the Transaction" as set forth on page 56.
[Flowcharts]
[The document contains flowcharts depicting the corporate structure of
GB Holdings and its subsidiaries before the commencement of the Transaction,
during the events which make up the Transaction, and immediately following
consummation of the Transaction (both if less than 100%, and 100%, of the
Existing Notes are exchanged). Such flowcharts highlight the material events
which form a part of the Transaction, including, the Exchange Offer, the Asset
Transfer, the issuance of Atlantic Securities, and the Merger.]
THE CONSENT SOLICITATION AND EXCHANGE OFFER
The terms of the consent solicitation and exchange offer are set forth
below.
The Consent Solicitation and Exchange Offer....................... For each $1,000 principal amount of Existing Notes you tender
in the exchange offer, you will receive $1,000 principal
amount of New Notes and $100 in cash. You will also receive
cash in respect of accrued and unpaid interest on your
Existing Notes up to, and including, the date we complete the
exchange offer. In addition, you will also be consenting to
(i) the proposed amendments to the Existing Indenture; (ii)
the release of the liens on the collateral securing the
Existing Notes; and (iii) the terms of the New Indenture. Upon
the election of the holders of a majority of the aggregate
principal amount of the New Notes outstanding, the New Notes
may be payable in or convertible into the form of Atlantic
Holdings Common Stock and each holder of New Notes will receive
a pro rata share of up to 72.5% of the outstanding Atlantic
Holdings Common Stock. See "PROPOSED AMENDMENTS" as set forth
on page 80 and see "THE CONSENT SOLICITATION AND EXCHANGE
OFFER" as set forth on page 69.
Conditions to the Consent Solicitation and Exchange Offer......... The consent solicitation and the exchange offer are
conditioned upon, among other conditions, our receipt of
valid consents and tenders from holders of not less than a
majority of the aggregate principal amount of the Existing
Notes outstanding. The holders of approximately 58% of the
aggregate principal amount of the Existing Notes outstanding
have indicated their support of the Transaction and their
intent to consent to (i) the proposed amendments to the
Existing Indenture; (ii) the release of the liens on the
collateral securing the Existing Notes; and (iii) the terms
of the New Indenture, and tender their Existing Notes for
exchange. The minimum tender condition will be satisfied upon
the tender of the Existing Notes held by such holders.
Holders of the Existing Notes who tender their Existing
14
Notes for exchange (whether directly by the holders thereof,
their brokers or their depositaries) will be deemed to have
given their consent to (i) the proposed amendments to the
Existing Indenture; (ii) the release of the liens on the
collateral securing the Existing Notes; and (iii) the terms of
the New Indenture. The proper completion, execution and
delivery of a Consent and Letter of Transmittal with respect to
the Existing Notes will confirm your consent.
Also, the Transaction must comply with the applicable
provisions of the Trust Indenture Act of 1939, as amended.
See "THE CONSENT SOLICITATION AND EXCHANGE OFFER --
Conditions of the Consent Solicitation and Exchange Offer" as
set forth on page 70.
Expiration Date................................................... The exchange offer will expire at 12:01 a.m., New York City
time, on July 1, 2004, the expiration date, unless we extend
it. See "THE CONSENT SOLICITATION AND EXCHANGE OFFER" as set
forth on page 69.
Certain Consequences to Holders Tendering in the Exchange Offer... Holders of the Existing Notes who participate in the exchange
offer, by validly tendering their Existing Notes for exchange
by sending the Consent and Letter of Transmittal to the
Exchange Agent as set forth herein, will receive (i) the New
Notes on a dollar for dollar basis; (ii) payment of $100 for
each $1,000 of principal amount of Existing Notes exchanged;
and (iii) accrued but unpaid interest on the Existing Notes.
The holders of the New Notes will have those rights as set
forth in the New Indenture. For a description of the New
Notes, see "DESCRIPTION OF THE NEW NOTES" as set forth on
page 83.
Certain Consequences to Holders Not Tendering in the Exchange
Offer.......................................................... Consummation of the exchange offer and adoption of the proposed
amendments to the Existing Indenture will have certain
consequences to the holders of the Existing Notes who elect not
to tender in the exchange offer. The Existing Notes will no
longer be collateralized by assets, will be structurally
subordinated to the New Notes and will no longer be entitled to
the benefits of the restrictive covenants that will be
eliminated or modified by the proposed amendments. In addition,
the limited market that currently exists for the Existing Notes
will likely be adversely affected due to the material reduction
in the principal amount, or "float," of the Existing Notes
outstanding if we complete the exchange offer. A debt security
with a smaller outstanding float may command a lower price than
a comparable debt security with a larger float. The reduced
float may also make trading
15
prices, if any, more volatile. Moreover, the market for
Existing Notes may also be affected adversely by the
existence of a market for the New Notes. See "RISK
FACTORS--Risk Factors Related to Holders Not Tendering in the
Exchange Offer" as set forth on page 48.
Procedure for Tendering Existing Notes and Giving Consents........ Holders holding a position through The Depository Trust
Company ("DTC") must provide a timely confirmation of a
book-entry transfer of your Existing Notes into the account
of the exchange agent and deliver a properly completed and
executed Consent and Letter of Transmittal. Holders holding a
position through a broker, dealer, commercial bank, trust
company or other nominee, must contact the holder of record
promptly and instruct the holder of record to tender the
Existing Notes and deliver the consent on behalf of such
holder to DTC. All holders must deliver either a properly
completed and executed Consent and Letter of Transmittal or
an agent's message, which may be used in the case of a
book-entry transfer. "Agent's message" means a message,
transmitted by DTC and received by the exchange agent and
forming part of a book-entry confirmation, which states that
DTC has received an express acknowledgment from a participant
tendering Existing Notes that are the subject of the
book-entry confirmation that the participant has received and
agrees to be bound by the terms of the Consent and Letter of
Transmittal, and that Atlantic Holdings may enforce that
agreement against the participant. Delivery of the agent's
message will satisfy the terms of the consent solicitation
and exchange offer as to execution and delivery of a Consent
and Letter of Transmittal by the participant identified in
the agent's message; or if you do not hold your position by
the methods described, you must send your Existing Notes to
the exchange agent along with a properly completed and duly
executed Consent and Letter of Transmittal, including any
required signature guarantees. For more detailed information
regarding the tendering of Existing Notes, see "THE CONSENT
SOLICITATION AND EXCHANGE OFFER-- Procedures for Tendering
and Consenting" as set forth on page 73.
CONSENTS AND LETTERS OF TRANSMITTAL MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND CONSENTS AND LETTERS OF
TRANSMITTAL TO US, THE INFORMATION AGENT OR THE SOLICITATION
AGENT.
Acceptance of Existing Notes and Delivery of New Notes............ Upon satisfaction or waiver of the conditions to the exchange
offer, we will accept for exchange any and all Existing Notes
that are properly tendered for exchange
16
and not withdrawn on or before 12:01 a.m., New York City
time, on the expiration date, and we will deliver the New
Notes, make the Cash Payment and pay accrued and unpaid
interest in cash on the Existing Notes surrendered. See "THE
CONSENT SOLICITATION AND EXCHANGE OFFER-- Acceptance of the
Existing Notes and Delivery of the New Notes" as set forth on
page 76.
Withdrawal Rights and Revocation of Consents...................... Tenders of the Existing Notes may be withdrawn before the
expiration date. If you hold your Existing Notes through DTC
you must comply with the appropriate procedures of DTC's
automated program. If you do not hold your Existing Notes
through DTC, you must send written or facsimile transmission
notice of withdrawal to the exchange agent at its address on
the inside back cover of this solicitation statement and
prospectus. Withdrawal of tendered Existing Notes will be
deemed a revocation of the consent with respect to such
Existing Notes. Any Existing Notes not accepted for exchange
for any reason will be returned to the tendering holder
promptly after the expiration or termination of the exchange
offer. See "THE CONSENT SOLICITATION AND EXCHANGE
OFFER--Withdrawal of Tenders and Revocation of Consents" as
set forth on page 77.
Certain Regulatory and Legal Matters.............................. The Transaction is subject to the approval of the CCC. See
"THE CONSENT SOLICITATION AND EXCHANGE OFFER--Certain Legal
and Regulatory Matters" as set forth on page 77.
Dissenters' Rights................................................ Holders of the Existing Notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law
or the Existing Indenture in connection with the exchange
offer. See "THE CONSENT SOLICITATION AND EXCHANGE OFFER" as
set forth on page 69.
Solicitation Agent................................................ Innisfree M&A Incorproated. See "THE CONSENT SOLICITATION AND
EXCHANGE OFFER-- Solicitation Agent" as set forth on page 68.
Exchange Agent.................................................... Wells Fargo Bank, National Association. See "THE CONSENT
SOLICITATION AND EXCHANGE OFFER-- Exchange Agent" as set
forth on page 78.
Information Agent................................................. Innisfree M&A Incorproated. See "THE CONSENT SOLICITATION AND
EXCHANGE OFFER-- Information Agent" as set forth on page 78.
Toll Free Information Number...................................... 1-888-750-5834
Banks and Brokers call collect.................................... 212-750-5833
17
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the New Notes in
the exchange offer. See "USE OF PROCEEDS" as set forth on page 18.
18
REPORT OF LIBRA SECURITIES
In connection with the preparation of pro forma financial statements to be
included in this consent solicitation and exchange offer, the Special Committee
amended its engagement agreement with Libra Securities, LLC, on September 30,
2003 to engage Libra Securities to prepare an estimate of the value of the New
Notes and Warrants to be issued in the Transaction. On November 7, 2003, Libra
Securities delivered a report to GB Holdings to the effect that as of that date
and based upon the assumptions made, matters considered and the review described
in the written valuation estimate, Libra Securities estimated the aggregate
value of (i) the issued New Notes to be approximately (a) $51.5 million,
assuming holders of 58% of the Existing Notes (or $63.8 million principal
amount), exchange their Existing Notes into an equal principal amount of New
Notes, (b) $69.6 million, assuming holders of 80% of the Existing Notes (or
$88.0 million principal amount), exchange their Existing Notes into an equal
principal amount of New Notes, and (c) $85.4 million assuming holders of 100% of
the Existing Notes (or $110.0 million principal amount), exchange their Existing
Notes into an equal principal amount of New Notes, and (ii) the Warrants to be
approximately (a) $33.7 million, assuming holders of 58% of the Existing Notes
(or $63.8 million principal amount), exchange their Existing Notes into an equal
principal amount of New Notes, (b) $33.0 million, assuming holders of 80% of the
Existing Notes (or $88.0 million principal amount), exchange their Existing
Notes into an equal principal amount of New Notes, and (c) $32.4 million
assuming holders of 100% of the Existing Notes (or $110.0 million principal
amount), exchange their Existing Notes into an equal principal amount of New
Notes. Libra Securities' valuation estimate was provided for the information of
GB Holdings and does not constitute a recommendation to any holder of Existing
Notes or stockholder of GB Holdings with respect to any matter relating to the
Transaction and no assurance was given and no reliance should be made that the
actual trading price of any security or instrument will be the same as any
estimate in the written valuation estimate. See "DESCRIPTION OF THE TRANSACTION
- -- Report of Libra Securities" as set forth on page 65.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE OFFER
Carl C. Icahn is the Chairman of the Board of Directors of GB
Property, GB Holdings, Greate Bay Hotel, and Atlantic Holdings. Affiliates of
Mr. Icahn own approximately 77% of the outstanding common stock of GB Holdings
(which owns 100% of GB Property and Greate Bay Hotel) and approximately 58% of
the aggregate principal amount of the Existing Notes outstanding. Mr. Icahn's
affiliates have indicated their support of the Transaction and their intent to
(i) consent to (a) the proposed amendments to the Existing Indenture, (b) the
release of the liens on the collateral securing the Existing Notes, and (c) the
terms of the New Indenture and (ii) tender for exchange their Existing Notes,
thereby satisfying the minimum tender condition of the exchange offer, although
such affiliates have not entered into any agreements or other arrangements
requiring such affiliates to consent or tender their Existing Notes for exchange
and such holders are free to decide not to consent or tender their Existing
Notes for exchange. Upon consummation of the Transaction, affiliates of Mr.
Icahn will beneficially own approximately 63.4% of the outstanding Atlantic
Holdings Common Stock, on a fully diluted basis, and because of their ownership
of approximately 77% of the common stock of GB Holdings, they will beneficially
own up to an additional 23.5% of the Atlantic Holdings Common Stock if between
58% and 100% of the Existing Notes are exchanged (i.e., the lower the aggregate
principal amount of Existing Notes that are exchanged, the greater the number of
additional shares of Atlantic Holdings Common Stock that GB Holdings will own
and the affiliates will beneficially own). As a result, affiliates of Mr. Icahn
will have substantial influence and control over matters voted upon by
stockholders (such as the election of the directors to the Board of Directors of
each of GB Holdings and Atlantic Holdings, mergers and sale of assets involving
GB Holdings and Atlantic Holdings and other matters upon which stockholders, of
either GB Holdings or Atlantic Holdings, vote), as well as matters to be
consented to by the holders of the New Notes, such as the determination of
whether and when the payment in the form of Atlantic Holdings Common Stock shall
be made in satisfaction of the New Notes shall occur, or whether to amend the
New Indenture (i.e., release of the collateral securing the New Notes or waiver
of events of default). See "THE CONSENT SOLICITATION AND EXCHANGE OFFER --
Interests of Certain Persons in the Exchange Offer" as set forth on page 69.
Affiliates of Mr. Icahn may cause the New Notes to be paid in Atlantic Holdings
Common Stock at any time, in their sole election. In determining whether or when
to cause the New Notes to be paid in Atlantic Holdings Common Stock, they will
consider a variety of factors, including, but not limited to, the results of
operations and the financial condition of Atlantic Holdings and ACE Gaming, the
general market conditions affecting Atlantic Holdings and ACE Gaming, whether
such affiliates want to obtain ownership of Atlantic Holdings Common Stock in
order to be in a position to exercise their respective rights as stockholders,
whether such affiliates find it advantageous to them to eliminate the debt
created by the New Notes, the business and financial prospects of
19
The Sands, Atlantic Holdings and ACE Gaming, and other economic factors
generally affecting the country, Atlantic City, and the gaming industry.
However, such affiliates have advised Atlantic Holdings that they have not
determined benchmarks or standards in this regard and reserve the right to cause
the New Notes to be paid in or convertible into Atlantic Holdings Common Stock
at any time in their sole discretion.
At the request of GB Holdings, Ealing Corp., a Nevada corporation and
an affiliate of Mr. Icahn, provided a commitment letter to GB Holdings, dated
January 30, 2004, in which Ealing agreed to provide a revolving credit facility
under which GB Holdings and its subsidiaries may borrow up to an aggregate
amount of $10 million to be used for general working capital purposes. Under the
terms of the commitment letter, the revolving credit facility will expire on
June 30, 2005, borrowings will bear interest at a rate of 10% per annum, and
obligations under the revolving credit facility will be secured by a first lien
on all of the assets of GB Holdings and its subsidiaries (including Atlantic
Holdings) which will be senior to the liens securing the Existing Notes. Upon
the consummation of the Transaction, the obligation will be assumed by Atlantic
Holdings and the lien will be senior to the New Notes. Ealing's obligations to
provide the financing pursuant to the commitment letter is subject to the
negotiation and execution of definitive loan and security agreements and related
documents as well as certain customary conditions. However, there can be no
assurance that the loan agreement with Ealing will be consummated, that if the
loan agreement with Ealing is not consummated, GB Holdings will be able to
obtain financing from another lender on terms as or more favorable than the
terms of the commitment letter, or whether GB Holdings will need to borrow funds
for working capital. Ealing and GB Holdings have agreed to extend the commitment
until July 1, 2004.
ACCOUNTING TREATMENT
Based on the current third party valuation, the exchange will be
accounted for as a modification of debt. The fees paid in connection with the
exchange (i.e., consent fee) will be amortized over the term of the New Notes
using the effective yield method. All external costs (i.e., legal, accountants,
etc.) associated with the issuance of New Notes will be expensed. See "THE
CONSENT SOLICITATION AND EXCHANGE OFFER -- Accounting Treatment" as set forth on
page 77.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
As further set out below, the tax treatment of U.S. holders, as defined
in the section entitled "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" as set
forth on page 135, who participate in the exchange offer will depend on whether
or not the exchange offer qualifies as a tax-free recapitalization under the
Code. Specifically, the exchange offer will qualify as a tax-free
recapitalization only if the Existing Notes and the New Notes are considered
"securities," for U.S. federal tax law purposes, issued by the same person. As
to the Existing Notes and the New Notes both being securities, neither the Code
nor the Treasury Regulations promulgated thereunder define "security" for
purposes of a tax-free recapitalization. Instead, the cases and IRS rulings
interpreting the Code have generally tested whether a debt instrument qualifies
as a "security" on a case-by-case basis, using the facts and circumstances
surrounding the issuance of the debt instrument. We have been advised by our
counsel, Katten Muchin Zavis Rosenman, that, although their opinion is not free
from doubt, it is more likely than not that the exchange offer should be a
taxable transaction. Our counsel's opinion is not free from doubt because the
application of the relevant case law to the exchange offer is unclear since
cases and IRS rulings concerning debt instruments somewhat similar to the Notes
have reached inconsistent conclusions as to whether the debt instrument was a
"security" for tax-free recapitalization purposes. Moreover, such determination
may depend, in part, on future events which are not now known, such as whether
and when the New Notes are converted into Atlantic Holdings Common Stock, as the
common stock of a company is generally a "security" for purposes of tax-free
recapitalization treatment. Further, such determination may also depend, in
part, on factors that our counsel would be unable to determine, such as the
intent of the note holders in acquiring the Existing Notes or the New Notes, as
such factors are sometimes relevant in determining whether the Notes represent a
long-term proprietary investment or a short-term loan. In light of the foregoing
and despite our counsel's opinion that it is more likely than not that the
exchange offer should be a taxable transaction, our counsel has also advised us
that the exchange offer may be a tax-free recapitalization for a participant in
the exchange offer for whom both the Existing Notes and the New Notes represent
a continuing proprietary interest in the business of the respective issuer. The
following paragraphs describe the different U.S. federal income tax
consequences, depending on whether the exchange offer qualifies as a tax-free
recapitalization.
20
If the exchange offer qualifies as a tax-free recapitalization, no gain
or loss would be recognized by you on your exchange of your Existing Notes for
the New Notes. However, you should recognize gain upon your receipt of the Cash
Payment equal to the lesser of the Cash Payment and the gain you would have
recognized had the exchange offer not been a tax-free recapitalization. Assuming
that you hold your Existing Notes as a capital asset, gain generally recognized
by reason of the Cash Payment would be treated as capital gain, and should be
long-term capital gain if the Existing Notes had been held for more than one
year at the time of the exchange. Further, payment of all accrued but unpaid
interest on the Existing Notes through the date of the exchange should be
treated as ordinary income. Your initial tax basis in the New Notes would equal
the tax basis you had in your Existing Notes, decreased by the amount of the
Cash Payment, and increased by the amount of gain recognized upon receipt of the
Cash Payment. Your holding period for your New Notes would include the period
during which you held your Existing Notes.
If the exchange offer does not qualify as a tax-free recapitalization,
the gain recognized on the exchange should be equal to the amount, if any, by
which the sum of (i) the "Issue Price," as defined in the section entitled
"MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" as set forth on page 123, of the
New Notes, and (ii) the Cash Payment, exceeds your adjusted tax basis in your
Existing Notes. The Issue Price of the New Notes may be based on the fair market
value of the New Notes or the Existing Notes if the New Notes or the Existing
Notes are "Publicly Traded," as defined in the section entitled "MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES as set forth on page 135. GB Holdings
anticipates taking the position that neither the New Notes nor the Existing
Notes will be Publicly Traded if no active market is made in the New Notes or
the Existing Notes. No assurance can be given, however, that the Internal
Revenue Service ("IRS") will agree with this position. As described in more
detail in the section entitled "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES as
set forth on page 135, the determination of whether the New Notes or the
Existing Notes are Publicly Traded will depend on facts, not within our control,
in existence during a minimum of thirty (30) days before the Transaction and a
minimum of thirty (30) days after the Transaction. As neither we nor our counsel
can control these facts, some of which will not be known until after the
Transaction, our counsel cannot opine as to the Issue Price of the New Notes.
In the event that neither the New Notes nor the Existing Notes are
Publicly Traded, the Issue Price of the New Notes should be their "Imputed
Principal Amount," as defined in the section entitled "MATERIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES" as set forth on page 135, which amount, based on the
applicable federal rate as of June 2004, should be slightly less than the face
value of the New Notes. If so, assuming your tax basis in the Existing Notes is
equal to the face value of the New Notes (e.g., you did not purchase your
Existing Notes at a premium or a discount) you should have taxable gain from
participating in the consent solicitation and exchange offer approximately equal
to substantially all of the Cash Payment. If your tax basis in the Existing
Notes is below the face value of the New Notes (e.g., if you purchased your
Existing Notes at a discount) your taxable gain should approximately be
increased by the amount which, if any, the face value of the New Notes exceeds
your tax basis in the Existing Notes. Assuming that you hold your Existing Notes
as a capital asset, gain or loss generally recognized on the exchange of the
Existing Notes would be capital gain or loss, except to the extent attributable
to accrued but unpaid interest (including the contemplated payment of all
accrued but unpaid interest on the Existing Notes through the date of the
exchange) and accrued market discount that has not previously been included in
your gross income (which amount would be treated as ordinary income), and should
be long-term capital gain or loss if the Existing Notes had been held for more
than one year at the time of the exchange. The deduction of capital losses is
subject to certain limitations under the Internal Revenue Code of 1986, as
amended (the "Code"). The holding period of the New Notes should commence on the
date of the exchange. The tax basis of the New Notes should be their Issue
Price, which, though anticipated to be based on their face value, may be based
instead on the fair market value of the New Notes or the Existing Notes if
either the New Notes or the Existing Notes are Publicly Traded.
The New Notes will, for U.S. federal income tax purposes, likely be
issued with original issue discount ("OID"). In addition, the New Notes could
have additional OID if and to the extent that the face value of the New Notes
exceeds their Issue Price (which, based on the applicable federal rate as of
June 2004, is anticipated). Under the OID accrual rules, you would, regardless
of your method of accounting, currently include, as ordinary income each year,
the interest that accrues on the New Notes using the constant-yield-to-maturity
method of accrual. In addition, any actual payments of interest you receive on
the New Notes previously included in income as OID would not be reported
separately as taxable income. Finally, any amount of OID included in your gross
income with respect to the New Notes would increase your tax basis in such New
Notes and the amount of distributions in respect to such accrued OID would
reduce your tax basis in such New Notes.
21
The payment of the New Notes with Atlantic Holdings Common Stock or the
conversion of the New Notes into Atlantic Holdings Common Stock should both be
treated, for U.S. federal income tax purposes, as a conversion of the New Notes
into Atlantic Holdings Common Stock. As such, either the payment of the New
Notes with Atlantic Holdings Common Stock or the conversion of the New Notes
into Atlantic Holdings Common Stock should be a tax-free transaction in which no
gain or loss is realized by you. Your tax basis in the Atlantic Holdings Common
Stock received upon such a payment or conversion of the New Notes should equal
your adjusted tax basis in your New Notes reduced by the amount of the Atlantic
Holdings Common Stock attributable to accrued and unpaid OID. Your holding
period of the Atlantic Holdings Common Stock received should include the period
during which you held your New Notes.
U.S. holders of Existing Notes who do not participate in the exchange
offer should nonetheless be deemed, for U.S. federal income tax purposes, to
have exchanged their Existing Notes for the Existing Notes, as amended, because
the proposed amendments to the Existing Indenture should result in a
"significant modification" for U.S. federal income tax purposes. It is
anticipated that such a deemed exchange would be taxable. Specifically, if you
are deemed to have exchanged your Existing Notes for the Existing Notes, as
amended (i.e., if you do not tender your Existing Notes in the exchange offer),
you should recognize gain or loss equal to the amount, if any, by which the
Issue Price of the Existing Notes, as amended, exceeds your adjusted tax basis
in your Existing Notes. The Issue Price of the Existing Notes, as amended, may
be based on either the face value of the Existing Notes, as amended, or the fair
market value of the Existing Notes, as amended, or the Existing Notes, depending
on whether the Existing Notes, as amended, or the Existing Notes are Publicly
Traded. GB Holdings anticipates taking the position that neither the Existing
Notes, as amended, nor the Existing Notes will be Publicly Traded if no active
market is made in the Existing Notes, as amended, or the Existing Notes. No
assurance can be given, however, that the IRS will agree with this position. In
the event that neither the Existing Notes, as amended, nor the Existing Notes
are Publicly Traded, the Issue Price of the Existing Notes, as amended, should
equal their face value and you should recognize taxable gain if your tax basis
in the Existing Notes is below the face value of the Existing Notes, as amended
(e.g., if you purchased your Existing Notes at a discount), even though you do
not participate in the consent solicitation and exchange offer. Assuming that
you hold your Existing Notes as a capital asset, gain or loss generally
recognized on the deemed exchange of the Existing Notes would be capital gain or
loss, except to the extent attributable to accrued but unpaid interest and
accrued market discount that has not previously been included in your gross
income (which amount would be treated as ordinary income), and should be
long-term capital gain or loss if the Existing Notes had been held for more than
one year at the time of the deemed exchange. The deduction of capital losses is
subject to certain limitations under the Code. The holding period of the
Existing Notes, as amended, should commence on the date of the deemed exchange.
The tax basis of the Existing Notes, as amended, should be their Issue Price,
which, though anticipated to be based on their face value, may be based instead
on the fair market value of the Existing Notes, as amended, or the Existing
Notes if either the Existing Notes, as amended, or the Existing Notes are
Publicly Traded.
The Existing Notes, as amended, could have OID if and to the extent
that the face value of the Existing Notes, as amended, exceeds their Issue Price
(which, as discussed above, is not anticipated). If the Existing Notes, as
amended, have OID, then under the OID accrual rules, you will, regardless of
your method of accounting, currently include, as ordinary income each year, the
interest that accrues on the Existing Notes, as amended, using the
constant-yield-to-maturity method of accrual. In addition, the actual cash
payments of interest you receive on the Existing Notes, as amended, previously
included in income as OID would not be reported separately as taxable income.
Finally, any amount of OID included in your gross income, with respect to the
Existing Notes, as amended would increase your tax basis in such Notes and the
amount of distributions in respect of such accrued OID would reduce your tax
basis in such Notes.
For non-U.S. holders of the Existing Notes participating in the
exchange offer, payments of interest (including accrued and unpaid original
issue discount) made on the New Notes and any gain recognized on the exchange of
the Existing Notes for the New Notes should be exempt from U.S. income or
withholding tax, provided that: (i) you (x) do not own, actually or
constructively, 10% or more of the total combined voting power of all classes of
the stock of Atlantic Holdings entitled to vote, (y) are not a controlled
foreign corporation related, directly or indirectly, to Atlantic Holdings
through stock ownership, or (z) are not a bank receiving certain types of
interest; (ii) the statement requirement set forth in the Code has been
fulfilled with respect to the beneficial owner; and (iii) such payments or
amounts received are not effectively connected with your conduct of a trade or
business in the U.S. Amounts received from the sale, exchange or redemption of
the New Notes, or amounts received from the sale, exchange, or redemption of the
Atlantic Holdings Common Stock received in a payment or conversion of the New
22
Notes should be exempt from U.S. income or withholding tax, provided that (i)
such amounts received are not effectively connected with your conduct of a trade
or business in the U.S., and (ii) Atlantic Holdings is not, and has not been, a
U.S. real property holding corporation ("USRPHC") as defined in the Code.
Atlantic Holdings believes that it is a USRPHC. As such, amounts received from
the sale, exchange or redemption of the New Notes, or amounts received from the
sale, exchange, or redemption of the Atlantic Holdings Common Stock received in
a payment or conversion of the New Notes, should be treated, for U.S. federal
income tax purposes, as amounts received from the sale of a United States real
property interest and subject to 10% gross withholding. Gain from the sale,
exchange or redemption of the New Notes, or gain from the sale, exchange, or
redemption of the Atlantic Holdings Common Stock received in a payment or
conversion of the New Notes should be subject to U.S. net income tax (for which
the 10% gross withholding can be credited against any U.S. income tax owed).
The payment of the New Notes with Atlantic Holdings Common Stock or the
conversion of the New Notes into Atlantic Holdings Common Stock should both be
treated, for U.S. federal income tax purposes, as a conversion of the New Notes
into Atlantic Holdings Common Stock. As such, either the payment of the New
Notes with Atlantic Holdings Common Stock or the conversion of the New Notes
into Atlantic Holdings Common Stock should be a tax-free transaction in which no
gain or loss is realized by you. Your tax basis in the Atlantic Holdings Common
Stock received upon such a payment or conversion of the New Notes should equal
your adjusted tax basis in your New Notes reduced by the amount of the Atlantic
Holdings Common Stock attributable to accrued and unpaid OID. Your holding
period of the Atlantic Holdings Common Stock received should include the period
during which you held your New Notes.
Non-U.S holders of the Existing Notes not participating in the exchange
offer are similarly exempt from U.S. income or withholding tax as to payments of
interest (including accrued and unpaid original issue discount) made on the
Existing Notes, as amended, under the same conditions described above, except
that references to Atlantic Holdings should now refer to GB Holdings and issues
related to USRPHC status should be ignored.
You should consult your own tax advisor as to the consequences of the
exchange offer and the Distribution of Atlantic Holdings Securities. This
section is a summary of the U.S. federal tax implications of the Transaction,
for more information, see "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" as set
forth on page 135.
COMPARATIVE MARKET PRICE INFORMATION
On March 27, 2001, public trading of the Existing Notes commenced on
the American Stock Exchange under the symbol GBF. On April 12, 2004 the
Securities and Exchange Commission granted the application of GB Holdings, GB
Property and Greate Bay Hotel to voluntarily delist the Existing Notes from
trading on the American Stock Exchange ("AMEX") and on April 19, 2004 the AMEX
delisted the Existing Notes. The table sets forth the periods indicated, the
high and low closing prices for the Existing Notes as reported by the AMEX. GB
Holdings' fiscal year ends on December 31 of each year.
23
High Low
------- -------
Fiscal year ended December 31, 2001
First quarter (1) ........................................... $ n/a n/a
Second quarter .............................................. $85.00 80.50
Third quarter ............................................... $85.00 83.00
Fourth quarter .............................................. $85.00 80.00
Fiscal year ended December 31, 2002
First quarter ............................................... $86.00 82.50
Second quarter .............................................. $86.00 70.00
Third quarter ............................................... $76.00 75.125
Fourth quarter .............................................. $86.00 75.00
Fiscal year ended December 31, 2003
First Quarter ............................................... $86.00 82.00
Second Quarter .............................................. $90.00 83.00
Third Quarter ............................................... $90.00 65.00
Fourth Quarter .............................................. $83.00 65.375
Fiscal year ending December 31, 2004
Quarter ended March 31, 2004 ................................ $83.00 80.13
Quarter ending June 30, 2004 (through April 16, 2004) ....... $81.00 80.13
- --------------
(1) The Existing Notes were first listed on AMEX on March 27, 2001. However, the
first trade did not take place until May 17, 2001.
As of May 6, 2004, GB Holdings had 44 record holders of Existing Notes.
The following reported table presents the last reported sales price of
the Existing Notes reported on AMEX on July 11, 2003, the last full trading day
prior to the public announcement of the Transaction, and on April 16, 2004, the
last full trading day prior to the delisting of the Existing Notes from trading
on the AMEX.
July 14, 2003................................................ $82.75
April 16, 2004............................................... $81.00
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents GB Holdings and its subsidiaries' (the
"Parent Company") selected historical consolidated financial and operating data.
The selected historical financial and operating data should be read in
conjunction with, and is qualified in its entirety by reference to,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GB HOLDINGS AND ITS SUBSIDIARIES" as set forth on page 114, and
the historical consolidated financial statements and notes to the Parent
Company's historical consolidated financial statements, each of which is
included elsewhere in this solicitation statement and prospectus. The
consolidated statements of operations data for 1999, 2000, 2001, 2002 and 2003
and the consolidated balance sheet data as of the last day of each of these
years are derived from the Parent Company's historical audited consolidated
financial statements. The financial statements for 1999, 2000 and 2001 have been
audited by Arthur Andersen LLP, independent public accountants, whose report is
included elsewhere in this solicitation statement and prospectus. The financial
statements for 2002 and 2003 have been audited by KPMG LLP, independent
accountants, whose report is included elsewhere in this solicitation statement
and prospectus.
24
The historical financial information is not indicative of GB Holdings'
or Atlantic Holdings' future performance. For additional information, see
"SELECTED PRO FORMA FINANCIAL DATA FOR GB HOLDINGS AND ATLANTIC HOLDINGS GIVING
EFFECT TO THE TRANSACTION" as set forth on page 27.
GB Holdings implemented Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code," and,
therefore, adopted "fresh start reporting" as of September 30, 2000. GB
Holdings' emergence from its proceedings under Chapter 11 of the United States
Bankruptcy Code resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 30, 2000. Accordingly, GB Holdings'
consolidated financial statements for periods prior to September 30, 2000 are
not comparable to consolidated financial statements presented on or subsequent
to September 30, 2000. Column headings have been included on the accompanying
Consolidated Statement of Operations Data and Consolidated Balance Sheet Data to
distinguish between the pre-reorganization and post-reorganization entities. A
black line has been drawn on the accompanying consolidated financial statements
data to distinguish between the pre-reorganization and post-reorganization
entities.
25
GB HOLDINGS, INC. AND SUBSIDIARIES
(dollars in thousands except income per share data)
STATEMENT OF OPERATIONS DATA:
Post-Reorganization
--------------------------------------------------------------------
Three Three
Months Months Year Year
Ended Ended Ended Ended
3/31/04 3/31/03 12/31/03 12/31/02
--------------- ---------------- ---------------- -----------------
Total Revenues................................... $52,703 $51,645 $219,890 $244,601
Promotional Allowances........................... (11,254) (11,844) (49,632) (51,128)
-------------- --------------- ---------------- ----------------
Net revenues..................................... 41,449 39,801 170,258 193,473
-------------- --------------- ---------------- ----------------
Expenses
Departmental.................................. 33,726 34,980 146,049 159,714
General and administrative.................... 2,873 2,522 11,582 12,799
Depreciation and amortization including 4,073
provision for obligatory investments........ 3,731 16,244 15,457
Loss on impairment of fixed assets............ -- -- -- 1,282
Loss (gain) on disposal of fixed assets....... -- 4 (105) 185
-------------- --------------- ---------------- ----------------
Total Expenses.............................. 40,672 41,237 173,770 189,437
-------------- --------------- ---------------- ----------------
Income (loss) from operations................. 777 (1,436) (3,512) 4,036
-------------- --------------- ---------------- ----------------
Non-operating income (expense):
Interest income............................... 111 189 627 1,067
Interest expense.............................. (3,051) (2,995) (12,027) (11,640)
Debt restructuring costs...................... (710) -- (1,843) --
Reorganization and other related costs........ -- -- -- --
Gain on prepetition debt discharge............ -- -- -- --
-------------- --------------- ---------------- ----------------
Total non-operating income (expense), net... (3,650) (2,806) (13,243) (10,573)
-------------- --------------- ---------------- ----------------
Income (loss) before income taxes................ (2,873) (4,242) (16,755) (6,537)
Income tax provision............................. (267) (159) (958) (784)
-------------- --------------- ---------------- ----------------
Net income (loss)................................ $(3,140) $(4,401) $(17,713) $(7,321)
============== =============== ================ ================
Basic/diluted income (loss) per common share(2) $(0.31) $(0.44) $(1.77) $(0.73)
============== =============== ================ ================
10,000,00 10,000,000 10,000,000 10,000,000
============== =============== ================ ================
Ratio of earnings to fixed charges (3)........ -- -- -- --
-------------- --------------- ---------------- ----------------
Post-Reorganization | Pre-Reorganization
---------------------------------------------------------------------
Year 10/1/00 1/1/00 Year
Ended through through Ended
12/31/01 12/31/00 9/30/00 12/31/99(1)
----------------- --------------- ----------------- -----------------
Total Revenues................................... $278,030 $62,485 $209,575 $270,578
Promotional Allowances........................... (62,281) (15,774) (47,112) (60,767)
---------------- --------------- --------------- ----------------
Net revenues..................................... 215,749 46,711 162,463 209,811
---------------- --------------- --------------- ----------------
Expenses
Departmental.................................. 185,255 45,427 131,985 178,188
General and administrative.................... 11,512 2,175 7,663 10,586
Depreciation and amortization including
provision for obligatory investments........ 12,133 3,834 9,414 16,215
Loss on impairment of fixed assets............ -- -- -- --
Loss (gain) on disposal of fixed assets....... 20 11 10 (259)
---------------- --------------- --------------- ----------------
Total Expenses.............................. 208,920 51,447 149,072 204,730
---------------- --------------- --------------- ----------------
Income (loss) from operations................. 6,829 (4,736) 13,391 5,081
---------------- --------------- --------------- ----------------
Non-operating income (expense):
Interest income............................... 2,671 1,338 518 649
Interest expense.............................. (11,279) (3,133) (366) (295)
Debt restructuring costs...................... -- -- -- --
Reorganization and other related costs........ -- 34 (2,807) (2,154)
Gain on prepetition debt discharge............ -- -- 14,795 --
---------------- --------------- --------------- ----------------
Total non-operating income (expense), net... (8,608) (1,761) 12,140 (1,800)
---------------- --------------- --------------- ----------------
Income (loss) before income taxes................ (1,779) (6,497) 25,531 3,281
Income tax provision............................. (55) -- -- (133)
---------------- --------------- --------------- ----------------
Net income (loss)................................ $(1,834) $(6,497) $25,531 $3,148
================ =============== =============== ===============
Basic/diluted income (loss) per common share(2) $(0.18) $(0.65) $2.55 $0.32
================ =============== =============== ===============
10,000,000 10,000,000 10,000,000 10,000,000
================ =============== =============== ===============
Ratio of earnings to fixed charges (3)........ -- -- 20.2 6.2
---------------- --------------- --------------- ----------------
26
Balance Sheet Data:
Post-Reorganization | Pre-Reorganization
|
---------------------------------------------------------------------------------------------------------
3/31/04 3/31/03 12/31/03 12/31/02 12/31/01 12/31/00 9/30/00 12/31/99
------------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
Total assets............. $219,865 $237,832 $227,563 $244,712 $255,922 $264,247 $272,676 $208,416
Total long-term debt..... 110,000 110,000 110,000 110,000 110,371 110,838 110,858 197,898
Shareholder's equity
(deficit) ............ 88,495 104,947 91,635 109,348 116,669 118,503 125,000 (39,593)
- --------------
(1) On January 5, 1998, GB Holdings, GB Property and Greate Bay Hotel filed
petitions for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of New
Jersey. The accrual of interest expense on the 10 7/8% First Mortgage
Notes due January 15, 2004, the promissory note due February 17, 2005
made by Greate Bay Hotel to PRT Funding Corp., the $5.0 million loan
made by Pratt Casino Corporation to Greate Bay Hotel in January 1997
and other affiliate advances for periods subsequent to the filing was
suspended.
(2) Income (loss) per share information is presented on a pro forma basis
for periods presented prior to the Effective Date.
(3) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) before income taxes plus fixed
charges. Fixed charges consist of interest and amortization of debt
expense plus one-third of operating lease expense that we believe is
representative of the interest factor. There was a deficiency of
earnings to fixed charges for the three months ended December 31, 2000,
for the years ended December 31, 2001, 2002 and 2003 of $6.5 million,
$3.0 million, $7.3 million and $17.1 million, respectively. For the
three months ended March 31, 2004 and 2003, there was a deficiency of
earnings to fixed charges of $2.9 million and $4.3 million,
respectively.
SELECTED PRO FORMA FINANCIAL DATA GB HOLDINGS AND ATLANTIC HOLDINGS GIVING
EFFECT TO THE TRANSACTION
The following table sets forth the historical net loss and the book
value per share of the common stock of GB Holdings, and the combined per share
data for Atlantic Holdings on an unaudited pro forma basis after giving effect
to the Transaction, assuming alternatively that (i) holders of 58% of the
aggregate principal amount of the Existing Notes outstanding elect to exchange
their Existing Notes for New Notes (but the holders of a majority of the
aggregate principal amount of the New Notes outstanding have not elected to be
paid in or allow conversion, in whole or in part, into Atlantic Holdings Common
Stock); (ii) holders of 80% of the aggregate principal amount of the Existing
Notes elect to exchange their Existing Notes for New Notes (but the holders of a
majority of the aggregate principal amount outstanding have not elected to
either be paid in or allow conversion, in whole or in part, into Atlantic
Holdings Common Stock); and (iii) holders of 100% of the aggregate principal
amount of the Existing Notes outstanding elect to exchange their Existing Notes
for New Notes (but the holders of a majority of the aggregate principal amount
of the New Notes outstanding have not elected to be paid in or allow conversion,
in whole or in part, into Atlantic Holdings Common Stock). The following data
should be read in connection with the separate historical consolidated financial
statements of GB Holdings and pro forma combined financial statements which are
included in this solicitation statement and prospectus.
The unaudited pro forma combined per share data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Transaction had
been consummated at the beginning of the earliest period presented, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments are estimates based on information and assumptions
available at the time of the filing of this solicitation statement and
prospectus.
Additional information regarding the pro forma information of GB
Holdings and Atlantic Holdings is set forth in the "Notes to the Financial
Statements" beginning on page P-1.
27
GB HOLDING, INC. AND SUBSIDIARIES
(dollars in thousands except income per share data)
PRO FORMA STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31, 2003
-------------------------------------------------------
PRO FORMA AT
----------------------------------------
100% 80% 58%
HISTORICAL EXCHANGED EXCHANGED EXCHANGED
----------- ----------- ----------- -----------
Net revenues $ 170,258 $ -- $ 170,258 $ 170,258
----------- ----------- ----------- -----------
Expenses:
Departmental 146,049 -- 146,049 146,049
General and administrative 11,582 -- 11,582 11,582
Depreciation and amortization including provision for
obligatory investments 16,244 -- 16,012 16,076
Gain on disposal of assets (105) -- (105) (105)
----------- ----------- ----------- -----------
Total Expenses 173,770 -- 173,538 173,602
----------- ----------- ----------- -----------
Loss from operations (3,512) -- (3,280) (3,344)
----------- ----------- ----------- -----------
Non-operating income (expense):
Interest income 627 -- 505 533
Interest expense (12,027) -- (6,465) (7,933)
Debt restructuring costs (1,843) -- (3,080) (3,080)
----------- ----------- ----------- -----------
Total non-operating expense, net (13,243) -- (9,040) (10,480)
----------- ----------- ----------- -----------
Loss before income taxes (16,755) -- (12,320) (13,824)
Income tax provision (958) (1,342) (958) (958)
----------- ----------- ----------- -----------
Net loss $ (17,713) $ (1,342) $ (13,278) $ (14,782)
=========== =========== =========== ===========
Basic/diluted loss per common share $ (1.77) $ (0.13) $ (1.33) $ (1.48)
=========== =========== =========== ===========
Weighted average common shares outstanding 10,000,000 10,000,000 10,000,000 10,000,000
=========== =========== =========== ===========
Ratio of earnings to fixed charges (1) -- N/A -- --
----------- ----------- ----------- -----------
Book value per share $ 9.16 N/A N/A N/A
----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets $ 227,563
Total long-term debt 110,000
Shareholder's equity 91,635
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of loss before income taxes plus fixed charges. Fixed charges
consist of interest and amortization of debt expense plus one-third of
operating lease expense that we believe is representative of the interest
factor. There was a deficiency of earnings to fixed charges for the year
ended December 31, 2003 as historically reported and assuming an 80% and
58% exchange of $17.1 million, $12.5 million and $14.0 million,
respectively.
28
GB HOLDING, INC. AND SUBSIDIARIES
(dollars in thousands except income per share data)
PRO FORMA STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED MARCH 31, 2004
-------------------------------------------------------
PRO FORMA AT
-----------------------------------------
100% 80% 58%
HISTORICAL EXCHANGED EXCHANGED EXCHANGED
----------- ----------- ----------- -----------
Net revenues ............................................ $ 41,449 $ -- $ 41,449 $ 41,449
----------- ----------- ----------- -----------
Expenses:
Departmental ......................................... 33,726 -- 33,726 33,726
General and administrative ........................... 2,873 -- 2,873 2,873
Depreciation and amortization, including provision for
obligatory investments ............................. 4,073 -- 4,015 4,031
----------- ----------- ----------- -----------
Total Expenses ..................................... 40,672 -- 40,614 40,630
----------- ----------- ----------- -----------
Income from operations ............................... 777 835 819
----------- ----------- ----------- -----------
Non-operating income (expense):
Interest income ...................................... 111 -- 113 112
Interest expense ..................................... (3,051) -- (1,636) (2,011)
Debt restructuring costs ............................. (710) -- -- --
----------- ----------- ----------- -----------
Total non-operating expense, net ................... (3,650) (1,523) (1,899)
----------- ----------- ----------- -----------
Loss before income taxes ................................ (2,873) -- (688) (1,080)
Income tax provision .................................... (267) -- (267) (267)
----------- ----------- ----------- -----------
Net loss ................................................ $ (3,140) $ -- $ (955) $ (1,347)
=========== =========== =========== ===========
Basic/diluted loss per common share ..................... $ (0.31) $ -- $ (0.10) $ (0.13)
=========== =========== =========== ===========
Weighted average common shares outstanding ........... 10,000,000 -- 10,000,000 10,000,000
=========== =========== =========== ===========
Ratio of earnings to fixed charges (1) ............... -- N/A -- --
----------- ----------- ----------- -----------
Book value per share ................................. $ 8.85 N/A $ 5.50 $ 5.43
----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets ............................................ $ 219,865 -- $ 219,284 $ 219,299
Total long-term debt .................................... 110,000 -- 110,000 110,000
Shareholder's equity .................................... 88,495 -- 54,968 54,268
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of loss before income taxes plus fixed charges. Fixed charges
consist of interest and amortization of debt expense plus one-third of
operating lease expense that we believe is representative of the interest
factor. There was a deficiency of earnings to fixed charges for the three
months ended March 31, 2004 as historically reported and assuming an 80%
and 58% exchange of $2.9 million, $700,000 and $1.1 million, respectively.
29
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. & SUBSIDIARY
(dollars in thousands except income per share data)
PRO FORMA STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31, 2003
-------------------------------------------------------
PRO FORMA AT
-----------------------------------------
100% 80% 58%
Historical Exchanged Exchanged Exchanged
----------- ----------- ----------- -----------
Net revenues ........................................... $ -- $ 170,258 $ 170,258 $ 170,258
----------- ----------- ----------- -----------
Expenses:
Departmental ........................................ -- 146,049 146,049 146,049
General and administrative .......................... -- 11,582 11,582 11,582
Depreciation and amortization including provision for
obligatory investments ............................ -- 15,955 15,902 15,843
Gain on disposal of assets .......................... -- (105) (105) (105)
----------- ----------- ----------- -----------
Total Expenses .................................... -- 173,481 173,428 173,369
----------- ----------- ----------- -----------
Loss from operations ................................ -- (3,223) (3,170) (3,111)
----------- ----------- ----------- -----------
Non-operating income (expense):
Interest income ..................................... 488 505 533
Interest expense .................................... (5,131) (4,088) (2,942)
Debt restructuring costs ............................ -- (3,080) (3,080) (3,080)
----------- ----------- ----------- -----------
Total non-operating expense, net .................. -- (7,723) (6,663) (5,489)
----------- ----------- ----------- -----------
Loss before income taxes ............................... -- (10,946) (9,833) (8,600)
Income tax provision ................................... -- (958) (958) (958)
----------- ----------- ----------- -----------
Net loss ............................................... $ -- $ (11,904) $ (10,791) $ (9,558)
=========== =========== =========== ===========
Basic/diluted loss per common share .................... $ $ (4.33) $ (7.44) $ (3.14)
=========== =========== =========== ===========
Weighted average common shares outstanding .......... -- 2,750,000 1,450,000 3,045,000
=========== =========== =========== ===========
Ratio of earnings to fixed charges (1) .............. N/A -- -- --
----------- ----------- ----------- -----------
Book value per share ................................ N/A N/A N/A N/A
----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets ........................................... $ 1
Total long-term debt ................................... --
Shareholder's equity ................................... 1
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of loss before income taxes plus fixed charges. Fixed charges
consist of interest and amortization of debt expense plus one-third of
operating lease expense that we believe is representative of the interest
factor. There was a deficiency of earnings to fixed charges for the year
ended December 31, 2003 assuming a 100% exchange, an 80% exchange and a
58% exchange of $11.0 million, $9.9 million and $8.7 million,
respectively.
30
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. & SUBSIDIARY
(dollars in thousands except income per share data)
PRO FORMA STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED MARCH 31, 2004
------------------------------------------------------
PRO FORMA AT
-----------------------------------------
100% 80% 58%
Historical Exchanged Exchanged Exchanged
----------- ----------- ----------- -----------
Net revenues ........................................... $ -- $ 41,449 $ 41,449 $ 41,449
----------- ----------- ----------- -----------
Expenses:
Departmental ........................................ -- 33,726 33,726 33,726
General and administrative .......................... -- 2,873 2,873 2,873
Depreciation and amortization including provision for
obligatory investments ............................ -- 4,001 3,987 3,973
----------- ----------- ----------- -----------
Total Expenses .................................... -- 40,600 40,586 40,572
----------- ----------- ----------- -----------
Income from operations .............................. -- 849 863 877
----------- ----------- ----------- -----------
Non-operating income (expense):
Interest income ..................................... 115 113 112
Interest expense .................................... (1,295) (1,035) (748)
Debt restructuring costs ............................ -- -- -- --
----------- ----------- ----------- -----------
Total non-operating expense, net .................. -- (1,180) (922) (636)
----------- ----------- ----------- -----------
Income (loss) before income taxes ...................... -- (331) (59) 241
Income tax provision ................................... -- (267) (267) (267)
----------- ----------- ----------- -----------
Net loss ............................................... $ -- $ (598) $ (326) $ (26)
=========== =========== =========== ===========
Basic/diluted loss per common share .................... $ -- $ (0.22) $ (0.22) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares outstanding .......... -- 2,750,000 1,450,000 3,045,000
=========== =========== =========== ===========
Ratio of earnings to fixed charges (1) .............. N/A -- -- 1.24
----------- ----------- ----------- -----------
Book value per share ................................ N/A $ 31.99 $ 75.71 $ 43.93
----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets ........................................... $ 1 $ 219,272 $ 219,091 $ 218,892
Total long-term debt ................................... -- 110,000 88,000 63,800
Shareholder's equity ................................... 1 87,969 109,775 133,761
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of loss before income taxes plus fixed charges. Fixed charges
consist of interest and amortization of debt expense plus one-third of
operating lease expense that we believe is representative of the interest
factor. There was a deficiency of earnings to fixed charges for the three
months ended March 31, 2004 assuming a 100% exchange and an 80% exchange
of $340,000 and $270,000, respectively.
31
CAPITALIZATION
ATLANTIC HOLDINGS
The following table sets forth the consolidated capitalization of
Atlantic Holdings and its subsidiary as of March 31, 2004 on an actual basis, as
adjusted to give effect to the Transaction assuming 58% exchange, as adjusted to
give effect to the exchange offer assuming 80% exchange, and as adjusted to give
effect to the exchange offer assuming 100% exchange:
As of March 31, 2004
----------------------------------------------------------
Pro Forma
----------------------------------------------------------
As adjusted As adjusted As adjusted
Actual (58% exchange) (80% exchange) (100% exchange)
-------- -------------- -------------- ---------------
($ in thousands)
Cash and cash equivalents .................................... $ 1 $ 21,116 $ 18,681 $ 16,468
-------- ------------- ------------- -------------
Long-term debt, net of current maturities .................... $ -- $ 63,800 $ 88,000 $ 110,000
-------- ------------- ------------- -------------
Shareholders' Equity:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized, 0 shares outstanding ........................ -- -- -- --
Common stock, par value $0.01 per share; 20,000,000 shares
authorized; shares issued and outstanding listed by
scenario below .......................................... -- 30 15 28
Additional paid in capital ................................ 1 100,031 76,760 87,941
Warrants outstanding ...................................... -- 33,700 33,000 --
Accumulated deficit ....................................... -- -- -- --
-------- ------------- ------------- -------------
Total shareholders' equity .............................. 1 133,761 109,775 87,969
-------- ------------- ------------- -------------
Total capitalization ......................................... $ 2 $ 218,677 $ 216,456 $ 214,437
======== ============= ============= =============
32
GB HOLDINGS
The following table sets forth the consolidated capitalization of GB
Holdings and its subsidiaries as of March 31, 2004 on an actual basis, as
adjusted to give effect to the Transaction assuming 58% exchange, as adjusted to
give effect to the exchange offer assuming 80% exchange, and as adjusted to give
effect to the exchange offer assuming 100% exchange:
As of March 31, 2004
----------------------------------------------------------
Pro Forma
----------------------------------------------------------
As adjusted As adjusted As adjusted
Actual (58% exchange) (80% exchange) (100% exchange)
-------- -------------- -------------- ---------------
($ in thousands)
Cash and cash equivalents................................... $ 28,061 $ 21,115 $ 18,680 $ --
-------- -------------- ------------- ---------------
Long-term debt:
Existing Notes........................................... $110,000 $ 46,200 $ 22,000 $ --
New Notes................................................ -- 63,800 88,000 --
-------- -------------- ------------- ---------------
Long-term debt, net of current maturities................... 110,000 110,000 110,000 --
-------- -------------- ------------- ---------------
Warrants in Atlantic Holdings............................... -- 33,700 33,000 --
Shareholders' Equity:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized, 0 shares outstanding................ -- -- -- --
Common stock, par value $0.01 per share; 20,000,000
shares authorized; 10,000,000 shares issued and
outstanding............................................ 100 100 100 --
Additional paid in capital............................... 124,900 91,200 91,900 --
Accumulated deficit...................................... (36,505) (37,032) (37,032) --
-------- -------------- ------------- ---------------
Total shareholders' equity............................. 88,495 54,268 54,968 --
-------- -------------- ------------- ---------------
Total capitalization........................................ $226,556 $ 219,083 $ 216,648 $ --
======== ============== ============= ===============
33
RISK FACTORS
In deciding whether to tender Existing Notes pursuant to the exchange
offer and deliver related consents pursuant to the consent solicitation, we urge
you to read this solicitation statement and prospectus and the documents
incorporated by reference into this solicitation statement and prospectus
carefully. You should also consider the risk factors described below.
RISK FACTORS RELATED TO HOLDERS TENDERING IN THE EXCHANGE OFFER
The interest on the New Notes is different than the interest on the Existing
Notes.
The Existing Notes have an interest rate of 11% per annum with interest
being paid semi-annually on March 29 and September 29 until September 29, 2005.
Interest on the New Notes is payable at a rate of 3% per year, but accrues and
is not payable until maturity in 2008, and, if the holders of a majority of the
aggregate principal amount of the New Notes outstanding elect to be paid in
Atlantic Holdings Common Stock, the holders of the New Notes will receive
Atlantic Holdings Common Stock in full payment of the New Notes. Moreover, as
the New Notes bear interest at 3% per annum with interest that accrues annually,
but is not payable until maturity in 2008 (a five year period), holders of the
New Notes will actually be receiving a lower effective interest rate than the 3%
annually accrued amount and there can be no assurance that we will have the cash
to pay out either the principal or the interest on the New Notes at maturity.
Payment of the New Notes in the form of Atlantic Holdings Common Stock may occur
at the election of the holders of a majority of the aggregate principal amount
of the New Notes outstanding and, in such case, the principal and interest on
the New Notes will not be paid in cash.
The New Notes (including the principal and accrued interest) are
payable either in (i) cash at maturity or (ii) Atlantic Holdings Common Stock,
at and upon the election of the holders of a majority of the aggregate principal
amount of the New Notes outstanding. Following such election, the entire class
of New Notes (including the principal and accrued interest) will be paid in
shares of Atlantic Holdings Common Stock and all of the New Notes will thereby
be extinguished. As a result, it is possible that holders of the New Notes may
no longer be entitled to receive the principal and the accrued interest in cash
upon maturity because payment of the New Notes in Atlantic Holdings Common Stock
is mandatory upon the election of the holders of a majority of the aggregate
principal amount of the New Notes outstanding. Upon the exchange of the New
Notes, the holders that elect to exchange are also consenting to the payment of
the New Notes in the form of Atlantic Holdings Common Stock instead of cash.
Affiliates of Carl C. Icahn have indicated their intent to exchange their
Existing Notes for New Notes and upon consummation of the Transaction will own
at least 58% of the aggregate principal amount of the New Notes outstanding and
they will have the ability to determine whether and when the payment of the New
Notes shall occur and whether such payment shall be in cash at maturity or
Atlantic Holdings Common Stock at or prior to maturity, although such affiliates
have not entered into any agreements or other arrangements requiring such
affiliates to consent or tender their Existing Notes for exchange and such
holders are free to decide not to consent or tender their Existing Notes for
exchange. Affiliates of Mr. Icahn, as holders of a majority of the principal
amount of the New Notes outstanding, have the power to cause the New Notes to be
paid in Atlantic Holdings Common Stock at any time, in their sole election. In
determining whether or when they elect for the New Notes to be payable in
Atlantic Holdings Common Stock, they may consider a variety of factors,
including, but not limited to, the results of operations and the financial
condition of Atlantic Holdings and ACE Gaming, whether such affiliates want to
obtain ownership of such shares in order to be in a position to exercise their
respective rights as stockholders, the general market conditions affecting
Atlantic Holdings and ACE Gaming, whether such affiliates find it advantageous
to eliminate the debt created by the New Notes, the business and financial
prospects of The Sands, Atlantic Holdings and ACE Gaming, and other economic
factors generally affecting the country, Atlantic City, and the gaming industry
in particular. Although they reserve the right to exercise the power described
above at any time, such affiliates of Mr. Icahn have advised Atlantic Holdings
that they have not determined the form and timing of the payment of the New
Notes. However, such affiliates have advised Atlantic Holdings that they have
not determined benchmarks or standards in this regard and reserve the right to
cause the New Notes to be paid in or convertible into Atlantic Holdings Common
Stock at any time in their sole discretion.
34
The value of the collateral securing the New Notes may not be sufficient to pay
all amounts owed under the New Notes if an event of default occurs.
The New Notes will be secured by a lien on substantially all of our and
ACE Gaming's existing and after acquired assets. If we are forced to liquidate
the collateral, there may be a deficiency in proceeds for payment in full of the
New Notes. In addition, the collateral includes certain personal property, the
value of which will depreciate over time. As a result, if any event of default
occurs with respect to the New Notes, we cannot assure you that liquidation of
the collateral at any time will produce sufficient proceeds to pay all amounts
owed under the New Notes. 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. If the proceeds are insufficient, the deficiency
would be an unsecured obligation. We cannot assure you that you would be able to
recover any deficiency.
The trustee's ability to realize on the collateral securing the New Notes may be
limited.
In bankruptcy, the full value of the New Notes may not be able to be
collected by foreclosing upon the collateral. The trustee's ability to foreclose
upon the pledged equity interests and other gaming collateral comprising our
subsidiary's gaming businesses is limited by relevant gaming laws. Under New
Jersey gaming laws, the trustee under the New Indenture could be precluded from
or otherwise limited or delayed in exercising powers of attorney or selling
collateral at a foreclosure sale, including slot machines, as only licensed
persons may have slot machines in their possession. In addition, the trustee may
encounter difficulty in selling collateral due to various legal restrictions,
including requirements that the purchaser or the operator of the gaming facility
be licensed by state authorities or that prior approval of a sale or disposition
of collateral is required. If the trustee sought to operate, or retain an
operator for, The Sands, the trustee or its agents would be required to be
licensed under applicable gaming laws in order to conduct gaming operations in
such casino. Because potential purchasers who wish to operate The Sands must
satisfy such requirements, the number of potential purchasers in a sale of The
Sands could be less than in the sale of other types of facilities. Gaming laws
in New Jersey prohibit the granting of a lien on the gaming license. Therefore,
the trustee will not have a lien on ACE Gaming's gaming license necessary to
operate the casino properties unless and until the applicable laws are amended
to permit such a lien. These requirements and prohibitions may delay the sale of
and may adversely affect the price paid for the collateral.
The trustee's ability to foreclose upon and sell the collateral will be
subject to the procedural restrictions of state real estate and commercial law
and the Uniform Commercial Code. Furthermore, the right of the trustee to
foreclose upon and sell the collateral is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against us or any of our affiliates prior to, or possibly even after, the
trustee has repossessed and disposed of the collateral. Under bankruptcy law,
secured creditors, such as holders of the New Notes, are prohibited from
obtaining possession of their security from a debtor in a bankruptcy case, or
from disposing of security obtained from such debtor, without bankruptcy court
approval. Moreover, bankruptcy law permits the debtor to continue to retain and
to use the collateral (and the proceeds, products, rent or profits of such
collateral) so long as 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. The court may find "adequate protection" if the
debtor pays cash or grants additional security 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 during the pendency of the bankruptcy case. Due to the
lack of a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the New Notes could be delayed following commencement of a
bankruptcy case, whether or when the trustee could repossess or dispose of the
collateral or whether or to what extent holders of the New Notes would be
compensated for any delay in payment or loss of value of the collateral through
the requirement of "adequate protection."
Finally, the trustee's ability to foreclose on the collateral on your
behalf may be subject to perfection issues, the existence of liens which are
senior to the lien securing the New Notes, the consent of third parties and
practical problems associated with the realization of the trustee's security
interest in the collateral. To the extent that liens granted to third parties
encumber property owned by us or the guarantor of the New Notes, such third
parties have rights and remedies with respect to such property that, if
exercised, could adversely affect the value of the collateral and the ability of
the trustees or the holders of the New Notes to realize or foreclose on the
collateral.
35
The concentration of voting power held by affiliates of Carl C. Icahn gives them
substantial control over us, and such affiliates may have interests which differ
from holders of New Notes.
Affiliates of Carl C. Icahn own approximately 58% of the aggregate
principal amount of the Existing Notes outstanding and following the
consummation of the Transaction may own at least 58% of the aggregate principal
amount of the New Notes outstanding and approximately 77% of the outstanding
common stock of GB Holdings. Because Mr. Icahn and his affiliates may be in the
unique position of being both holders of a majority of the aggregate principal
amount of the New Notes outstanding and holders of a majority of the outstanding
common stock of GB Holdings, they may have interests which may differ from other
holders of the New Notes, and the ability to effect decisions made by Atlantic
Holdings and GB Holdings is not available to other holders of the New Notes or
the other stockholders of GB Holdings. As such, Mr. Icahn's affiliates will have
substantial influence and control over matters voted upon by stockholders of GB
Holdings and Atlantic Holdings (such as the election of the directors to the
Board of Directors of each of GB Holdings and Atlantic Holdings, mergers and
sale of assets involving GB Holdings and Atlantic Holdings and other matters
upon which stockholders, of either GB Holdings or Atlantic Holdings, vote). This
power, in turn, gives them substantial control over the business of both GB
Holdings and Atlantic Holdings. Upon completion of the Transaction, affiliates
of Mr. Icahn may own approximately 63.4% (on a fully diluted basis) of the
outstanding Atlantic Holdings Common Stock, if more than 58%, but less than
100%, of the Existing Notes exchange for the New Notes, such affiliates may own
up to an additional 23.5% of the outstanding Atlantic Holdings Common Stock
because of the affiliates ownership of approximately 77% of the outstanding
common stock of GB Holdings.
Consequently, Mr. Icahn's affiliates have the ability to:
o determine when and whether the New Notes will be paid in cash, at
maturity, or paid in or convertible into Atlantic Holdings Common
Stock at, or prior to, maturity;
o waive events of default under the New Indenture;
o approve certain amendments to the New Indenture;
o approve the subordination of the liens securing the New Notes to
liens securing newly incurred debt that, as a result, will rank
senior to such liens;
o approve the release of the collateral securing the New Notes;
o direct the actions of the trustee under the New Indenture
governing the New Notes;
o elect the Board of Directors of GB Holdings and Atlantic Holdings;
and
o approve transactions that may have a significant impact, including
mergers or a sale of all or substantially all of the assets of GB
Holdings.
Additionally, affiliates of Mr. Icahn are actively involved in the
gaming industry and casinos owned or managed by him or his affiliates may
directly or indirectly compete with GB Holdings and Atlantic Holdings.
Furthermore, the potential for conflicts of interest exists among GB Holdings or
Atlantic Holdings, and Mr. Icahn for future business opportunities. Mr. Icahn
may pursue other business opportunities and there is no agreement requiring that
such additional business opportunities be presented to GB Holdings or Atlantic
Holdings.
At the request of GB Holdings, Ealing Corp., a Nevada corporation and
an affiliate of Mr. Icahn, has provided a commitment letter dated January 30,
2004, in which Ealing has agreed to provide a revolving credit facility under
which GB Holdings and its subsidiaries may borrow up to an aggregate amount of
$10 million to be used for general working capital purposes. Under the terms of
the commitment letter, the revolving credit facility will expire on June 30,
2005, and borrowings will bear interest at a rate of 10% per annum, and
obligations under the revolving credit facility will be secured by a first lien
on all of the assets of GB Holdings and its subsidiaries (including Atlantic
Holdings) which will be senior to the liens securing the Existing Notes. Upon
the consummation of the Transaction the obligation will be assumed by Atlantic
Holdings and the lien will be senior to the New Notes. Ealing's obligations to
provide the financing pursuant to the commitment letter is subject to the
negotiation and execution of definitive loan and security agreements and related
documents as well as certain customary conditions. Ealing and GB Holdings have
agreed to extend the commitment until July 1, 2004.
36
There may not be a trading market for the New Notes.
There is currently no existing trading market for the New Notes. We do
not currently intend to apply for listing of the New Notes on any exchange and
if we do decide to apply for listing on a securities exchange, there can be no
assurance that we will be approved for listing. There can be no assurance that a
trading market for the New Notes will develop and the market price of the New
Notes, as well as a holder's ability to sell the New Notes, could be adversely
affected.
GB Holdings or its subsidiaries may incur additional indebtedness secured by
liens ranking senior to the liens securing the New Notes.
At the request of GB Holdings, Ealing has provided a commitment letter
dated January 30, 2004, in which Ealing has agreed to provide a revolving credit
facility under which GB Holdings and its subsidiaries may borrow up to an
aggregate amount of $10 million to be used for general working capital purposes.
Under the terms of the commitment letter, the revolving credit facility will
expire on June 30, 2005, borrowings will bear interest at a rate of 10% per
annum, and obligations under the revolving credit facility will be secured by a
first lien on all of the assets of GB Holdings and its subsidiaries (including
Atlantic Holdings) which will be senior to the liens securing the Existing
Notes. Upon the consummation of the Transaction the obligation will be assumed
by Atlantic Holdings and the lien will be senior to the New Notes. Ealing's
obligations to provide the financing pursuant to the commitment letter is
subject to the negotiation and execution of definitive loan and security
agreements and related documents as well as certain customary conditions.
However, there can be no assurance that the loan agreement with Ealing will be
consummated, that if the loan agreement with Ealing is not consummated, GB
Holdings will be able to obtain financing from another lender on terms as or
more favorable than the terms of the commitment letter, or whether GB Holdings
will need to borrow funds for working capital. Ealing and GB Holdings have
agreed to extend the commitment until July 1, 2004.
Our ability to consummate the transaction is contingent on receiving the
required consents from the CCC, the city of Atlantic City and certain third
parties.
There is no assurance that we will be able to obtain the required
consent from the CCC, the city of Atlantic City and certain third parties. Any
entity from whom consent is required may not view the Transaction favorably or
may determine that it is not in such entity's best interest to consent to the
Transaction.
Our failure to generate sufficient cash flow could prevent us from meeting our
debt service obligations or obtaining refinancing.
Our ability to make the principal and interest payments on the New
Notes in 2008 when the same become due and payable, depends on our ability to
generate cash from the operations of The Sands. The future operating performance
of us and The Sands, is subject to general economic conditions, industry
conditions, including competition, consumer preference and regulatory matters,
and numerous other factors, many of which are unforeseeable or are beyond our or
their control. There can be no assurance that the future operating performance
of us or The Sands will be sufficient to generate the cash flows required to
meet our debt service obligations on the New Notes.
Our failure to generate sufficient cash flow could prevent us from having enough
cash to provide GB Holdings with cash to satisfy its interest obligations under
the Existing Notes.
Our ability to provide GB Holdings with sufficient funds to make the
interest payments on the Existing Notes, depends on our ability to generate cash
from operations of The Sands. The future operating performance of us, GB
Holdings and The Sands is subject to general economic conditions, industry
conditions, including competition, consumer preference and regulatory matters,
and numerous other factors, many of which are unforeseeable or beyond our or
their control. There can be no assurance that the future operating performance
of us or The Sands will be sufficient to generate the cash flows required to
allow us to provide GB Holdings with sufficient funds to make interest payments
on the Existing Notes. If we are unable to provide GB Holdings with sufficient
funds, GB Holdings may be forced to default on the Existing Notes which may
result in GB Holdings and Atlantic Holdings being involved in litigation.
37
The substantial debt of Atlantic Holdings and GB Holdings could adversely affect
Atlantic Holdings.
After the exchange, it is anticipated that Atlantic Holdings and GB
Holdings will have a significant amount of debt outstanding. Pursuant to the
terms of the Contribution Agreement between GB Holdings, Greate Bay Hotel,
Atlantic Holdings and ACE Gaming, Atlantic Holdings will undertake to provide to
GB Holdings the funds necessary to continue to pay scheduled interest on the
Existing Notes through the maturity date on September 29, 2005, subject to
sufficient funds being available to make such payments. You should be aware that
this level of debt could have important consequences to you if the Transaction
is consummated. GB Holdings and Atlantic Holdings have identified some of the
material potential consequences resulting from this significant amount of debt.
o Significant payments may be required to be paid to GB Holdings for
interest expenses of the unexchanged Existing Notes and operating
costs pursuant to the terms of the Contribution Agreement between
GB Holdings, Greate Bay Hotel, Atlantic Holdings and ACE Gaming,
thereby reducing the amount of cash we have available for other
purposes, including reinvestment in Atlantic Holdings;
o Atlantic Holdings may be unable to obtain additional financing for
working capital, capital expenditures, acquisitions and general
corporate purposes; and
o Atlantic Holdings' ability to adjust to changing market conditions
may be hampered.
Atlantic Holdings cannot assure you that it will continue to generate
sufficient cash flow in amounts sufficient to enable it to meet its working
capital and capital expenditure requirements or pay our principal and interest
obligations under the New Notes when the same become due and payable in 2008. If
Atlantic Holdings is not able to generate sufficient cash flow from operations
or to borrow sufficient funds to pay its debt, it may be required to sell assets
or allow GB Holdings to default on the Existing Notes, reduce capital
expenditures, refinance all or a portion of Atlantic Holdings' or GB Holdings'
existing debt, including the unexchanged Existing Notes, or obtain additional
financing.
Atlantic Holdings and its affiliates will be able to incur substantial
additional indebtedness in the future. Although Atlantic Holdings' ability to
incur additional debt will be restricted under the covenants contained in the
New Indenture, these restrictions are subject to a number of qualifications and
exceptions, and the indebtedness incurred in compliance with these restrictions
could be substantial. To the extent new debt is added, Atlantic Holdings'
currently anticipated debt levels would increase. Also, these restrictions do
not prevent Atlantic Holdings from incurring obligations that do not constitute
indebtedness.
Neither the Special Committee, the Board of Directors of GB Holdings nor the
Board of Directors of Atlantic Holdings have made a recommendation with regard
to whether or not you should tender your Existing Notes in the exchange offer.
Neither the Special Committee nor the Board of Directors of Atlantic
Holdings, the Board of Directors of GB Property, the Board of Directors of
Greate Bay Hotel, the Board of Directors of GB Holdings, the trustee, the
solicitation agent, the exchange agent or the information agent expresses any
opinion, and each is remaining neutral, regarding any recommendation whether
holders of Existing Notes should exchange their notes. We cannot assure holders
of the Existing Notes that the value of the New Notes received in the exchange
offer for the value of the Atlantic Holdings Common Stock issuable upon the
conversion of the New Notes will in the future equal or exceed the value of the
Existing Notes tendered and we do not take a position as to whether you ought to
participate in the exchange offer. At this time, it is impossible to estimate
the value of Atlantic Holdings Common Stock. However it is possible that the
value of such stock, following payment, would be less than the cash payment to
which the holders of the New Notes would otherwise be entitled to at the
maturity of the New Notes.
The assets of Greate Bay Hotel and GB Holdings may be subject to a claim of a
fraudulent conveyance.
Under relevant federal and state fraudulent conveyance statutes,
generally stated and subject to certain exceptions, if a court found that at the
time the Transaction was completed, (i) GB Holdings, Greate Bay Hotel and
Atlantic Holdings effected the Transaction with the actual intent of hindering,
delaying, or defrauding creditors, such as the holders who did not exchange
their Existing Notes; (ii) GB Property's or the guarantors of the Existing
Notes's remaining property constituted unreasonably small capital to pay its or
their debts, including the Existing Notes (i.e., the value of the Atlantic
Holdings Common Stock is insufficient); or (iii) Atlantic Holdings, GB
38
Property or the guarantors of the Existing Notes were insolvent at the time the
Transaction was consummated or became insolvent as a result of the Transaction,
such court could take action and apply remedies detrimental to the holders of
the New Notes, including voiding the transfer of the assets to Atlantic Holdings
and the liens securing the New Notes.
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. There can be no assurance that a court would not determine that the
Transaction constituted a fraudulent conveyance.
The exchange offer is dependent upon the consent of the stockholders of GB
Holdings.
The offering of the New Notes is dependent upon the transfer of assets
of GB Holdings and Greate Bay Hotel to us. This is because these assets (less
the cash Atlantic Holdings will pay to the holders of the Existing Notes that
elect to exchange for New Notes) will be pledged as security for the New Notes.
In order for the transfer of the assets of GB Holdings and Greate Bay Hotel to
occur, the stockholders of GB Holdings must consent to the Transaction,
including the transfer of assets. Accordingly, the stockholders of GB Holdings
are being solicited to approve this transfer of assets. If the stockholders do
not approve the Transaction including the transfer of assets, the exchange offer
will be terminated. Affiliates of Carl C. Icahn own approximately 77% of the
outstanding common stock of GB Holdings and have indicated that they intend to
vote in favor of the Transaction.
You should consider the U.S. federal income tax consequences of exchanging your
Existing Notes for the New Notes in the exchange offer.
As further set out below, the tax treatment of U.S. holders, as defined
in the section entitled "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" as set
forth on page 123, who participate in the exchange offer will depend on whether
or not the exchange offer qualifies as a tax-free recapitalization under the
Code. Specifically, the exchange offer will qualify as a tax-free
recapitalization only if the Existing Notes and the New Notes are considered
"securities," for U.S. federal tax law purposes, issued by the same person. As
to the Existing Notes and the New Notes both being securities, neither the Code
nor the Treasury Regulations promulgated thereunder define "security" for
purposes of a tax-free recapitalization. Instead, the cases and IRS rulings
interpreting the Code have generally tested whether a debt instrument qualifies
as a "security" on a case-by-case basis, using the facts and circumstances
surrounding the issuance of the debt instrument. We have been advised by counsel
that, although their opinion is not free from doubt, it is more likely than not
that the exchange offer should be a taxable transaction. Our counsel's opinion
is not free from doubt because the application of the relevant case law to the
exchange offer is unclear since cases and IRS rulings concerning debt
instruments somewhat similar to the Notes have reached inconsistent conclusions
as to whether the debt instrument was a "security" for tax-free recapitalization
purposes. Moreover, such determination may depend, in part, on future events
which are not now known, such as whether and when the New Notes are converted
into Atlantic Holdings Common Stock, as the common stock of a company is
generally a "security" for purposes of tax-free recapitalization treatment.
Further, such determination may also depend, in part, on factors that our
counsel would be unable to determine, such as the intent of the note holders in
acquiring the Existing Notes or the New Notes, as such factors are sometimes
relevant in determining whether the Notes represent a long-term proprietary
investment or a short-term loan. In light of the foregoing and despite our
counsel's opinion that it is more likely than not that the exchange offer should
be a taxable transaction, our counsel has advised us that the exchange offer may
be a tax-free recapitalization for a participant in the exchange offer for whom
both the Existing Notes and the New Notes represent a continuing proprietary
interest in the business of the respective issuer. The following paragraphs
describe the different U.S. federal income tax consequences, depending on
whether the exchange offer qualifies as a tax-free recapitalization.
If the exchange offer qualifies as a tax-free recapitalization, no gain
or loss would be recognized by you on your exchange of your Existing Notes for
the New Notes. However, you should recognize gain upon your receipt of the Cash
Payment equal to the lesser of the Cash Payment and the gain you would have
recognized had the exchange offer not been a tax-free recapitalization. Assuming
that you hold your Existing Notes as a capital asset, gain generally recognized
by reason of the Cash Payment would be treated as capital gain, and should be
long-term capital gain if the Existing Notes had been held for more than one
year at the time of the exchange. Further, payment
39
of all accrued but unpaid interest on the Existing Notes through the date of the
exchange should be treated as ordinary income. Your initial tax basis in the New
Notes would equal the tax basis you had in your Existing Notes, decreased by the
amount of the Cash Payment, and increased by the amount of gain recognized upon
receipt of the Cash Payment. Your holding period for your New Notes would
include the period during which you held your Existing Notes.
If the exchange offer does not qualify as a tax-free recapitalization,
the gain recognized on the exchange should be equal to the amount, if any, by
which the sum of (i) the Issue Price of the New Notes, and (ii) the Cash
Payment, exceeds your adjusted tax basis in your Existing Notes. The Issue Price
of the New Notes may be based on the fair market value of the New Notes or the
Existing Notes if the New Notes or the Existing Notes are Publicly Traded. GB
Holdings anticipates taking the position that neither the New Notes nor the
Existing Notes will be Publicly Traded if no active market is made in the New
Notes or the Existing Notes. No assurance can be given, however, that the IRS
will agree with this position. As described in more detail in the section
entitled "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES as set forth on page
123, the determination of whether the New Notes or the Existing Notes are
Publicly Traded will depend on facts, not within our control, in existence
during a minimum of thirty (30) days before the Transaction and a minimum of
thirty (30) days after the Transaction. As neither we nor our counsel can
control these facts, some of which will not be known until after the
Transaction, our counsel cannot opine as to the Issue Price of the New Notes.
In the event that neither the New Notes nor the Existing Notes are
Publicly Traded, the Issue Price of the New Notes should be their Imputed
Principal Amount, which amount, based on the applicable federal rate as of June
2004, should be slightly less than the face value of the New Notes. If so,
assuming your tax basis in the Existing Notes is equal to the face value of the
New Notes (e.g., you did not purchase your Existing Notes at a premium or
discount) you should have taxable gain from participating in the consent
solicitation and exchange offer approximately equal to substantially all of the
Cash Payment. If your tax basis in the Existing Notes is below the face value of
the New Notes (e.g., if you purchased your Existing Notes at a discount) your
taxable gain should approximately be increased by the amount, if any, by which
the face value of the New Notes exceeds your tax basis in the Existing Notes.
Assuming that you hold your Existing Notes as a capital asset, gain or loss
generally recognized on the exchange of the Existing Notes would be capital gain
or loss, except to the extent attributable to accrued but unpaid interest
(including the contemplated payment of all accrued but unpaid interest on the
Existing Notes through the date of the exchange) and accrued market discount
that has not previously been included in your gross income (which amount would
be treated as ordinary income), and should be long-term capital gain or loss if
the Existing Notes had been held for more than one year at the time of the
exchange. The deduction of capital losses is subject to certain limitations
under the Code. The holding period of the New Notes should commence on the date
of the exchange. The tax basis of the New Notes should be their Issue Price,
which, though anticipated to be based on their face value, may be based instead
on the fair market value of the New Notes or the Existing Notes if either the
New Notes or the Existing Notes are Publicly Traded. Non-U.S. holders
participating in the exchange offer should be exempt from U.S. income or
withholding tax, provided that they meet certain requirements. Please see the
section of this solicitation statement and prospectus entitled "MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES" as set forth on page 123 for these requirements
and for a more detailed description of the U.S. federal income tax consequences
of participating in the exchange offer. You should consult your tax advisor as
to the U.S. federal, state, local and any foreign tax consequences of exchanging
your Existing Notes.
You must comply with the procedures for the exchange offer in order to receive
the New Notes.
You are responsible for complying with all of the exchange offer
procedures. You should allow sufficient time to ensure that the exchange agent
receives all required documents before the expiration date. Neither we nor the
exchange agent has any duty to inform you of any defects or irregularities with
respect to the tender for exchange of your Existing Notes for New Notes. See
"THE CONSENT SOLICITATION AND EXCHANGE OFFER -- Procedures for Tendering and
Consenting" as set forth on page 64.
RISK FACTORS RELATED TO HOLDERS NOT TENDERING IN THE EXCHANGE OFFER
The collateral currently securing the Existing Notes will be eliminated after
the exchange offer is completed.
Upon consummation of the Transaction, substantially all of the assets
of Greate Bay Hotel and GB Holdings will be transferred to us, and ultimately to
ACE Gaming (less the cash Atlantic Holdings will pay to the
40
holders of the Existing Notes that elect to exchange for New Notes), after the
exchange offer is completed and the proposed amendments are effective. All of
our assets and all of the assets of ACE Gaming, including any after acquired
assets of Atlantic Holdings and its subsidiaries, including ACE Gaming, will be
pledged to secure our obligations under the New Notes. As a result, there will
be no collateral securing the Existing Notes, the only asset of GB Holdings will
be Atlantic Holdings Common Stock and the holders of the Existing Notes will be
structurally subordinated to our obligations to the holders of the New Notes. In
addition, after the exchange offer is completed, GB Property and Greate Bay
Hotel will merge with and into GB Holdings which will thereby result in GB
Holdings becoming the sole obligor of the Existing Notes and there will no
longer be any guarantors for the Existing Notes. As a result, the holders of the
Existing Notes will only have recourse against GB Holdings, whose sole asset
will be Atlantic Holdings Common Stock. Pursuant to the Transaction, the Special
Committee obtained a written opinion dated July 14, 2003 from Libra Securities,
LLC, that as of the date of its written opinion and based upon the assumptions
made, matters considered and review described in its written opinion, the
consideration to be received by the stockholders of GB Holdings in the
Transaction is fair, from a financial point of view, to the stockholders of GB
Holdings.
The proposed amendments to the Existing Indenture will significantly reduce the
protections afforded non-tendering holders of Existing Notes.
Promptly after receipt of the requisite consents from the holders of
the Existing Notes, GB Holdings and the trustee in respect of the Existing Notes
will execute a Second Amended and Restated Indenture which will reflect the
Existing Indenture as revised by the proposed amendments. Upon the execution of
the Second Amended and Restated Indenture, the Second Amended and Restated
Indenture will become a legally binding obligation and govern the rights,
obligations and benefits of the holders of the Existing Notes. However, the
proposed amendments will not become effective unless and until the exchange
offer is completed. If the proposed amendments become effective, each proposed
amendment will apply to all of the Existing Notes that remain outstanding and
each holder of Existing Notes not tendered hereunder will be bound by the Second
Amended and Restated Indenture, regardless of whether such holder consented to
the proposed amendments. The most significant amendment in the Second Amended
and Restated Indenture is the release of the collateral securing the Existing
Notes. Additionally, the proposed amendments would, among other things,
eliminate many of the covenants contained in the Existing Indenture including,
among other things, those that restrict: (i) the sale of assets; (ii) the
payment of net cash proceeds in the event of loss; (iii) the changing or
altering of the business of GB Property and its affiliates; and (iv) the
granting of a security interest in investments (the "CRDA Investments") in
securities issued by, and monies deposited with, the Casino Reinvestment
Development Authority of the State of New Jersey ("CRDA"). In the event that the
proposed amendments are adopted, each non-exchanging holder of Existing Notes
will be bound by the proposed amendments, even though such holder did not
deliver a consent to the proposed amendments. See "PROPOSED AMENDMENTS" as set
forth on page 80.
The restrictive covenants contained in the New Indenture may limit GB Holdings'
ability to repay the Existing Notes.
The New Indenture will contain numerous restrictive covenants that will
affect the ability of GB Holdings to pay the Existing Notes at maturity. For
example, the New Indenture prohibits the payment of dividends on the Atlantic
Holdings Common Stock. The sole payments to GB Holdings that are permitted under
the New Indenture are payments for interest of the Existing Notes, operating
expenses and payments and reimbursements to the trustee under the Second Amended
and Restated Indenture, all other payments for GB Holdings are "restricted
payments" including payments for the principal of the Existing Notes. As long as
sufficient funds are available from Atlantic Holdings, the New Indenture permits
the payment to GB Holdings of funds that are necessary to pay the interest on
the unexchanged Existing Notes and the operating expenses of GB Holdings and
such expenses will be paid pursuant to the terms of the Contribution Agreement.
However, Atlantic Holdings will make such payments until the maturity date of
the Existing Notes, only if the New Notes are not in default and no event that
could result in such a default has occurred or is incipient, and only if
sufficient funds are available. In addition, because the only assets available
to satisfy the unexchanged Existing Notes will be the Atlantic Holdings Common
Stock owned by GB Holdings, GB Holdings' ability to obtain funds to pay the
principal of the Existing Notes at maturity will depend upon its ability to
refinance such notes or to borrow against or sell such Atlantic Holdings Common
Stock.
The Existing Notes will be structurally subordinated to all of the debt and
other liabilities, including trade payables, of us and ACE Gaming.
41
Holders of the Existing Notes will not have any claim as a creditor
against Atlantic Holdings or ACE Gaming, which will own the assets constituting
The Sands. Therefore, debt and other liabilities, including the New Notes and
trade payables, whether secured or unsecured, of Atlantic Holdings and ACE
Gaming will effectively be senior to the claims of the holders of the Existing
Notes against the assets of those subsidiaries. In addition, the Second Amended
and Restated Indenture does not restrict these affiliates from incurring
additional debt and does not contain any limitations on the amount of other
liabilities such as trade payables, that they might incur. No subsidiary or
affiliate of GB Holdings will be a guarantor of the Existing Notes.
If the Transaction is not approved, GB Property and the guarantors of the
Existing Notes may be unable to pay the principal due on the Existing Notes at
maturity.
The Existing Notes mature on September 29, 2005. GB Property and the
guarantors of the Existing Notes (which are GB Holdings and Greate Bay Hotel) do
not currently anticipate having sufficient cash to repay the Existing Notes at
maturity, absent a refinancing of the Existing Notes. The purpose of the
Transaction is to extend the maturity date of the Existing Notes, reduce the
rate of interest and delay the payment of interest until maturity in order for
us and our affiliates to improve our financial performance. If the Transaction
is not approved, GB Holdings will need to pursue alternative methods of
refinancing the Existing Notes, or seek other forms of financing. GB Holdings
currently has no plan or arrangement for alternative refinancing of the Existing
Notes or seeking new financing, and there can be no assurance that such
alternatives can be arranged on favorable terms, if at all. If all of the
Existing Notes are not tendered, there will be two forms of debentures
outstanding which may affect GB Holdings' ability to refinance the Existing
Notes.
If the Transaction is not consummated, Greate Bay Hotel may be unable to obtain
renewal from the CCC of the casino license that is necessary to operate The
Sands due to the outstanding debt of GB Holdings.
Pursuant to New Jersey law, Greate Bay Hotel is required to maintain a
casino license in order to operate The Sands. See "-- Risk Factors Related to
the Gaming Industry -- Gaming is a regulated industry and changes in the law
could have a material adverse effect on our ability to conduct gaming" as set
forth on page 49. The gaming licenses required to own and operate The Sands must
be renewed in 2004, which requires that the CCC determine that Greate Bay Hotel
and GB Holdings are financially stable. In order to be found "financially
stable" under the NJCCA, Greate Bay Hotel and GB Holdings must demonstrate,
among other things, their ability to pay, exchange, or refinance debts that
mature or otherwise become due and payable during the license term, or to
otherwise manage such debts. If the CCC determines that GB Holdings is unable to
make the required payments pursuant to the Existing Notes or GB Holdings is
unable to pay the principal when it becomes due in 2005, Greate Bay Hotel may be
unable to obtain renewal of the casino license required to own and operate The
Sands. Greate Bay Hotel's inability to obtain renewal of its casino license will
have a material adverse effect on GB Holdings.
Whether or not the Transaction is completed, there can be no assurance that we
and/or GB Holdings will be able to pay, or provide for the payment of, all of
the outstanding liabilities and obligations of us and/or GB Holdings, including
the Existing Notes.
If the Transaction is not completed, GB Holdings believes that it is
reasonably likely that the Existing Notes may not be refinanced on favorable
terms or at all and that there may not be sufficient cash accumulated to pay off
the Existing Notes at maturity, thereby resulting in a default on the Existing
Notes when they become due and payable in September 2005 which could result in
GB Holdings being forced into or required to seek protection in bankruptcy. In
such event, assets of GB Holdings (which include The Sands and cash) may not be
sufficient to pay off the Existing Notes when they become due and payable.
Even if the Transaction is completed, GB Holdings may not be able to
refinance or pay the on-going obligations associated with the Existing Notes and
this could result in GB Holdings defaulting on the Existing Notes at any point
and could result in GB Holdings being forced into or required to seek protection
in bankruptcy. GB Holdings may be unable to satisfy its interest or principal
obligations in relation to the Existing Notes because cash generated from
operations of The Sands may not be sufficient to pay, or provide for the payment
of, all of Atlantic Holdings liabilities and obligations, and therefore,
Atlantic Holdings may not have sufficient funds to provide GB Holdings with the
cash to satisfy its obligations. If GB Holdings defaults on its obligations
under the Existing Notes because The Sands has not generated sufficient funds,
GB Holdings' sole asset, Atlantic Holdings Common Stock, may not be sufficient
to satisfy the obligations of the Existing Notes if GB Holdings was forced into
or required to seek protection in bankruptcy.
42
Even if a majority of the aggregate principal amount of the Existing Notes
outstanding elects to exchange such notes for the New Notes, the transaction may
not be completed.
The completion of the Transaction is subject to numerous conditions.
Even if a majority of the aggregate principal amount of the Existing Notes
outstanding elects to exchange such notes for the New Notes, neither GB Holdings
nor Atlantic Holdings can guarantee that the Transaction will be completed. If
the Transaction is not completed, GB Holdings may not be able to refinance the
Existing Notes on favorable terms, or at all, or accumulate enough cash to pay
the Existing Notes at their maturity in September 2005.
The concentration of voting power held by affiliates of Carl C. Icahn gives them
substantial control over us.
Affiliates of Carl C. Icahn own approximately 77% of the outstanding
common stock of GB Holdings and 58% of the aggregate principal amount of the
Existing Notes outstanding. Following the consummation of the Transaction such
affiliates may own at least 58% of the aggregate principal amount of the New
Notes outstanding. Because Mr. Icahn and his affiliates are in the unique
position of being both holders of a majority of the aggregate principal amount
of the New Notes outstanding and holders of a majority of the outstanding common
stock of GB Holdings, they may have interests that may differ from other holders
and the ability to effect decisions made by Atlantic Holdings. As such, Mr.
Icahn's affiliates will have substantial influence and control over matters
voted upon by stockholders of GB Holdings and Atlantic Holdings (such as the
election of the directors to the Board of Directors of each of GB Holdings and
Atlantic Holdings, mergers and sale of assets involving GB Holdings and Atlantic
Holdings and other matters upon which stockholders, of either GB Holdings or
Atlantic Holdings, vote). This power, in turn, gives them substantial control
over the business of both GB Holdings and Atlantic Holdings. Mr. Icahn's
affiliates have the ability to:
o elect the Board of Directors of GB Holdings; and
o approve transactions that may have a significant impact,
including: mergers, a sale of all or substantially all of the
assets of GB Holdings.
Additionally, affiliates of Mr. Icahn are actively involved in the
gaming industry and casinos owned or managed by him or his affiliates may
directly or indirectly compete with GB Holdings and Atlantic Holdings.
Furthermore, the potential for conflicts of interest exists among GB Holdings or
Atlantic Holdings, and Mr. Icahn for future business opportunities. Mr. Icahn
may pursue other business opportunities and there is no agreement requiring that
such additional business opportunities be presented to GB Holdings or Atlantic
Holdings.
Upon consummation of the Transaction, GB Holdings' sole asset will be Atlantic
Holdings Common Stock which will have limited liquidity.
Upon consummation of the Transaction, assuming less than 100% of the
Existing Notes are exchanged, GB Holdings will be the sole owner of Atlantic
Holdings Common Stock and such stock will be its sole asset. If less than 100%
of the Existing Notes are exchanged, there will be no "public float" of Atlantic
Holdings Common Stock (i.e., shares owned by persons and entities unaffiliated
with Atlantic Holdings) immediately upon consummation of the Transaction. This
may limit GB Holdings' ability to sell the Atlantic Holdings Common Stock or
refinance the Existing Notes through a financing with the Atlantic Holdings
Common Stock as the collateral. Upon consummation of the Transaction, affiliates
of Mr. Icahn will beneficially own approximately 63.4% of the outstanding
Atlantic Holdings Common Stock, on a fully diluted basis, and because of their
ownership of approximately 77% of the common stock of GB Holdings, they will
beneficially own up to an additional 23.5% of the Atlantic Holdings Common Stock
if between 58% and 100% of the Existing Notes are exchanged (i.e., the lower the
aggregate principal amount of Existing Notes that are exchanged, the greater the
number of additional shares of Atlantic Holdings Common Stock that GB Holdings
will own and the affiliates will beneficially own). See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ATLANTIC HOLDINGS AND GB HOLDINGS"
as set forth on page 132. The market price of Atlantic Holdings Common Stock,
accordingly, may not be indicative of the market price of Atlantic Holdings
Common Stock in a more liquid market, or of Atlantic Holdings' financial
performance or business prospects.
43
Our failure to generate sufficient cash flow could prevent GB Holdings from
paying interest or being able to refinance the unexchanged Existing Notes.
Our ability to generate cash from the operations of The Sands will
impact on our ability to pay GB Holdings the funds necessary to pay the interest
on the Existing Notes, and GB Holdings' ability to refinance the Existing Notes
by using its Atlantic Holdings Common Stock as collateral. The future operating
performance of us, GB Holdings and The Sands, is subject to general economic
conditions, industry conditions, including competition, consumer preference and
regulatory matters, and numerous other factors, many of which are unforeseeable
or are beyond our or their control. There can be no assurance that the future
operating performance of us, GB Holdings or The Sands will be sufficient to
generate the cash flows required to meet our debt service obligations on the
Existing Notes.
The substantial debt of GB Holdings could adversely affect it.
After the consummation of the Transaction if all of the holders of
Existing Notes do not exchange, it is anticipated that GB Holdings may have a
significant amount of debt outstanding. GB Holdings will no longer directly own
the assets which provide the cash flow to satisfy such debt. If GB Holdings is
unable to pay the principal amount outstanding of the Existing Notes at
maturity, to refinance the Existing Notes prior to maturity, or to obtain
additional financing from another source, GB Holdings may be forced to default
because Atlantic Holdings is not required to provide sufficient funds to satisfy
GB Holdings' obligation to pay the principal amount outstanding of the Existing
Notes at maturity. If GB Holdings defaults on the Existing Notes on September
29, 2005, GB Holdings may be forced into or required to seek protection in
bankruptcy. We cannot assure you that GB Holdings will be able to refinance the
Existing Notes or that we will be able to sell assets or borrow more money on
favorable terms to us and GB Holdings, if at all.
There may be a substantially smaller public trading market for your Existing
Notes and the market price of your Existing Notes may decline.
On April 19, 2004, following an application from GB Holdings and an
order from the Securities and Exchange Commission, the American Stock Exchange
delisted the Existing Notes and the trading market which previously existed for
the Existing Notes no longer exists. The consummation of the Transaction may
adversely affect the price of the Existing Notes due to the lack of
publicly-traded market and because of structural subordination of the Existing
Notes to the New Notes resulting from the transfer of the collateral to Atlantic
Holdings. If the Transaction is consummated, the trading and the liquidity of
the market for the Existing Notes may be significantly limited. As a result, the
non-tendered Existing Notes may trade at a discount to the price at which they
traded prior to delisting. We do not anticipate that a trading market in the
non-tendered Existing Notes will exist or be maintained and we cannot assure you
as to the prices at which the non-tendered Existing Notes may be traded.
You should consider the U.S. federal income tax consequences of not exchanging
your Existing Notes for New Notes in the exchange offer.
U.S. holders, as defined in the section entitled "MATERIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES" as set forth on page 135, of Existing Notes who do not
participate in the exchange should nonetheless be deemed, for U.S. federal
income tax purposes, to have exchanged their Existing Notes for the Existing
Notes, as amended, because the Proposed Amendments should result in a
"significant modification" for U.S. federal income tax purposes. It is
anticipated that such a deemed exchange would be taxable. Specifically, if you
are deemed to have exchanged your Existing Notes for the Existing Notes, as
amended (i.e., if you do not tender your Existing Notes in the exchange offer),
you should recognize gain or loss equal to the amount, if any, by which the
Issue Price of the Existing Notes, as amended, exceeds your adjusted tax basis
in your Existing Notes. The Issue Price of the Existing Notes, as amended, may
be based on either the face value of the Existing Notes, as amended, or the fair
market value of the Existing Notes, as amended, or the Existing Notes, depending
on whether the Existing Notes, as amended, or the Existing Notes are Publicly
Traded. GB Holdings anticipates taking the position that neither the Existing
Notes, as amended, nor the Existing Notes will be Publicly Traded if no active
market is made in the Existing Notes, as amended, or the Existing Notes. No
assurance can be given, however, that the IRS will agree with this position. In
the event that neither the Existing Notes, as amended, nor the Existing Notes
are Publicly Traded, the Issue Price of the Existing Notes, as amended, should
equal their face value and you should recognize
44
taxable gain if your tax basis in the Existing Notes is below the face value of
the Existing Notes, as amended (e.g., if you purchased your Existing Notes at a
discount), even though you do not participate in the consent solicitation and
exchange offer. Assuming that you hold your Existing Notes as a capital asset,
gain or loss generally recognized on the deemed exchange of the Existing Notes
would be capital gain or loss, except to the extent attributable to accrued but
unpaid interest and accrued market discount that has not previously been
included in your gross income (which amount would be treated as ordinary
income), and should be long-term capital gain or loss if the Existing Notes had
been held for more than one year at the time of the deemed exchange. The
deduction of capital losses is subject to certain limitations under the Code.
The holding period of the Existing Notes, as amended, should commence on the
date of the deemed exchange. The tax basis of the Existing Notes, as amended,
should be their Issue Price, which, though anticipated to be based on their face
value, may be based instead on the fair market value of the Existing Notes, as
amended, or the Existing Notes if either the Existing Notes, as amended, or the
Existing Notes are Publicly Traded, within the meaning of the Treasury
Regulations. Non-U.S. holders not participating in the exchange offer will
similarly be deemed to have exchanged their Existing Notes for the Existing
Notes, as amended. Nonetheless, non-U.S. holders should be exempt from U.S.
income or withholding tax, provided that they meet certain requirements. Please
see the section of this solicitation statement and prospectus entitled "MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES" as set forth on page 135 for these
requirements and for a more detailed description of the U.S. federal income tax
consequence of not participating in the exchange offer. You should consult your
tax advisor as to the U.S. federal, state, local and any foreign tax
consequences of not exchanging your Existing Notes.
RISK FACTORS RELATED TO THE BUSINESS OF ATLANTIC HOLDINGS
We are a newly formed company and have no operating history.
We are a newly formed wholly-owned subsidiary of Greate Bay Hotel. Upon
consummation of the Transaction, GB Holdings will transfer all of its assets to
Greate Bay Hotel (except the stock of GB Property and Greate Bay Hotel) and
Greate Bay Hotel will transfer the assets it received from GB Holdings and all
of its assets (except the stock of Atlantic Holdings) to us. We will
subsequently assign all of our assets (except an amount of cash to pay the
holders of Existing Notes that exchange for New Notes), not including 100% of
the membership interest in ACE Gaming, to ACE Gaming. Following this transfer,
our sole asset will be 100% of the membership interest in ACE Gaming. We have no
operating history nor historical financial results on our company for investors
to evaluate except for GB Holdings' historical consolidated financial results.
As a result, no assurances can be given that we will be successful or
profitable.
Our quarterly operating results are subject to fluctuations and seasonality, and
if we fail to meet the expectations of investors, the value of Atlantic Holdings
Common Stock and the New Notes may decrease significantly.
Our quarterly operating results are highly volatile and subject to
unpredictable fluctuations due to unexpectedly high or low losses, changing
customer tastes and trends, unpredictable patron gaming volume, the proportion
of table game revenues to slot game revenues, weather and discretionary
decisions by our patrons regarding frequency of visits and spending amounts. Our
operating results for any given quarter may not conform to the operating results
of our local, regional or national competitors. If our operating results do not
conform to such competitors the value of the shares of Atlantic Holdings Common
Stock and the New Notes may be adversely affected. Conversely, favorable
operating results in any given quarter may be followed by an unexpected downturn
in subsequent quarters.
We need to increase capital expenditures to compete effectively.
Capital expenditures, such as room refurbishments, amenity upgrades and
new gaming equipment, are necessary from time to time to preserve the
competitiveness of The Sands. The gaming industry market is very competitive and
is expected to become more competitive in the future. If cash from operations is
insufficient to provide for needed levels of capital expenditures, The Sands'
competitive position could deteriorate if we are unable to borrow funds for such
purposes. In addition, the New Indenture governing the New Notes limits our
ability to make capital expenditures.
45
If we fail to offer competitive products and services or maintain the loyalty of
The Sands patrons, our business will be adversely affected.
In addition to capital expenditures, we are required to anticipate the
changing tastes of The Sands' patrons and offer both competitive and innovative
products and services to ensure that repeat patrons return and new patrons visit
The Sands. The demands of meeting our debt service payments and the need to make
capital expenditures limits the available cash to finance such products and
services. In addition, the consequences of incorrect strategic decisions may be
difficult or impossible to anticipate or correct in a timely manner.
A secured lender may be subject to claims and liabilities under some
environmental laws and regulations.
Lenders that hold a security interest in real property may be held
liable under environmental laws for the costs of remediating or preventing
releases or threatened releases of hazardous substances at the mortgaged
property. Lenders who foreclose on or participate in the management of a
mortgaged property are at risk of incurring environmental liability unless they
monitor their activities carefully in accordance with applicable governmental
rules. In this regard, the collateral agent, the trustees or the holders of the
New Notes would need to evaluate the impact of these potential liabilities
before determining to foreclose on the mortgaged properties securing such New
Notes and exercising other available remedies. In addition, the collateral
agents or the trustees, as the case may be, may decline to foreclose upon the
mortgaged properties or exercise remedies available to the extent that they do
not receive indemnification to their satisfaction from the holders of such New
Notes.
Increased state taxation of gaming and hospitality revenues could adversely
affect our results of operations.
The casino industry represents a significant source of tax revenues to
the various jurisdictions in which casinos operate. Gaming companies are
currently subject to significant state and local taxes and fees in addition to
normal federal and state corporate income taxes. For example, casinos in
Atlantic City pay for licenses as well as special taxes to the city and state.
New Jersey taxes annual gaming revenues at the rate of 8.0%. New Jersey also
levies an annual investment alternative tax of 2.5% on annual gaming revenues in
addition to normal federal and state income taxes. This 2.5% obligation,
however, can be satisfied by purchasing certain bonds or making certain
investments in the amount of 1.25% of annual gaming revenues. On July 3, 2002,
the State of New Jersey passed the New Jersey Business Tax Reform Act, which,
among other things, suspended the use of the New Jersey net operating loss
carryforwards for two years and introduced a new alternative minimum assessment
under the New Jersey corporate business tax based on gross receipts or gross
profits. For the three months ended March 31, 2004 and 2003, there was a charge
to income tax provision of $179,000 and $159,000, respectively, related to the
impact of the New Jersey Business Tax Reform Act.
On July 1, 2003, the State of New Jersey amended the New Jersey Casino
Control Act (the "NJCCA") to impose various tax increases on Atlantic City
casinos, including The Sands. Among other things, the amendments to the NJCCA
include the following new tax provisions:
(i) A new 4.25% tax on casino complimentaries, with proceeds
deposited to the Casino Revenue Fund;
(ii) An 8% tax on casino service industry multi-casino progressive
slot machine revenue, with the proceeds deposited to the
Casino Revenue Fund;
(iii) A 7.5% tax on adjusted net income of licensed casinos in State
fiscal years 2004 through 2006, with the proceeds deposited to
the Casino Revenue Fund;
(iv) A fee of $3.00 per day on each hotel room in a casino hotel
facility that is occupied by a guest, for consideration or as
a complimentary item, with the proceeds deposited into the
Casino Revenue Fund in State fiscal years 2004 through 2006,
and beginning in State fiscal year 2007, $2.00 of the fee
deposited into the Casino Revenue Fund and $1.00 transferred
to the CRDA;
(v) An increase of the minimum casino hotel parking charge from
$2.00 to $3.00, with $1.50 of the fee to be deposited into the
Casino Revenue Fund in State fiscal years 2004 through 2006,
and beginning in State fiscal year 2007, $0.50 to be deposited
into the Casino Revenue Fund and $1.00 to be transferred to
the CRDA for its purposes pursuant to law, and for use by the
CRDA to post a bond for $30 million for deposit into the
Casino Capital Construction Fund, which was also created by
the amendments to the NJCCA; and
46
(vi) The elimination of the deduction from casino licensee
calculation of gross revenue for uncollectible gaming debt.
These changes to the NJCCA, and the new taxes imposed on The Sands and
other Atlantic City casinos, will reduce our profitability.
Future changes in state taxation of casino gaming companies in New
Jersey where GB Holdings and Atlantic Holdings operate cannot be predicted and
any such changes could adversely affect Atlantic Holdings' profitability.
Energy price increases may adversely affect our costs of operations and revenues
of The Sands.
The Sands uses significant amounts of electricity, natural gas and
other forms of energy. While no shortages of energy have been experienced,
substantial increases in the cost of forms of energy in the U.S. will negatively
affect our operating results. 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 which affect The Sands'
customers may result in reduced visitation to The Sands' properties and a
reduction in revenues.
A downturn in general economic conditions may adversely affect our results of
operations.
Our business operations are affected by international, national and
local economic conditions. A recession or downturn in the general economy, or in
a region constituting a significant source of customers for The Sands' property,
could result in fewer customers visiting our property and a reduction in
spending by customers who do visit our property, which would adversely affect
our revenues while some of our costs remain fixed, resulting in decreased
earnings.
A majority of The Sands' patrons visit via automobile travel and bus
tours. Higher gasoline prices could reduce automobile and bus travel to The
Sands' location and could increase bus fares to The Sands. In addition, adverse
winter weather conditions could reduce automobile and bus travel to The Sands.
Accordingly, our business, assets, financial condition and results of operations
could be adversely affected by a weakening of regional economic conditions and
higher gasoline prices or adverse winter weather conditions.
Acts of terrorism and the uncertainty of the outcome and duration of the
activity in Iraq and elsewhere, as well as other factors affecting discretionary
consumer spending, have impacted the gaming industry and may harm our operating
results and our ability to insure against certain risks.
The terrorist attacks of September 11, 2001 had an immediate impact on
hotel and casino volume. The Sands hotel occupancy was down approximately ten
percentage points during the week that followed the attacks. Bus passenger
volume for The Sands was lower than normal, especially from those bus tours
originating from the New York metropolitan area. There were approximately 22.5%
less bus passengers at The Sands during September 2001 than during the same
month in the prior year. These events, the potential for future terrorist
attacks, the national and international responses to terrorist attacks and other
acts of war or hostility have created many economic and political uncertainties
which could adversely affect our business and results of operations. Future acts
of terror in the U.S. or an outbreak of hostilities involving the U.S., may
again reduce our guests' willingness to travel with the result that our
operations will suffer.
We may incur losses that would not be covered by insurance and the cost of
insurance will increase.
Although we have agreed in the New Indenture governing the New Notes to
maintain insurance customary and appropriate for our business, we cannot assure
you that insurance will be available or adequate to cover all loss and damage to
which our business or our assets might be subjected. In connection with
insurance renewals subsequent to September 11, 2001, the insurance coverage for
certain types of damages or occurrences has been diminished substantially and is
unavailable at commercial rates. Consequently, we are self-insured for certain
risks.
The lack of insurance for certain types or levels of risk could expose
us to significant losses in the event that an uninsured catastrophe occurred.
Any losses we incur that are not covered by insurance may decrease our
47
future operating income, require us to find replacements or repairs for
destroyed property and reduce the funds available for payments of our
obligations on the New Notes.
There are risks related to the creditworthiness of patrons of the casinos.
The Sands is exposed to certain risks related to the creditworthiness
of its patrons. Historically The Sands has extended credit on a discretionary
basis to certain qualified patrons. For the three months ended March 31, 2004,
gaming credit extended to The Sands' table game patrons accounted for
approximately 25.6% of overall table game wagering, and table game wagering
accounted for approximately 12.2% of overall casino wagering during the period.
At March 31, 2004, gaming receivables amounted to $8.5 million before an
allowance for uncollectible gaming receivables of $4.9 million. There can be no
assurance that defaults in the repayment of credit by patrons of The Sands would
not have a material adverse effect on the results of operations of The Sands
and, consequently of GB Holdings, Atlantic Holdings and ACE Gaming.
Our success depends in part on the availability of qualified management and
personnel and on our ability to retain such employees.
The quality of individuals hired for positions in the hotel and gaming
operations will be critical to the success of our business. It may be difficult
to attract, retain and train qualified employees due to the competition for
employees with other gaming companies and their facilities in our jurisdictions
and nationwide. The Borgata, recently opened in the marina district of Atlantic
City in the summer of 2003, has aggravated this problem in Atlantic City. We
cannot assure you that we will be successful in retaining current personnel or
in hiring or retaining qualified personnel in the future. A failure to attract
or retain qualified management and personnel at all levels or the loss of any of
our key executives could have a material adverse effect on our financial
condition and results of operations.
Either GB Holdings or Atlantic Holdings may need to obtain financing for working
capital purposes.
A capital expenditure plan was recently approved by the Board, and
management believes that cash generated from operations and cash reserves will
be sufficient to meet the requirements of the capital expenditure plan. Based
upon expected cash flow generated from operations, management determined that it
would be prudent for GB Holdings to obtain a line of credit to provide
additional cash availability, to meet GB Holdings working capital needs, in the
event that anticipated cash flow is less than expected or expenses exceed those
anticipated. At the request of GB Holdings, Ealing, agreed to provide a
revolving credit facility, secured by a first lien on all of the assets of GB
Holdings and its subsidiaries (including Atlantic Holdings) which will be senior
to the liens securing the Existing Notes. Upon consummation of the Transaction
the obligation will be assumed by Atlantic Holdings and the lien will be senior
to the New Notes. Under the credit facility, GB Holdings may borrow up to an
aggregate amount of $10 million for general working capital purposes. Ealing's
obligation to provide the financing pursuant to the commitment letter is subject
to the negotiation and execution of definitive loan and security agreements and
related documents as well as certain customary conditions. However, there can be
no assurance that the loan agreement with Ealing will be consummated, that if
the loan agreement with Ealing is not consummated, GB Holdings will be able to
obtain financing from another lender on terms as or more favorable than the
terms of the commitment letter, or whether GB Holdings will need to borrow funds
for working capital. Ealing and GB Holdings have agreed to extend the commitment
until July 1, 2004.
GB Holdings' former use of Arthur Andersen LLP as its independent public
accountants may pose risks to us and GB Holdings and will limit your ability to
seek potential recoveries from Arthur Andersen LLP related to their work.
Arthur Andersen LLP, independent certified public accountants, was
engaged as the principal accountants to audit GB Holdings and its subsidiaries'
(the "Parent Company") consolidated financial statements until the Parent
Company dismissed them on May 16, 2002 and engaged KPMG LLP. In June 2002,
Arthur Andersen was convicted on a federal obstruction of justice charge. Some
investors, including institutional investors, may choose not to invest in or
hold securities of a company whose prior financial statements were audited by
Arthur Andersen, which may serve to, among other things, suppress the price of
our securities. In addition, rules promulgated by the Securities and Exchange
Commission ("SEC") require the Parent Company to present its audited financial
statements in various SEC filings, along with Arthur Andersen's consent to
inclusion of its audit
48
report in those filings. The SEC has provided temporary regulatory relief
designed to allow companies that file reports with them to dispense with the
requirement to file a consent of Arthur Andersen in certain circumstances.
Notwithstanding the SEC's temporary regulatory relief, the inability of Arthur
Andersen to provide its consent or to provide assurances services to us and GB
Holdings with regard to future SEC filings could negatively affect our and GB
Holdings' ability to, among other things, access capital markets. Any delay or
inability to access capital markets as a result of this situation could have a
material adverse impact on our business.
We cannot assure you that we will be able to continue to rely on the
temporary relief granted by the SEC. If the SEC no longer accepts financial
statements audited by Arthur Andersen, requires audits of other financial
statements or financial information or requires changes to financial statements
previously audited by Arthur Andersen, this may affect our ability to access the
public capital markets in the future, unless our current independent auditors or
another independent accounting firm is able to audit the consolidated financial
statements originally audited by Arthur Andersen in a timely manner. Any delay
or inability to access the capital markets may have an adverse impact on our
business.
After reasonable efforts, GB Holdings has not been able to obtain
Arthur Andersen's consent to the inclusion in this solicitation statement and
prospectus of its audit reports dated March 8, 2002 for fiscal years ended
December 31, 2000 and 2001. Accordingly, investors will not be able to sue
Arthur Andersen under Section 11(a) of the Securities Act of 1933, as amended
(the "Securities Act") for material misstatements or omissions, if any, in this
solicitation statement and prospectus or the registration statement of which it
is a part, including the financial statements covered by Arthur Andersen's
previously issued reports. Moreover, because Arthur Andersen ceased conducting
business it is unlikely you would be able to recover damages from Arthur
Andersen for any claim against them. In addition, any recovery you may have from
Arthur Andersen related to any claims that you may assert related to the
financial statements audited by Arthur Andersen may be limited as a result of
the lack of Arthur Andersen's consent as well as by the financial circumstances
of Arthur Andersen.
RISK FACTORS RELATED TO THE GAMING INDUSTRY
The gaming industry is highly competitive.
The gaming industry is highly competitive and our competitors may have
greater resources than us. If other properties operate more successfully, if
existing properties are enhanced or expanded, or if additional hotels and
casinos are established in and around the location in which we conduct business,
we may lose market share. In particular, expansion of gaming in or near the
geographic area from which we attract or expect to attract a significant number
of our customers could have a significant adverse effect on our business,
financial condition and results of operations. Our casino competes, and will in
the future compete, with all forms of existing legalized gaming and with any new
forms of gaming that may be legalized in the future. Additionally, we face
competition from all other types of entertainment.
On July 3, 2003, The Borgata, owned by Boyd Gaming Corporation and MGM
Mirage, opened in the marina district of Atlantic City. The Borgata features a
40-story tower with 2,010 rooms and suites as well as a 135,000 square-foot
casino, restaurants, retail shops, a spa and pool, and entertainment venues.
This project represents a significant increase in capacity in that market. In
addition, other of The Sands' competitors in Atlantic City have recently
completed expansions of their hotels or have announced expansion projects. For
example, Tropicana Atlantic City began constructing a 502-room hotel tower, a
25-room conference center, a 2,400 space parking garage, an expanded casino
floor and a 200,000 square foot themed shopping, dining and entertainment
complex called The Quarter. Tropicana intends to complete the project in the
third quarter of 2004. Resorts is currently constructing a hotel room addition
of approximately 400 rooms and is set to open in the third quarter of 2004. Our
business may be adversely impacted (i) by the additional gaming and room
capacity generated by this increased competition in Atlantic City and/or (ii) by
other projects not yet announced in New Jersey or in other markets (e.g.,
Pennsylvania, New York and Connecticut).
Gaming is a regulated industry and changes in the law could have a material
adverse effect on our ability to conduct gaming.
Gaming in New Jersey is regulated extensively by federal and state
regulatory bodies, including the CCC and state and federal taxing, law
enforcement and liquor control agencies. The ownership and operation of The
49
Sands is subject to strict state regulation under the NJCCA. We and our
affiliates have received the licenses, permits and authorizations required to
operate The Sands. Failure to maintain or obtain the requisite casino licenses
would have a material adverse effect on us.
Pending and enacted gaming legislation from neighboring States and New Jersey
may harm The Sands.
In the summer of 2003, the State of New Jersey considered approving
video lottery terminals ("VLTs") at the racetracks in the state and on July 1,
2003, the NJCCA was amended to impose various new and increased taxes on casino
license revenues. There is no guarantee that New Jersey will not consider
approving VLTs in the future, and if VLTs are approved, it could adversely
affect our operations, and an increase in the gross gaming tax without a
significant simultaneous increase in revenue would adversely affect our results
of operations.
Recently, the casino industry, the CRDA and the New Jersey Sports and
Exposition Authority have agreed to a plan regarding New Jersey video lottery
terminals. Although not final, under the plan, casinos will pay a total of $96
million over a period of four years, of which $10 million will fund, through
project grants, North Jersey CRDA projects and $86 million will be paid to the
New Jersey Sports and Exposition Authority who will then subsidize certain New
Jersey horse tracks to increase purses and attract higher-quality races that
would allow them to compete with horse tracks in neighboring states. In return,
the race tracks and New Jersey have committed to postpone any attempts to
install VLTs for at least four years. $52 million of the $86 million would be
donated by the CRDA from the casinos' North Jersey obligations and $34 million
would be paid by the casinos directly. It is currently estimated that The Sands'
current CRDA deposits for North Jersey projects are sufficient to fund The
Sands' proportionate obligations with respect to the $10 million and $52 million
commitments. The Sands' proportionate obligation with respect to the $34 million
commitment is estimated to be approximately $1.4 million payable over a four
year period. The Sands' proportionate obligation with respect to the combined
$10 million and $52 million commitment is estimated to be approximately $2.6
million payable over a four year period.
The Sands also competes with legalized gaming from casinos located on
Native American tribal lands. In October 2001, the New York State Legislature
enacted a bill, which the governor signed, authorizing a total of six Indian
casinos in the State of New York - three in Western New York and three in the
Catskill Region - and approved the use of video lottery terminals at racetracks
and authorized the participation of New York State in a multi-state lottery. On
January 29, 2002, a lawsuit was commenced contesting the above legislation
package on the grounds that certain of its provisions were adopted in violation
of the State's constitution. The likely outcome of this lawsuit cannot be
ascertained at this time. The implementation of VLTs and the outcome of this
lawsuit could adversely affect visitation of The Sands from New York.
Pennsylvania and Maryland are among the other states currently
contemplating some form of gaming legislation. Legislative proposals introduced
in Pennsylvania would potentially allow for a wide range of gaming activities,
including riverboat gaming, slot machines at racetracks, video lottery terminals
at liquor stores and the formation of a gaming commission. Maryland's proposed
legislation would authorize video lottery terminals at some of Maryland's racing
facilities. The results of the gubernatorial elections in Pennsylvania and
Maryland in 2002 have also increased the likelihood of gaming legislation in
such states. Neither Pennsylvania nor Maryland enacted any legalized gaming
legislation in their respective legislative sessions during the three months
ended March 31, 2004. Since The Sands' market is primarily a drive-to-market,
legalized gambling in Pennsylvania or one or more states neighboring or within
close proximity to New Jersey could have a material adverse effect on the
Atlantic City gaming industry overall, including The Sands.
Holders of the New Notes and the Existing Notes are subject to the CCC and the
NJCCA.
The holders of the New Notes and the Existing Notes will be subject to
certain regulatory restrictions on ownership. While holders of publicly traded
obligations such as the New Notes are generally not required to be investigated
and found suitable to hold such securities, the CCC has the discretionary
authority to (i) require holders of securities of corporations governed by New
Jersey gaming law to file applications; (ii) investigate such holders; and (iii)
require such holders to be found suitable or qualified to be an owner or
operator of a gaming establishment. Pursuant to the regulations of the CCC such
gaming corporations may be sanctioned, including the loss of its approvals, if,
without prior approval of the CCC, it (i) pays to the unsuitable or unqualified
person any dividend, interest or any distribution whatsoever; (ii) recognizes
any voting right by such unsuitable or unqualified person in connection with the
securities; (iii) pays the unsuitable or unqualified person remuneration in any
form; or (iv) makes any payments to the unsuitable or unqualified person by way
of principal, redemption, conversion, exchange,
50
liquidation, or similar transaction. If we are served with notice of
disqualification of any holder, such holder will be prohibited by the NJCCA from
receiving any payments on, or exercising any rights under, the New Notes or the
Existing Notes, as the case may be.
FORWARD-LOOKING STATEMENTS
This solicitation statement and prospectus contains statements that are
forward-looking. The statements are based on management's belief as well as
assumptions made by and information currently available to management. When used
in this document, the words "anticipate," "estimate," "estimated," "project,"
"intend," "expect," "will likely result," "will continue," "intends," "plans,"
and "projection," and similar expressions are intended to identify
forward-looking statements. Such statements involve certain risks, uncertainties
and assumptions that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statement contained in this solicitation statement and
prospectus. Any forward-looking statements are qualified in their entirety by
the reference to the factors discussed throughout this solicitation statement
and prospectus.
All of these forward-looking statements are based on estimates and
assumptions made by our management which, although believed to be reasonable,
are inherently uncertain. They are subject to uncertainties and factors relating
to our operations and business environment, all of which are difficult to
predict and many of which are beyond our control. Many factors mentioned in this
solicitation statement and prospectus, including the risks outlined under "RISK
FACTORS" as set forth on page 33 will be important in determining future
results.
Therefore, undue reliance should not be placed upon such estimates and
statements. No assurance can be given that any of such estimates will be
realized and it is likely that actual results will differ materially from those
contemplated by such forward-looking statements.
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the New Notes in
the exchange offer. In consideration for issuing the New Notes, we will receive
the Existing Notes in like principal amount. All Existing Notes received in the
exchange offer will be canceled.
51
DESCRIPTION OF THE TRANSACTION
BACKGROUND OF THE CONSENT SOLICITATION AND EXCHANGE OFFER
Pursuant to this solicitation statement and prospectus, Atlantic
Holdings is offering the holders of the Existing Notes the opportunity to
exchange such notes for the New Notes, thereby consenting to (i) the proposed
amendments to the Existing Indenture; (ii) the release of the liens on the
collateral securing the Existing Notes; and (iii) the terms of the New
Indenture. The consent solicitation and exchange offer are necessary aspects of
the Transaction and, upon consummation of the Transaction, GB Holdings and
Greate Bay Hotel will have transferred substantially all of their assets to
Atlantic Holdings subject to the right of the holders of the New Notes to
acquire 72.5% (on a fully diluted basis) of the outstanding Atlantic Holdings
Common Stock in exchange for all of the New Notes or a pro rata amount of the
Atlantic Holdings Common Stock if less than all of the Existing Notes are
exchanged. In addition to the consent solicitation and exchange offer, the
Transaction is composed of the Asset Transfer, the Merger and the Distribution
of Atlantic Holdings Securities.
BACKGROUND OF THE TRANSACTION
On or about March 11, 2003, Cyprus, LLC, an entity affiliated with Carl
C. Icahn, submitted a memorandum to GB Holdings outlining a possible refinancing
transaction with respect to the Existing Notes (the "Cyprus Memorandum"), in
which a newly formed subsidiary of GB Holdings would offer the holders of the
Existing Notes an opportunity to exchange the Existing Notes for notes that were
convertible into 75% of the outstanding common stock of such new entity and
accrued interest. Additionally, the holders of the Existing Notes would be asked
to consent to amendments to the Existing Indenture which would result in the
release of the collateral securing the Existing Notes and the removal of most of
the covenants. In preparing the Cyprus Memorandum, Cyprus believed that GB
Holdings would not have sufficient cash to pay the principal of the Existing
Notes at maturity, that it was appropriate to develop a transaction that would
have the effect of extending the maturity of the indebtedness represented by the
Existing Notes that are exchanged from 2005 to 2008 and eliminate the current
semi-annual interest payments and that current implementation of the Transaction
would be beneficial to GB Holdings. Having developed the Cyprus Memorandum,
Cyprus did not seek or consider alternative transactions. Other affiliates of
Mr. Icahn, that are also affiliates of GB Holdings, did not participate in the
preparation of the Cyprus Memorandum nor did they consider alternative
transactions.
Pursuant to a Unanimous Written Consent in lieu of a Meeting of the
Board, dated as of March 12, 2003, the Board formed the Special Committee which
includes the independent directors of the Board. The Special Committee, which
consists of Michael L. Ashner, Harold First, and Auguste E. Rimpel, Jr., was
delegated the authority to approve or reject a possible restructuring
transaction pursuant to which GB Holdings would restructure its existing
indebtedness, negotiate the terms of such a transaction, and consider,
authorize, and implement such a transaction.
On March 12, 2003, Mr. Ashner, on behalf of the Special Committee,
retained Katten Muchin Zavis Rosenman ("KMZR"), subject to the approval and
formal ratification by the Special Committee, as the legal counsel to the
Special Committee. At Mr. Ashner's request, KMZR contacted representatives of
several investment banking firms regarding their possible retention as the
financial advisor to the Special Committee to advise the Special Committee as to
the fairness, from a financial point of view, of the consideration to be
received by the stockholders of GB Holdings in the Transaction.
On April 10, 2003, the Special Committee held its inaugural meeting at
which the retention of KMZR as legal counsel to the Special Committee was
ratified and approved. Representatives of KMZR explained to the Special
Committee the role of the Special Committee in this matter, the Cyprus
Memorandum submitted to GB Holdings, and the legal documents necessary to
consummate the transaction contemplated by the Cyprus Memorandum. Additionally,
representatives of KMZR presented to the Special Committee information
concerning the various investment banking firms contacted by KMZR on behalf of
the Special Committee. The Special Committee was aware of the prior retention of
Libra Securities by the Audit Committee of American Property Investors, Inc., an
affiliate of GB Holdings, which was terminated prior to completion and did not
involve a transaction with GB Holdings. The Special Committee decided to retain
Libra Securities, subject to the execution of a definitive engagement letter.
The Special Committee authorized Mr. Ashner to negotiate the terms of and enter
into such an engagement letter.
52
On April 14, 2003, a definitive engagement letter was executed and
Libra Securities was retained as the financial advisor to the Special Committee
to render an opinion as to the fairness from a financial point of view of the
consideration to be received by the stockholders of GB Holdings in the
Transaction.
On April 25, 2003, the Special Committee met and elected Mr. Ashner as
the Chairman of the Special Committee and approved resolutions empowering Mr.
Ashner and KMZR to discuss with Cyprus the terms of the Cyprus Memorandum on
behalf of GB Holdings.
On May 12, 2003, the representatives of the Special Committee and its
counsel discussed the terms of the Cyprus Memorandum with management of GB
Holdings and with the representatives of Cyprus and requested that the equity
portion that the stockholders of GB Holdings would receive, on a fully diluted
basis, be increased.
On May 15, 2003, the representatives of the Special Committee and its
counsel discussed the terms of the Cyprus Memorandum with management of GB
Holdings and with the representatives of Cyprus. At such meeting, the
representatives of Cyprus stated that they were willing to increase the equity
portion that the stockholders of GB Holdings would receive, on a fully diluted
basis, from 25% to 27.5%. The representatives also explained that they were not
interested in proceeding with the proposed transaction if the stockholders of GB
Holdings would receive, on a fully diluted basis, more than 27.5% of the equity
portion. At that meeting, it was also discussed that if less than 100% of the
Existing Notes are exchanged the stockholders of GB Holdings would receive
warrants. Such warrants would be exercisable following the first to occur of (i)
the election of the holders of a majority of the aggregate principal amount of
the New Notes outstanding to be paid in common stock; (ii) the payment of the
principal of the unexchanged Existing Notes; or (iii) the election of the board
of directors of GB Holdings.
On May 19, 2003, the representatives of the Special Committee and its
counsel discussed the terms of the Cyprus Memorandum with management of GB
Holdings and with the representatives of Cyprus and discussed the mechanics of
the Transaction. Also the representatives of the Special Committee and its
counsel requested that (i) the maturity of the New Notes be extended past 2008
and (ii) the Cash Payment be lower than $100 per $1,000 of principal exchanged.
The representatives of the Special Committee did not request an interest rate
lower than 3%, because they believed that based on their knowledge of the
capital markets, such interest rate was more favorable than rates otherwise
available.
On May 28, 2003, the representatives of the Special Committee and its
counsel discussed the terms of the Cyprus Memorandum with management of GB
Holdings and with the representatives of Cyprus and further discussed the
mechanics of the Transaction. Also, the representatives of Cyprus explained that
they were unwilling to extend the term of the New Notes past 2008 and that they
were unwilling to accept a cash payment lower than $100 per $1,000 of principal
exchanged because the 3% interest which accrues and is not payable on a current
basis was, in their view, favorable to Atlantic Holdings.
On June 2, 2003 and June 5, 2003, the representatives of the Special
Committee and its counsel discussed the terms of the Cyprus Memorandum with
management of GB Holdings and with the representatives of Cyprus and further
discussed means of implementing the Transaction.
On June 10, 2003, the representatives of the Special Committee and its
counsel discussed the terms of the Cyprus Memorandum with management of GB
Holdings and with the representatives of Cyprus. At that meeting it was agreed
that the stockholders of GB Holdings would receive 27.5% of the equity of
Atlantic Holdings, on a fully diluted basis, subject to the receipt of an
opinion from Libra Securities as to the fairness from a financial point of view
of the consideration to be received by the stockholders of GB Holdings in the
Transaction. It was also agreed that warrants would be issued to the
stockholders of GB Holdings, if less than 100% of the Existing Notes are
exchanged.
On June 30, 2003, July 3, 2003, July 8, 2003 and July 9, 2003, counsel
to the Special Committee and representatives of Cyprus discussed the mechanics
of implementing the Transaction and various provisions of the indenture under
which the New Notes will be issued including (i) the payment terms; (ii) the
events of default; (iii) the restrictive covenants of the indenture governing
the New Notes; (iv) the conversion provisions of the New Notes; and (v) the form
of payment, prior to maturity, of the New Notes.
On July 10, 2003, the Special Committee met with counsel who explained
the details of the Transaction to the members of the Special Committee. Counsel
for the Special Committee explained to the Special Committee
53
their role, duties, and obligations in determining whether the Transaction would
be fair to and in the best interest of the stockholders of GB Holdings.
Additionally, counsel explained the Transaction, the proposed terms of the
indenture for the New Notes and changes to the indenture for the Existing Notes
as discussed between the Special Committee, counsel to the Special Committee,
and Cyprus, and certain changes proposed between the terms of the Transaction
and the terms of the Cyprus Memorandum including that (i) the stockholders of GB
Holdings would receive 27.5% (i.e. an additional 2.5%) of the outstanding common
stock of Atlantic Holdings (on a fully diluted basis); (ii) the stockholders
would receive either shares of Atlantic Holdings Common Stock or Warrants to
purchase shares of Atlantic Holdings Common Stock depending on whether all of
the Existing Notes were tendered for exchange; (iii) the New Notes would not be
callable as a result of a sale or change of control of Atlantic Holdings; (iv)
the New Notes would not be accelerated, and therefore payable, as a result of a
default under the Existing Indenture, including a default in the payment of the
unexchanged Existing Notes; (v) the holders of a majority of the aggregate
principal amount of the New Notes outstanding were provided with the right to
allow all holders of the New Notes to convert such notes into Atlantic Holdings
Common Stock at such majority holders election; and (vi) the New Indenture would
include restrictive covenants on additional indebtedness, liens, and
sale-leaseback transactions. Following such presentation, representatives of
Libra Securities reviewed with the Special Committee its fairness analysis of
the Transaction, as documented in a written summary of its analysis dated July
14, 2003, and orally expressed at that meeting (and subsequently confirmed in a
written opinion dated as of July 14, 2003) that as of the date of its written
opinion and based upon the assumptions made, matters considered and review
described in its written opinion, the consideration to be received by the
stockholders of GB Holdings in the Transaction was fair, from a financial point
of view, to the stockholders of GB Holdings. Specifically the Special Committee
considered whether GB Holdings should wait until September 2005 and attempt to
pay the principal and interest due on the Existing Notes at maturity or whether
GB Holdings should try to refinance the Existing Notes at or prior to maturity
through the commercial debt market. The Special Committee determined that based
on current expectations, it did not believe that GB Holdings would have
sufficient cash resources to pay the principal owed on the Existing Notes at
maturity in September 2005 and would be forced to either sell the assets of GB
Holdings or default on the Existing Notes. The Special Committee determined that
a sale of the assets of GB Holdings would not be in the best interest of the
stockholders of GB Holdings since approximately 75% of the proceeds of such sale
would be required to pay the principal and accrued interest on the Existing
Notes, while only approximately 25% or less of the proceeds of such sale would
be distributed to the stockholders of GB Holdings. In reaching its conclusion as
to the advisability of the Transaction, the Special Committee took into account
its discussions with Libra Securities during which Libra Securities expressed
its belief that, based on its experience in gaming industry finance and capital
markets, it was unlikely that GB Holdings would be able to obtain third party
financing on terms as favorable as the financing available with the New Notes.
Libra Securities' view was expressed in response to a direct question of the
Special Committee as to alternative financings and without Libra Securities
performing any independent investigation as to available financing alternatives.
Libra Securities did not, and the Special Committee did not request that Libra
Securities, seek alternative financing.
On July 14, 2003, Libra Securities presented to the Special Committee
its fairness opinion and the Special Committee unanimously determined, among
other things, that:
o the consummation of the Transaction is fair to and in the best
interest of the stockholders of GB Holdings, including whether the
stockholders of GB Holdings receive Atlantic Holdings Common Stock
or Warrants;
o the Transaction be submitted to the stockholders of GB Holdings
for their review and, if necessary, approval; and
o the Special Committee recommends to the Board that the Board
recommend to the stockholders of GB Holdings that they vote in
favor of the Transaction if approval of the stockholders of GB
Holdings is required.
On September 30, 2003, Libra Securities and the Special Committee
amended the engagement letter to retain Libra Securities to provide certain
financial information to be used in the preparation of the pro forma financial
statements to be included in the Proxy Statement/Prospectus.
On November 7, 2003, Libra Securities delivered its valuation estimate
to GB Holdings.
54
On November 12, 2003, the Special Committee met and representatives of
KMZR explained the content of the Transaction Documents to be executed and filed
with the SEC in connection with the Transaction. The Special Committee
recommended to the Board that it authorize the filing of the Transaction
Documents and any amendments thereto in form and substance as the officers of GB
Holdings determine to be appropriate and necessary.
On November 12, 2003, the Board of Directors of GB Holdings, Greate Bay
Hotel, GB Property, and Atlantic Holdings and Atlantic Holdings, as the manager
of ACE Gaming (collectively the "Boards") met and representatives of KMZR
explained the Transaction and Libra Securities reviewed its fairness opinion
with the Boards. Additionally, the Boards reviewed the recommendation of the
Special Committee. It was also explained to the Boards that while the Special
Committee initially recommended the Transaction on July 14, 2003, the Boards
were not given the opportunity to approve it until November 12, 2003, because of
the complexity of the Transaction, the time required to prepare the financial
information, and the time required to prepare the other information required in
the Registration Statement. Mr. Icahn did not attend the meeting. Following
discussions between the Boards and the Special Committee, the Boards, after due
consideration, unanimously determined (Messrs. Hirsch and Saldarelli
abstaining), among other things, that:
o the officers of GB Holdings are authorized to file the Transaction
Documents, and any amendments thereto, underlying the Transaction
with the SEC in form and substance as they reasonably determine;
o the consummation of the Transaction is fair to and in the best
interest of the stockholders of GB Holdings, including whether the
stockholders of GB Holdings receive Atlantic Holdings Common Stock
or Warrants;
o the Transaction should be submitted to the stockholders of GB
Holdings for their vote and approval;
o the Boards recommend to the stockholders of GB Holdings that they
vote in favor of the Transaction; and
o the consent solicitation and exchange offer to the holders of the
Existing Notes be implemented.
Messrs. Hirsch and Saldarelli abstained because each of them is employed by
American Real Estate Partners, L.P., a company affiliated with Mr. Icahn and in
light of such relationship determined that it was appropriate to abstain.
On May 26, 2004, the Special Committee met with its counsel to review
the Transaction and the Transaction Documents which had been filed with the SEC
in connection with the Transaction, discussed the changes that had been made to
the Transaction Documents in the various amendments that were filed with the
SEC, discussed the fairness of the proposed Transaction and the business,
operations, and financial condition of GB Holdings and the impact of the
Transaction on GB Holdings and its stockholders. Also the Special Committee
discussed the fairness opinion of Libra Securities. After such discussion, the
Special Committee unanimously determined, among other things, that:
o the consummation of the Transaction is fair to and in the best
interest of the stockholders of GB Holdings, including whether the
stockholders of GB Holdings receive Atlantic Holdings Common Stock
or Warrants;
o the contributions and mergers required in connection with the
Transaction are in the best interest of GB Holdings and its
stockholders and the agreements and documents required to effect
such transactions are approved and the officers of GB Holdings are
authorized to execute and deliver such agreements and documents
and effectuate the transactions set forth herein;
o the Special Committee recommends to the Boards that the Boards
approve the Transaction and recommend to the stockholders of GB
Holdings that they vote in favor of the Transaction; and
o the Transaction be submitted to the stockholders of GB Holdings
for their review and approval.
On May 26, 2004, the Boards met with its counsel to review the
Transaction and the Transaction Documents which had been filed with the SEC in
connection with the Transaction, discussed the changes that had been made to the
Transaction Documents in the various amendments that were filed with the SEC,
discussed the fairness of the proposed Transaction and the business, operations,
and financial condition of GB Holdings and the impact of the Transaction on GB
Holdings and its stockholders. Also Boards discussed the fairness opinion of
Libra Securities. Mr. Icahn did not attend the meeting. Following discussions
between the Boards and the Special Committee, the Boards, after due
consideration, unanimously determined (Messrs. Hirsch and Saldarelli
abstaining), among other things, that:
55
o the officers of GB Holdings are authorized to file the Transaction
Documents, and any amendments thereto, underlying the Transaction
with the SEC;
o the consummation of the Transaction is fair to and in the best
interest of the stockholders of GB Holdings, including whether the
stockholders of GB Holdings receive Atlantic Holdings Common Stock
or Warrants;
o the officers of GB Holdings are authorized to schedule the Special
Meeting of the stockholders of GB Holdings, and that the record
date for holders of common stock of GB Holdings entitled to vote
at the Special Meeting is June 30, 2004;
o the officers of GB Holdings and Atlantic Holdings are authorized
to execute and deliver agreements with third parties as may be
necessary to effectuate the Transaction;
o the officers of Atlantic Holdings are authorized to file all
documents necessary for registration of the Atlantic Holdings
Common Stock and the New Notes in any state whbere it is required;
o the consent solicitation and exchange offer to the holders of the
Existing Notes be implemented and the officers of Atlantic
Holdings are authorized to commence the Exchange Offer after the
SEC declares the Consent Solicitation and Exchange Offer
effective;
o the contributions and mergers required in connection with the
Transaction are approved and that the officers of GB Holdings and
subsidiaries are authorized to execute and deliver them;
o the Transaction should be submitted to the stockholders of GB
Holdings for their vote and approval; and
o the Boards recommend to the stockholders of GB Holdings that they
vote in favor of the Transaction.
Messrs. Hirsch and Saldarelli abstained because each of them is employed by
American Real Estate Partners, L.P., a company affiliated with Mr. Icahn and in
light of such relationship determined that it was appropriate to abstain.
DESCRIPTION OF THE TRANSACTION
Manner of Effecting the Asset Transfer and the Distribution of Atlantic
Holdings Securities
In order to consummate the Transaction, the consent of the stockholders
of GB Holdings and of the holders of a majority of the aggregate principal
amount of the Existing Notes outstanding is necessary prior to the following
actions: (i) GB Holdings' transfer of all of its assets and liabilities (except
the stock of GB Property and Greate Bay Hotel and its obligation as a guarantor
of the Existing Notes) to Greate Bay Hotel and (ii) Greate Bay Hotel's transfer
of the assets and liabilities it received from GB Holdings and all of its assets
(except the stock of Atlantic Holdings) and certain of its liabilities to
Atlantic Holdings (which will agree to issue New Notes in exchange for Existing
Notes and cancel such Notes) which will then transfer such assets (except an
amount of cash to be used for the Cash Payment) and liabilities to ACE Gaming.
In exchange for the transfer by Greate Bay Hotel, Atlantic Holdings will
distribute (the "Distribution of Atlantic Holdings Securities") to Greate Bay
Hotel (i) the Atlantic Holdings Securities (i.e., either Holders Equity or
Warrants representing 27.5% of the outstanding Atlantic Holdings Common Stock,
in each case, on a fully diluted basis) to Greate Bay Hotel and (ii) Atlantic
Holdings Common Stock, expressed as a percentage, equal to the product of 72.5%
multiplied by a fraction in which the principal of the unexchanged Existing
Notes is divided by the total aggregate principal amount of the Existing Notes
outstanding immediately prior to the consummation of the exchange offer,
representing the unexchanged Existing Notes. As part of the Transaction,
Atlantic Holdings will cancel all Existing Notes which it receives in the
exchange offer. Also, through a series of mergers, GB Property, Greate Bay Hotel
and GB Holdings will merge (the "Merger"), with GB Holdings as the surviving
corporation, resulting in GB Holdings owning the Atlantic Holdings
56
Securities, GB Holdings being the obligor of the Existing Notes and Atlantic
Holdings being a wholly-owned subsidiary of GB Holdings. After the completion of
the Merger, GB Holdings will distribute the Atlantic Holdings Securities pro
rata to the stockholders of GB Holdings as of the effective date of the Merger.
It is expected that certificates representing the Atlantic Holdings Securities
will be mailed to the stockholders of GB Holdings as soon as practicable after
the consummation of the Transaction.
As soon as reasonably practicable following the consummation of the
Transaction, the Board will apply to delist the common stock of GB Holdings from
trading on the American Stock Exchange by filing an application with the
American Stock Exchange and the Securities and Exchange Commission. Also, if
100% of the Existing Notes are exchanged, the Board will take the steps
necessary to elect to dissolve GB Holdings, satisfy any obligations or
liabilities with its assets and distribute any remaining assets to its
stockholders.
In structuring and approving the Transaction, the Special Committee,
the Boards and the Affiliates believed that to refinance the Existing Notes on
terms favorable to GB Holdings (including lowering the interest rate, extending
the maturity date, and having the interest accrue and be payable only at
maturity), GB Holdings needed to obtain the consent of the holders of a majority
of the aggregate principal amount of the Existing Notes outstanding. Pursuant to
the terms of the Existing Indenture, such consent is necessary in order to
transfer the assets of GB Holdings and its subsidiaries to the newly formed
subsidiary. The Boards and the Special Committee concluded, as contemplated by
the Cyprus Memorandum, that it was necessary to provide such holders additional
benefits, including providing a cash payment of $100 per $1,000 principal amount
of Existing Notes tendered for exchange and providing holders of the new debt
security the possibility of obtaining up to an aggregate of 72.5% (on a fully
diluted basis) of the equity of the newly formed subsidiary. Also, the Boards
and the Special Committee acknowledged, as contemplated by the Cyprus
Memorandum, that the assets of GB Holdings and its subsidiaries should be
transferred to the newly formed subsidiary to secure the new debt security with
a lien on such assets. Furthermore, by transferring the assets, the Existing
Notes outstanding after consummation of the Transaction would be unsecured.
In connection with the transfer of the assets, the Special Committee
determined that under Delaware law the approval of the stockholders of GB
Holdings is required because the Transaction may be deemed to constitute a
transfer of substantially all of the assets of GB Holdings to a company in
which, the current stockholders of GB Holdings would only own 27.5% of the
outstanding equity. In determining the consideration to be distributed to the
stockholders of GB Holdings following such transfer, the Special Committee
determined that Warrants should initially be issued to the stockholders of GB
Holdings, rather than Atlantic Holdings Common Stock, after consultation with
its legal advisor, in light of the fact that upon consummation of the
Transaction, such stockholders would continue to own common stock of GB Holdings
and GB Holdings would own all of the outstanding Atlantic Holdings Common Stock.
The Warrants would provide such stockholders the opportunity for direct
ownership in Atlantic Holdings if, among other things, the holders of the New
Notes obtained direct equity interests in Atlantic Holdings and thereby changed
the equity position of the stockholders of the GB Holdings in Atlantic Holdings.
Prior to the submission of the Cyprus Memorandum, no discussions were
held among or between the management of GB Holdings, the Boards, or Cyprus with
respect to the refinancing of the Existing Notes. In preparing the Cyprus
Memorandum, Cyprus did not retain an independent financial advisor, but rather
determined the terms on its own behalf. Upon its receipt of the Cyprus
Memorandum, the Board determined that based on its composition, it was necessary
to appoint the Special Committee to approve or reject the proposed transaction
and to negotiate, authorize, and implement the Transaction. In creating the
Special Committee, the Board did not place any limitations on it and empowered
it to retain an independent legal and financial advisor. Based on its
instructions, the Special Committee had sole responsibility for, and
unilaterally discussed on behalf of GB Holdings, the terms of the Transaction,
with the advice of its legal advisor and after discussions with its financial
advisor as to the fairness, from a financial point of view, of the consideration
to be received by the stockholders of GB Holdings in the Transaction.
Manner of Effecting the Consent Solicitation and Exchange Offer
In order to consummate the Transaction, holders of a majority of the
aggregate principal amount of the Existing Notes outstanding are required to
elect to tender for exchange the Existing Notes (whether directly by the
noteholders, their broker or their depository) for the New Notes on a dollar for
dollar basis thereby consenting to (i) the proposed amendments to the Existing
Indenture; (ii) the release of the liens on the collateral securing the Existing
Notes; and (iii) the terms of the New Indenture. Atlantic Holdings will pay each
holder of the Existing
57
Notes that elects to exchange the Cash Payment and all interest accrued on the
Existing Notes through the date of such exchange. If holders of 100% of the
Existing Notes elect to exchange the Existing Notes for the New Notes, the
stockholders of GB Holdings will receive 27.5% (on a fully diluted basis), of
the outstanding Atlantic Holdings Common Stock, pro rata, from GB Holdings in
connection with the Transaction. Also, prior to the election of the holders of a
majority of the aggregate principal amount of the New Notes outstanding to be
paid in Atlantic Holdings Common Stock, such stockholders will own 100% of the
Atlantic Holdings Common Stock. If holders of less than 100% of the aggregate
principal amount of the Existing Notes outstanding elect to exchange the
Existing Notes for the New Notes, the stockholders of GB Holdings will receive
Warrants for 27.5% (on a fully diluted basis) of the outstanding Atlantic
Holdings Common Stock, pro rata from GB Holdings in connection with the
Transaction. Also, prior to the election of the holders of a majority of the
aggregate principal amount of the New Notes outstanding to be paid in Atlantic
Holdings Common Stock, GB Holdings will own 100% of the Atlantic Holdings Common
Stock. Additionally, if holders of less than 100%, of the Existing Notes elect
to exchange the Existing Notes for the New Notes, GB Holdings will receive a
percent of Atlantic Holdings Common Stock representing the exchange of the
Existing Notes, on a fully diluted basis, equal to the product of 72.5%
multiplied by a fraction, the numerator of which is the principal amount of the
Existing Notes which were not exchanged and the denominator of which is the
total outstanding principal amount of the Existing Notes on the day immediately
prior to the consummation of the exchange offer.
Terms of the Consent Solicitation
Pursuant to the consent solicitation and exchange offer, the holders of
the Existing Notes will have the opportunity to consent to (i) the proposed
amendments to the Existing Indenture; (ii) the release of the liens on the
collateral securing the Existing Notes; and (iii) the terms of the New Indenture
by electing to exchange their Existing Notes for New Notes. As a result of the
amendments to the Existing Indenture, the Second Amended and Restated Indenture
will not apply to Atlantic Holdings or ACE Gaming. If the holders of the
Existing Notes, consent to the proposed amendments to the Existing Indenture,
significant provisions of the Existing Indenture that restrict GB Holdings'
ability to transfer or sell the assets, limit the opportunities of the
subsidiaries of GB Holdings, and limit the actions of GB Holdings and its
subsidiaries will be removed or significantly altered. Additionally, pursuant to
the proposed amendments, GB Holdings will have the ability to transfer the
collateral securing the Existing Notes, because following the amendments, the
Existing Notes will no longer be secured. For more information about the
proposed amendments to the Existing Indenture, please see "PROPOSED AMENDMENTS"
as set forth on page 80.
Terms of the New Notes
Pursuant to the exchange offer, the holders of the Existing Notes will
be offered the choice of retaining the Existing Notes, modified pursuant to the
consent solicitation, or exchanging the Existing Notes for the New Notes which
will be issued by Atlantic Holdings, which bear interest at the rate of 3%
interest per annum, which will accrue and be payable at maturity, and, at the
election of the holders of a majority in aggregate principal amount of the New
Notes outstanding, be paid in or convertible into Atlantic Holdings Common
Stock. If less than 100% of the holders of the aggregate principal amount of the
Existing Notes outstanding elect to exchange such notes for the New Notes, the
New Notes may be paid in or convertible into Atlantic Holdings Common Stock (if
elected by a majority of the holders of the aggregate principal amount of the
New Notes) equal to 72.5% (on a fully diluted basis) of the total outstanding
Atlantic Holdings Common Stock multiplied by a fraction, the numerator of which
is the aggregate principal amount of the Existing Notes outstanding that elects
to exchange and the denominator of which is the amount of aggregate principal
amount of the Existing Notes outstanding on the day immediately prior to the
consummation of the exchange offer. Affiliates of Carl C. Icahn have indicated
their intent to tender for exchange the Existing Notes, although such affiliates
have not entered into any agreements or other arrangements requiring such
affiliates to consent or tender their Existing Notes for exchange and such
holders are free to decide not to consent or tender their Existing Notes for
exchange. If such affiliates tender, they will own at least 58% of the aggregate
principal amount of the New Notes outstanding, thereby giving them the ability
to determine whether the principal and accrued interest on the New Notes be paid
in or converted into Atlantic Holdings Common Stock instead of cash.
Additionally, the New Notes will be paid in Atlantic Holdings Common Stock at
the election of the holders of a majority of the aggregate principal amount of
the New Notes outstanding and will have customary anti-dilution protection. For
more information about the New Notes, please see "DESCRIPTION OF THE NEW NOTES"
as set forth on page 83.
58
The exchange ratio was determined following discussions between the
Special Committee and Cyprus. Initially a memorandum was submitted by Cyprus to
the Board. Such memorandum set forth a refinancing transaction with respect to
the Existing Notes that Cyprus believed would be beneficial to GB Holdings, in
which the holders of the New Notes would receive approximately 75% of the
outstanding equity of Atlantic Holdings. Cyprus believed that after payment of
the Existing Notes, the value of the remaining equity would approximate 25% of
the enterprise value of GB Holdings and its subsidiaries and the holders of the
New Notes, upon payment in or conversion into common stock, should be entitled
to equity interest representing 75% of the enterprise value. Following receipt
of this memorandum, as a result of discussions between the Special Committee and
Cyprus, it was agreed that the holders of the New Notes would be eligible to
receive up to 72.5%, on a fully diluted basis, of the outstanding equity of
Atlantic Holdings at the election of the holders of a majority of the aggregate
principal amount of the New Notes as full payment for the New Notes, and the
stockholders of GB Holdings would receive 27.5% of the outstanding common stock
on a fully diluted basis. The Transaction was designed to extend the maturity
date of the indebtedness, represented by the Existing Notes that are exchanged
from 2005 to 2008, and to reduce the existing interest payment obligation by
providing that the New Notes bear interest of the rate of 3% per annum which
accrues and is not payable until maturity. The terms of the New Notes, the
Special Committee determined that for the Transaction to be successful, the
non-financial and non-payment related terms of the New Notes must be
substantially similar to the terms of the Existing Notes. The terms of the New
Notes provided for under the New Indenture are the same as the proposed terms of
the New Notes included in the Cyprus Memorandum except that (i) the stockholders
of GB Holdings would receive 27.5% (i.e. an additional 2.5%) of the outstanding
common stock of Atlantic Holdings (on a fully diluted basis); (ii) the
stockholders would receive either shares of Atlantic Holdings Common Stock or
Warrants to purchase shares of Atlantic Holdings Common Stock depending on
whether all of the Existing Notes were tendered for exchange; (iii) the New
Notes would not be callable as a result of a sale or change of control of
Atlantic Holdings; (iv) the New Notes would not be accelerated, and therefore
payable, as a result of a default under the Existing Indenture, including a
default of the payment of the unexchanged Existing Notes; (v) the holders of a
majority of the aggregate principal amount of the New Notes outstanding were
provided with the right to allow all holders of the New Notes to convert such
notes into Atlantic Holdings Common Stock at such holders election; and (vi) the
New Indenture would include restrictive covenants on additional indebtedness,
liens, and sale-leaseback transactions.
Results of the Asset Transfer and Distribution of Atlantic Holdings
Securities
Upon the completion of the Transaction, Atlantic Holdings will be a
wholly-owned subsidiary of GB Holdings and the operating assets and cash, less
the Cash Payment, of GB Holdings and Greate Bay Hotel will be owned by ACE
Gaming. Atlantic Holdings' capitalization will include: (i) the New Notes having
a principal amount equal to the principal amount of the Existing Notes that are
exchanged; (ii) the Atlantic Holdings Securities representing 27.5% (on a fully
diluted basis) of the outstanding Atlantic Holdings Common Stock; and (iii)
Atlantic Holdings Common Stock equal to the pro rata portion of the 72.5% (on a
fully diluted basis) of the outstanding Atlantic Holdings Common Stock
representing the unexchanged Existing Notes. Pursuant to the terms of the
Warrants, under certain conditions, the Warrants will be exercisable for 27.5%
(on a fully diluted basis) of the outstanding Atlantic Holdings Common Stock.
Assuming exercise of the Warrants and payment or conversion of all New Notes,
Atlantic Holdings expects to have approximately 10 million shares of Atlantic
Holdings Common Stock outstanding, but because the date of exercise and date of
payment or conversion cannot be determined at this point, Atlantic Holdings is
not able to anticipate the number of holders of record of Atlantic Holdings
Common Stock.
If the holders of 100% of the Existing Notes elect to exchange the
Existing Notes for the New Notes thereby consenting to (i) the proposed
amendments to the Existing Notes; (ii) the release of the liens on the
collateral; and (iii) the terms of the New Indenture, the number and identity of
the stockholders of Atlantic Holdings immediately after the consummation of the
Transaction (but prior to the payment in or conversion into Atlantic Holdings
Common Stock) will be the same as the number and identity of the stockholders of
GB Holdings on the date of the consummation. Immediately after the consummation
of the Transaction, Atlantic Holdings expects to have 10 million shares of
Atlantic Holdings Common Stock outstanding (on a fully diluted basis, including
those reserved for conversion of the New Notes), based on the anticipated number
of record stockholders and issued and outstanding shares of common stock of GB
Holdings as of the close of business on or about July 1, 2004 and the
distribution ratio of 0.275 shares of Atlantic Holdings Common Stock for each
outstanding share of common stock of GB Holdings.
59
Following the consummation of the Transaction, if less than 100% of the
Existing Notes are exchanged, GB Holdings will own 100% of the Atlantic Holdings
Common Stock outstanding, on a non-diluted basis; the sole asset of GB Holdings
will be the Atlantic Holdings Common Stock and GB Holdings will be obligated to
fulfill the terms of the Existing Notes that are not exchanged. Following the
earliest of (i) the payment in full of the outstanding principal amount and the
accrued interest on the Existing Notes which have not been exchanged for New
Notes; (ii) a decision by a majority of the Board of Directors of Atlantic
Holdings (including at least one independent director) to allow the holders of
the Warrants to exercise such Warrants into Atlantic Holdings Common Stock; or
(iii) the payment in cash or Atlantic Holdings Common Stock for the New Notes on
the conversion, in whole or in part, of any of the New Notes into Shares of
Atlantic Holdings Common Stock as full satisfaction of the principal and accrued
interest due pursuant to the New Notes, the Warrants will become exercisable for
Atlantic Holdings Common Stock. Upon such exercise, the holders of the Warrants
will own an aggregate of 27.5% of the outstanding Atlantic Holdings Common
Stock, the holders of the New Notes will own up to an aggregate 72.5% of the
outstanding Atlantic Holdings Common Stock, GB Holdings sole asset will be
Atlantic Holdings Common Stock (or the cash proceeds if such stock was sold)
representing the portion of the Existing Notes that were not exchanged, and GB
Holdings will be obligated to fulfill the terms of the Existing Notes.
In the alternative, if 100% of the Existing Notes are exchanged,
following the consummation of the Transaction, the stockholders of GB Holdings
will own 100% of the outstanding Atlantic Holdings Common Stock, on a
non-diluted basis, and GB Holdings will have no assets or liabilities. Following
the election of the holders of a majority of the aggregate principal amount of
the New Notes outstanding, such former holders of the New Notes will own an
aggregate of 72.5% of the outstanding Atlantic Holdings Common Stock and the
stockholders of GB Holdings will own an aggregate of 27.5% of the outstanding
Atlantic Holdings Common Stock. At this time, it is impossible to estimate the
value of Atlantic Holdings Common Stock. However, it is possible that the value
of such stock, following payment, would be less than the cash payment to which
the holders of the New Notes would otherwise be entitled to at the maturity of
the New Notes.
Immediately following consummation of the Transaction, if (a) 100% of
the Existing Notes are exchanged, no Warrants will be issued to the stockholders
of GB Holdings, an aggregate of 2,750,000 shares of Atlantic Holdings Common
Stock will be issued to the stockholders of GB Holdings (of which approximately
2,117,500 shares of Atlantic Holdings Common Stock will be issued to the
Affiliates (as defined herein)), and a Cash Payment equal to $11 million, in the
aggregate, will be made to the holders of the Existing Notes who exchange their
Existing Notes (of which approximately $6,380,000 will be paid to the
Affiliates); (b) 80% of the Existing Notes are exchanged, an aggregate of
1,450,000 shares of Atlantic Holdings Common Stock will be issued to GB
Holdings, an aggregate of 10 million Warrants exercisable for 2,750,000 shares
of Atlantic Holdings Common Stock will be issued pro rata to the stockholders of
GB Holdings, (of which the Affiliates will receive approximately 7,700,000
Warrants exercisable for approximately 2,117,500 shares of Atlantic Holdings
Common Stock), and a Cash Payment equal to $8,800,000, in the aggregate, will be
made to the holders of the Existing Notes who exchange their Existing Notes (of
which approximately $6,380,000 will be paid to the Affiliates); and (c) 58% of
the Existing Notes are exchanged, an aggregate of 3,045,000 shares of Atlantic
Holdings Common Stock will be issued to GB Holdings, an aggregate of 10 million
Warrants exercisable for 2,750,000 shares of Atlantic Holdings Common Stock will
be issued pro rata to the stockholders of GB Holdings (of which the Affiliates
will receive approximately 7,700,000 Warrants exercisable for approximately
2,117,500 shares of Atlantic Holdings Common Stock), and a Cash Payment equal to
$6,380,000, in the aggregate, will be made to the holders of the Existing Notes
who exchange their Existing Notes (of which approximately $6,380,000 will be
paid to the Affiliates). Assuming consummation of the Transaction on July 1,
2004, an aggregate of approximately $1,740,000, $2,400,000, and $3 million in
interest payments will be paid to holders who exchange Existing Notes assuming
58%, 80%, and 100%, respectively, of the Existing Notes are exchanged for New
Notes.
No Issuance of Fractional Shares of Atlantic Holdings Common Stock
All fractions of shares of Atlantic Holdings Common Stock will be
rounded down to the nearest whole number of shares and no certificates or scrip
representing fractional interests in shares of Atlantic Holdings Common Stock
will be issued to the holders of the New Notes upon the election of the majority
of the holders of the New Notes to be paid in or allow conversion into Atlantic
Holdings Common Stock instead of cash.
60
U.S. Federal Tax Consequences of the Asset Transfer and Exchange Offer
Our counsel, Katten Muchin Zavis Rosenman, has advised us that that the
transfer of substantially all of Greate Bay Hotel's assets to Atlantic Holdings
and the merger of Greate Bay Hotel into GB Holdings should, for U.S. federal
income tax purposes, qualify as a tax-free reorganization. If so, Greate Bay
Hotel should recognize no gain or loss on the transfer of substantially all of
its assets to Atlantic Holdings and GB Holdings should recognize no gain or loss
from the merger of Greate Bay Hotel into GB Holdings. Atlantic Holdings should
have a tax basis in the transferred assets equal to Greate Bay Hotel's adjusted
tax basis in those assets. However, the opinion of our counsel is not free from
doubt because (1) Greate Bay Hotel will retain its liability on the Existing
Notes not exchanged so that Greate Bay Hotel may not transfer substantially all
of its liabilities to Atlantic Holdings; (2) a minimum of a majority of the
Existing Notes are being refinanced as part of the Transaction; and (3) the
Distribution of the Atlantic Holding Securities, if considered part of the
transfer of substantially all of Greate Bay Hotel's assets to Atlantic Holdings
and the merger of Greate Bay Hotel into GB Holdings, could disqualify such
transaction from tax-free reorganization treatment.
As further set out below, the tax treatment of U.S. holders, as defined
in the section entitled "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" as set
forth on page 123, who participate in the exchange offer will depend on whether
or not the exchange offer qualifies as a tax-free recapitalization under the
Code. Specifically, the exchange offer will qualify as a tax-free
recapitalization only if the Existing Notes and the New Notes are considered
"securities," for U.S. federal tax law purposes, issued by the same person. As
to the Existing Notes and the New Notes both being securities, neither the Code
nor the Treasury Regulations promulgated thereunder define "security" for
purposes of a tax-free recapitalization. Instead, the cases and IRS rulings
interpreting the Code have generally tested whether a debt instrument qualifies
as a "security" on a case-by-case basis, using the facts and circumstances
surrounding the issuance of the debt instrument. We have been advised by counsel
that, although their opinion is not free from doubt, it is more likely than not
that the exchange offer should be a taxable transaction. Our counsel's opinion
is not free from doubt because the application of the relevant case law to the
exchange offer is unclear since cases and IRS rulings concerning debt
instruments somewhat similar to the Notes have reached inconsistent conclusions
as to whether the debt instrument was a "security" for tax-free recapitalization
purposes. Moreover, such determination may depend, in part, on future events
which are not now known, such as whether and when the New Notes are converted
into Atlantic Holdings Common Stock, as the common stock of a company is
generally a "security" for purposes of tax-free recapitalization treatment.
Further, such determination may also depend, in part, on factors that our
counsel would be unable to determine, such as the intent of the note holders in
acquiring the Existing Notes or the New Notes, as such factors are sometimes
relevant in determining whether the Notes represent a long-term proprietary
investment or a short-term loan. In light of the foregoing and despite our
counsel's opinion that it is more likely than not that the exchange offer should
be a taxable transaction, our counsel has also advised us that the exchange
offer may be a tax-free recapitalization for a participant in the exchange offer
for whom both the Existing Notes and the New Notes represent a continuing
proprietary interest in the business of the respective issuer. The following
paragraphs describe the different U.S. federal income tax consequences,
depending on whether the exchange offer qualifies as a tax-free
recapitalization.
If the exchange offer qualifies as a tax-free recapitalization, no gain
or loss would be recognized by you on your exchange of your Existing Notes for
the New Notes. However, you should recognize gain upon your receipt of the Cash
Payment equal to the lesser of the Cash Payment and the gain you would have
recognized had the exchange offer not been a tax-free recapitalization. Assuming
that you hold your Existing Notes as a capital asset, gain generally recognized
by reason of the Cash Payment would be treated as capital gain, and should be
long-term capital gain if the Existing Notes had been held for more than one
year at the time of the exchange. Further, payment of all accrued but unpaid
interest on the Existing Notes through the date of the exchange should be
treated as ordinary income. Your initial tax basis in the New Notes would equal
the tax basis you had in your Existing Notes, decreased by the amount of the
Cash Payment, and increased by the amount of gain recognized upon receipt of the
Cash Payment. Your holding period for your New Notes would include the period
during which you held your Existing Notes.
If the exchange offer does not qualify as a tax-free recapitalization,
the gain recognized on the exchange should be equal to the amount, if any, by
which the sum of (i) the Issue Price of the New Notes, and (ii) the Cash
Payment, exceeds your adjusted tax basis in your Existing Notes. The Issue Price
of the New Notes may be
61
based on the fair market value of the New Notes or the Existing Notes if the New
Notes or the Existing Notes are Publicly Traded. GB Holdings anticipates taking
the position that neither the New Notes nor the Existing Notes will be Publicly
Traded if no active market is made in the New Notes or the Existing Notes. No
assurance can be given, however, that the IRS will agree with this position. As
described in more detail in the section entitled "MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES as set forth on page 135, the determination of whether the New
Notes or the Existing Notes are Publicly Traded will depend on facts, not within
our control, in existence during a minimum of thirty (30) days before the
Transaction and a minimum of thirty (30) days after the Transaction. As neither
we nor our counsel can control these facts, some of which will not be known
until after the Transaction, our counsel cannot opine as to the Issue Price of
the New Notes.
In the event that neither the New Notes nor the Existing Notes are
Publicly Traded, the Issue Price of the New Notes should be their Imputed
Principal Amount, which amount, based on the applicable federal rate as of June
2004, should be slightly less than the face value of the New Notes. If so,
assuming your tax basis in the Existing Notes is equal to the face value of the
New Notes (e.g., if you did not purchase your Existing Notes at a premium or
discount) you should have taxable gain from participating in the consent
solicitation and exchange offer approximately equal to substantially all of the
Cash Payment. If your tax basis in the Existing Notes is below the face value of
the New Notes (e.g., if you purchased your Existing Notes at a discount) your
taxable gain should be approximately increased by the amount, if any, by which
the face value of the New Notes exceeds your tax basis in the Existing Notes.
Assuming that you hold your Existing Notes as a capital asset, gain or loss
generally recognized on the exchange of the Existing Notes would be capital gain
or loss, except to the extent attributable to accrued but unpaid interest
(including the contemplated payment of all accrued but unpaid interest on the
Existing Notes through the date of the exchange) and accrued market discount
that has not previously been included in your gross income (which amount would
be treated as ordinary income), and should be long-term capital gain or loss if
the Existing Notes had been held for more than one year at the time of the
exchange. The deduction of capital losses is subject to certain limitations
under the Code. The holding period of the New Notes should commence on the date
of the exchange. The tax basis of the New Notes should be their Issue Price,
which, though anticipated to be based on their face value, may be based instead
on the fair market value of the New Notes or the Existing Notes if either the
New Notes or the Existing Notes are Publicly Traded. Non-U.S. holders
participating in the exchange offer should be exempt from United States income
or withholding tax, provided that they meet certain requirements. See "MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES" as set forth on page 135 for these
requirements and for a more detailed description of the U.S. federal income tax
consequence of participating in the exchange offer. You should consult your own
tax advisor as to the U.S. federal, state, local and any foreign tax
consequences of exchanging your Existing Notes.
U.S. holders of Existing Notes who do not participate in the exchange
offer should nonetheless be deemed, for U.S. federal income tax purposes, to
have exchanged their Existing Notes for the Existing Notes, as amended, because
the proposed amendments to the Existing Indenture should result in a
"significant modification" for U.S. Federal income tax purposes. It is
anticipated that such a deemed exchange would be taxable. Specifically, if you
are deemed to have exchanged your Existing Notes for the Existing Notes, as
amended (i.e., if you do not tender your Existing Notes in the exchange offer),
you should recognize gain or loss equal to the amount, if any, by which the
Issue Price of the Existing Notes, as amended, exceeds your adjusted tax basis
in your Existing Notes. The Issue Price of the Existing Notes, as amended, may
be based on either the face value of the Existing Notes, as amended, or the fair
market value of the Existing Notes, as amended, or the Existing Notes, depending
on whether the Existing Notes, as amended, or the Existing Notes are Publicly
Traded. GB Holdings anticipates taking the position that neither the Existing
Notes, as amended, nor the Existing Notes will be Publicly Traded if no active
market is made in the Existing Notes, as amended, or the Existing Notes. No
assurance can be given, however, that the IRS will agree with this position. In
the event that neither the Existing Notes, as amended, nor the Existing Notes
are Publicly Traded, the Issue Price of the Existing Notes, as amended, should
equal their face value and you should recognize taxable gain if your tax basis
in the Existing Notes is below the face value of the Existing Notes, as amended
(e.g., if you purchased your Existing Notes at a discount), even though you do
not participate in the consent solicitation and exchange offer. Assuming that
you hold your Existing Notes as a capital asset, gain or loss generally
recognized on the deemed exchange of the Existing Notes would be capital gain or
loss, except to the extent attributable to accrued but unpaid interest and
accrued market discount that has not previously been included in your gross
income (which amount would be treated as ordinary income), and should be
long-term capital gain or loss if the Existing Notes had been held for more than
one year at the time of the exchange. The deduction of capital losses is subject
to certain limitations under the Code. The holding period of the Existing Notes,
as amended, should commence on the date of the deemed exchange. The tax basis of
the Existing Notes, as amended, should be their
62
Issue Price, which, though anticipated to be based on their face value, may be
based instead on the fair market value of the Existing Notes, as amended, or the
Existing Notes if either the Existing Notes, as amended, or the Existing Notes
are Publicly Traded. Non-U.S. holders not participating in the exchange offer
will similarly be deemed to have exchanged their Existing Notes for the Existing
Notes, as amended. Nonetheless, non-U.S. holders should be exempt from United
States income or withholding tax, provided that they meet certain requirements.
See "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" as set forth on page 135 for
these requirements and for a more detailed description of the U.S. federal
income tax consequences of participating in the exchange offer. You should
consult your tax advisor as to the U.S. federal, state, local and any foreign
tax consequences of not exchanging your Existing Notes.
Listing and Trading of the Securities
There is not currently a public market for the New Notes and currently
we do not plan to list the New Notes on any exchange. Following payment (or
conversion) of the New Notes in Atlantic Holdings Common Stock, such Common
Stock is not intended to be listed on any exchange.
In addition, on April 19, 2004, the American Stock Exchange delisted
the Existing Notes from trading following an order from the Securities and
Exchange Commission dated April 12, 2004, which granted the voluntary delisting
request of GB Holdings. There can be no assurances of any trading market
following this delisting.
We do not currently intend to list on any stock exchange or on Nasdaq
the Atlantic Holdings Common Stock to be issued. The prices at which the
Atlantic Holdings Common Stock may trade after the Transaction or after such
time certificates are actually available or issued cannot be predicted. Until
the shares of Atlantic Holdings Common Stock are fully distributed and, if and
when an orderly market develops, trading prices for the Atlantic Holdings Common
Stock may fluctuate significantly. The prices at which the Atlantic Holdings
Common Stock trade will be determined by the marketplace and may be influenced
by many factors including, among others, the depth and liquidity of the market
for the Atlantic Holdings Common Stock, investor perception of Atlantic Holdings
and its business, market conditions for interest rates and fixed incomes and
Atlantic Holdings' results of operation and general economic and market
conditions.
As soon as reasonably practicable following the consummation of the
transaction, GB Holdings will apply to the American Stock Exchange and the
Securities and Exchange Commission to delist the common stock of GB Holdings
from trading on the American Stock Exchange. Also, if 100% of the Existing Notes
are exchanged, the Board will take the necessary steps to dissolve GB Holdings,
satisfy any obligations or liabilities with its assets, and distribute any
remaining assets to its stockholders.
The Atlantic Holdings Securities distributed to the stockholders of GB
Holdings following the payment of the New Notes will be freely transferable
under the Securities Act, except for Atlantic Holdings Securities received by
persons who may be deemed to be affiliates of Atlantic Holdings pursuant to Rule
405 under the Securities Act. Persons who may be deemed to be affiliates of
Atlantic Holdings after the Transaction generally include individuals or
entities that control, are controlled by or are under common control with
Atlantic Holdings or GB Holdings, and such persons include directors of Atlantic
Holdings. Persons who are affiliates of Atlantic Holdings will be permitted to
sell their Atlantic Holdings Securities received pursuant to the Transaction
pursuant to Rule 144 of the Securities Act except for the holding period
requirements of Rule 144 which are not applicable in this instance. As a result,
Atlantic Holdings Securities received by affiliates of Atlantic Holdings as
payment (or conversion) of the New Notes may be sold if certain provisions of
Rule 144 under the Securities Act are complied with (e.g., the amount sold
within a three month period does not exceed the greater of one percent of the
outstanding Atlantic Holdings Securities or the average weekly trading volume
for the Atlantic Holdings Securities during the preceding four week period and
the securities are sold in "brokers' transactions" and in compliance with
certain notice provisions of Rule 144).
Accounting Treatment of the Transaction
Based on the current third party valuation, the exchange will be
accounted for as a modification of debt. The fees paid in connection with the
exchange (i.e., consent fee) are amortized over the term of the New Notes using
the effective yield method. All external costs (i.e., legal, accountants, etc.)
associated with the issuance of New Notes will be expensed.
63
Potential Benefits Associated With the Transaction
The Transaction may be beneficial for, among other things, the
following reasons:
o As a result of the Transaction, Atlantic Holdings will have a
significantly reduced interest obligation because the New Notes
will accrue interest at 3% per annum, rather than the 11% per
annum which is currently paid semi-annually;
o Payment in Atlantic Holdings Common Stock, in full satisfaction of
the principal and accrued interest, may be made at the election of
the holders of a majority of the aggregate principal amount
outstanding of the New Notes and upon such election, Atlantic
Holdings will not be obligated to repay the principal or accrued
but unpaid interest on the New Notes in cash upon such election;
o If GB Holdings does not undertake the Transaction, it may not be
able to refinance the Existing Notes on favorable terms, or at
all, or accumulate enough cash to pay the principal amount and
accrued but unpaid interest on the Existing Notes when such
amounts become due and payable in September 2005 and it is
reasonably likely that GB Property and the guarantors of the
Existing Notes will not be able to pay off the Existing Notes in
September 2005 when they become due and payable. If GB Property
and the guarantors of the Existing Notes do not refinance or pay
off the Existing Notes, GB Holdings may be forced to file for
bankruptcy protection;
o If GB Holdings does not consummate the Transaction, Greate Bay
Hotel may be unable to obtain renewal of the casino license when
renewal is required in 2004 due to the outstanding debt of GB
Holdings;
o If GB Holdings does not undertake the Transaction and chooses to
pursue an alternative method of refinancing the Existing Notes, GB
Holdings may not be able to refinance on terms as favorable or
comparable to the terms of the Transaction and the differences may
be adverse to the interest of the stockholders of GB Holdings and
the holders of the Existing Notes;
o As a result of the Transaction, the management, the assets and the
business of Atlantic Holdings will be substantially similar to the
current management, assets and business of GB Holdings and because
Atlantic Holdings will be substantially similar to GB Holdings, we
do not believe that the business or operations of The Sands will
be substantially affected;
o Management of Atlantic Holdings will be better able to grow and
develop Atlantic Holdings' business because it will no longer have
to pay the interest ($12.1 million per annum) on the Existing
Notes which were exchanged, and can instead use that money for
business needs;
o Upon the consummation of the Transaction, the stockholders will
own stock in a company that is not obligated to pay interest
semi-annually on the New Notes;
o The Board in the exercise of its business judgment and fiduciary
duties pursuant to Delaware law, based on the recommendation of
the Special Committee, has the ability, in its sole discretion, to
terminate the transaction at any time prior to consummation based
on (i) (a) the availability of financing on terms more favorable
to GB Holdings than the Transaction and (b) the availability of an
alternative transaction that is more favorable to GB Holdings or
(ii) a material adverse change in (a) the business, assets,
liabilities, or prospects of GB Holdings, or its subsidiaries, (b)
the gaming industry, (c) tourism in Atlantic City, or (d) the
general economic condition;
o If the holders of a majority of the aggregate principal amount of
the New Notes outstanding elect to have the New Notes payable in
Atlantic Holdings Common Stock, although the current stockholders
of GB Holdings will no longer own a majority of the outstanding
stock, they will own 27.5% of the outstanding stock (on a fully
diluted basis) of a debt free company; and
o As a result of the Transaction, if 100% of the Existing Notes are
exchanged, the equity ownership of the affiliates of Mr. Icahn
will be reduced from 77% of the outstanding stock of GB Holdings
to 63% of the Atlantic Holdings Common Stock (on a fully diluted
basis).
64
REPORT OF LIBRA SECURITIES
In connection with the preparation of pro forma financial statements to
be included in this consent solicitation and exchange offer, the Special
Committee amended its engagement agreement with Libra Securities on September
30, 2003 to engage Libra Securities to prepare an estimate of the value of the
New Notes and Warrants to be issued in the Transaction (the "Valuation
Estimate"). The Special Committee selected Libra Securities to perform the
Valuation Estimate primarily because of its previous role in rendering its
fairness opinion in the Transaction and its experience and expertise in
performing valuation and fairness analyses. On December 11, 2002, Libra
Securities entered into an engagement agreement with American Real Estate
Partners, L.P., a limited partnership affiliated with Mr. Icahn and which as of
October 10, 2003 directly beneficially owned 3,627,711 shares of the common
stock of GB Holdings, pursuant to which the Audit Committee of American Property
Investors, Inc., the general partner of American Real Estate Partners, retained
Libra Securities to provide a fairness opinion to the Audit Committee in
connection with a possible acquisition by American Real Estate Partners of
certain debt and equity interests of GB Holdings owned by an entity or entities
affiliated with Mr. Icahn. Libra Securities was paid an engagement fee of
$50,000 pursuant to this agreement. Libra Securities engaged in a preliminary
discussion with the Audit Committee of the Board of Directors of American
Property Investors, Inc. with respect to various possible methods to value GB
Holdings. In such discussion, Libra Securities indicated that it expected to use
the Comparable Transaction Approach, the Market Multiple Approach and the
Discounted Cash Flow Approach as part of the analyses to be conducted by it in
connection with its proposed fairness opinion. However, the transaction did not
proceed, Libra Securities did not make any determination of the value of GB
Holdings, and Libra Securities did not provide a report or opinion to American
Property Investors, Inc.
As compensation to Libra Securities for its services in connection with
the Transaction, including its rendering of the fairness opinion, the
preparation of an estimate of the value of the New Notes and Warrants for use in
the preparation of the pro forma financial statements included in this proxy
statement/prospectus and the rendering of an opinion as required under the
existing indenture pursuant to Section 314(d)(1) of the Trust Indenture Act, GB
Holdings agreed to pay Libra Securities an aggregate fee of $225,000 in addition
to Libra Securities' expenses in connection with the provision of its services.
In addition to its out-of-pocket expenses, Libra Securities will be reimbursed
for reasonable fees and expenses of its legal counsel. No portion of Libra
Securities' fee is contingent upon the successful completion of the Transaction,
any related transaction, or the conclusions reached in the Libra Securities
opinions or valuation estimate. No limitations were imposed by the Special
Committee or the Board on Libra Securities with respect to the investigations
made or procedures followed in preparing this report. GB Holdings also agreed to
indemnify Libra Securities and related persons against certain liabilities that
may arise out of the engagement of Libra Securities, including certain
liabilities arising under the federal securities laws.
Libra Securities delivered its Valuation Estimate to GB Holdings solely
for the purpose of assisting GB Holdings in its preparation of the pro forma
financial statements of GB Holdings, and it was not prepared for the benefit of
the Special Committee or the Board of Directors of GB Holdings in their
consideration of the Transaction.
The summary set forth below describes the material points of more
detailed analyses performed by Libra Securities in arriving at its Valuation
Estimate. The preparation of a valuation estimate is a complex analytical
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its Valuation Estimate, Libra Securities made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Libra Securities believes that its analyses and summary set forth
herein must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or portions of this
summary, could create an incomplete view of the processes underlying the
analyses set forth in the Valuation Estimate. Libra Securities made numerous
assumptions with respect to GB Holdings, the Transaction, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of GB Holdings. The estimates contained in
such analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be more or less favorable than suggested by
such analyses. Additionally, analyses relating to the value of businesses or
securities are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
The Valuation Estimate represents Libra Securities' estimate of value
of the New Notes and Warrants as of the date thereof (assuming consummation of
the Transaction). Libra Securities did not analyze and expressed no view as to
what the value of the New Notes or Warrants (or any other security) actually
will be when the Transaction is in fact consummated or the price at which the
New Notes, Warrants or any other security may trade
65
subsequent thereto. Specifically, no assurance was given and no reliance should
be made that the actual trading price of any security or instrument will be the
same as any estimate in the Valuation Estimate. Further, the Valuation Estimate
does not constitute, and should not be construed, as a recommendation to any
stockholder of GB Holdings as to how such stockholder of GB Holdings should vote
on the Transaction.
In preparing its Valuation Estimate, Libra Securities was not asked to
consider and did not consider the tax consequences of the Transaction, including
tax consequences to GB Holdings and whether holders of common stock of GB
Holdings will recognize taxable income as a result of the Transaction. The tax
consequences of the Transaction could be material and could affect the analysis
underlying the estimates set forth in the Valuation Estimate.
Libra Securities did not, and was not requested by the Special
Committee, GB Holdings, Atlantic Holdings or any other person to make any
recommendations as to the form or amount of consideration in connection with the
Transaction, including the terms of the New Notes and Warrants.
For purposes of formulating its Valuation Estimate, Libra Securities:
1. Met with representatives and attorneys for the Special Committee
and certain members of the senior management of GB Holdings to
discuss the operations, financial condition, future prospects,
projected operations and performance of GB Holdings and the
Transaction;
2. Reviewed GB Holdings' Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 and GB Holdings' Quarterly Report on
Form 10-Q for the periods ended March 31, 2003 and June 30, 2003,
which GB Holdings' management had identified as the most current
financial statements available;
3. Reviewed and discussed with GB Holdings' management the
projections of GB Holdings' financial performance for the fiscal
year ended December 31, 2003 prepared by GB Holdings' management
and discussed with GB Holdings' management the preliminary
operating results for the quarter ended September 30, 2003;
4. Discussed with GB Holdings' management the New Jersey tax
environment, the likely impact of the Borgata casino, and various
other potential new competitive threats in other states;
5. Visited certain facilities and business offices of GB Holdings;
6. Reviewed the historical market prices and trading volume for GB
Holdings' publicly traded securities and other publicly available
information regarding GB Holdings;
7. Reviewed certain publicly available financial data for certain
companies that Libra Securities deemed comparable to GB Holdings;
8. Reviewed the Existing Indenture and related security documents;
9. Reviewed a memorandum describing the Transaction from GB Holdings
dated July 11, 2003; and
10. Conducted such other studies, analyses and inquiries as Libra
Securities deemed appropriate.
The Valuation Estimate does not address GB Holdings' underlying
business decision to effect the Transaction. The Special Committee did not
request Libra Securities to, and accordingly, Libra Securities did not undertake
to solicit third party indications of interest in acquiring all or any part of
GB Holdings, assist in the structuring of the Transaction (including the terms
of the New Notes and the Warrants) or advise the Special Committee or GB
Holdings with respect to alternatives to it.
In preparing the Valuation Estimate, Libra Securities relied upon the
accuracy and completeness of all of the financial, accounting, legal, tax,
operating and other information provided to it by GB Holdings and assumed that
all such information was complete and accurate in all material respects and that
no material changes occurred in the information reviewed between the date the
information was provided and the date of the Valuation Estimate. In particular,
Libra Securities relied upon and assumed, without independent verification, that
(i) the historic operating results and the financial forecasts and projections
provided by GB Holdings, and the related discussions with the
66
management of GB Holdings were prepared in good faith and reflect the best
currently available estimates of the future financial results and condition of
GB Holdings (as of the dates of such forecasts and projections) and (ii) that
there has been no material change in the assets, financial condition, business
or prospects of GB Holdings since the date of the most recent financial
statements made available to Libra Securities. Libra Securities also assumed
that there are no facts or information regarding GB Holdings that would cause
the information supplied by GB Holdings to be incomplete or misleading or fail
to fairly represent the financial condition and results of operations of GB
Holdings in any material respect. Libra Securities did not independently verify
the accuracy and completeness of the information supplied to it with respect to
GB Holdings and did not assume any responsibility with respect to it. The
Valuation Estimate was necessarily based on business, economic, market and other
conditions as they existed and could be evaluated by Libra Securities at the
date of the Valuation Estimate.
Analysis Methodology
At GB Holding's direction, Libra Securities prepared its Valuation
Estimate assuming the following three scenarios:
o The holders of 58% of the Existing Notes, or $63.8 million
principal amount, exchange their Existing Notes into an equal
principal amount of New Notes (the "58% Exchange Scenario").
o The holders of 80% of the Existing Notes, or $88.0 million
principal amount, exchange their Existing Notes into an equal
principal amount of New Notes (the "80% Exchange Scenario").
o The holders of 100% of the Existing Notes, or $110.0 million
principal amount, exchange their Existing Notes into an equal
principal amount of New Notes (the "100% Exchange Scenario").
As described in more detail below, Libra Securities used two different
methodologies to estimate the value of the New Notes under these three
scenarios.
First, Libra Securities determined an estimated "straight rate" value
of the New Notes by adding (i) its estimate of the present value of the
principal and interest payments to be made under the New Notes assuming no
conversion of any New Notes into equity and (ii) its estimate of the discounted
present value of the conversion feature of the New Notes.
Second, Libra Securities determined an estimated "instrinsic" value of
the New Notes by estimating the value of the equity interest in Atlantic
Holdings to be owned by the holders of New Notes assuming conversion of all of
the New Notes into common stock of Atlantic Holdings occurs at the time of
consummation of the Transaction. Libra Securities determined the intrinsic value
by estimating the total enterprise value of Atlantic Holdings and then
determining the portion of this total value that would be held by the holders of
New Notes after conversion of all of the New Notes, into Atlantic Holdings
Common Stock.
Under the first methodology, Libra Securities estimated the value of
the New Notes assuming the New Notes are held as New Notes through maturity of
the New Notes. Under the second methodology, Libra Securities estimated the
value of the New Notes assuming all of the New Notes are immediately converted
into common stock upon closing of the Transaction. Libra Securities then
selected the higher of these two amounts as its estimate of the value of the New
Notes based upon its assumption for purposes of its Valuation Estimate that all
of the New Notes would be converted if the intrinsic value of the New Notes was
greater than the straight-rate value of the New Notes.
After completing its estimate of the value of the New Notes, Libra
Securities then estimated the value of the Warrants by estimating the total
enterprise value of Atlantic Holdings and determining the portion of such value
that would be held by the owners of the Warrants. In determining its estimate of
the value of the Warrants, it was necessary for Libra Securities to make an
assumption as to whether and the amount of the New Notes converted into Atlantic
Holdings Common Stock, as the value of the Warrants varies depending on whether
and the amount of New Notes actually converted into Atlantic Holdings Common
Stock. Accordingly, and based upon its assumption for purposes of its Valuation
Estimate that all of the New Notes would be converted if the intrinsic value of
the New Notes was greater than the straight-rate value of the New Notes, Libra
Securities assumed for the purposes of its estimate of the value of the Warrants
that all of the New Notes were converted into Atlantic Holdings Common Stock.
67
Valuation Estimate for the New Notes
Estimate of "Straight Rate" Value of the New Notes
Libra Securities estimated the "straight rate" value of the New Notes
by computing the discounted present value of the New Notes assuming payment of
the principal amount and all accrued interest upon the five year maturity
thereof. Using a discount rate of 12.10% (representing Libra Securities'
estimate of an appropriate discount rate based on the equivalent yield of a
comparable gaming company's outstanding bonds), Libra Securities calculated a
net present value of the New Notes of $71.5 million in the 100% Exchange
Scenario, $57.2 million in the 80% Exchange Scenario and $41.5 million in the
58% Exchange Scenario.
Libra Securities then estimated the discounted maximum present value of
the conversion feature of the New Notes assuming the 100% Exchange Scenario
based upon the portion of the estimated total enterprise value of Atlantic
Holdings represented by the Atlantic Holdings Common Stock into which the New
Notes are convertible. Based on its discussions with management of GB Holdings,
Libra Securities assumed for purposes of its estimate of the straight rate value
of the New Notes a total enterprise value of $188.6 million for Atlantic
Holdings, calculated by applying a valuation multiple of 5.25 to assumed 2008
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
$28.5 million, and then adding assumed net excess cash (after payment to the
holders of Existing Notes of the maximum possible consent fee of $11.0 million).
Under the 100% Exchange Scenario, the holders of New Notes would own 72.5% of
Atlantic Holdings Common Stock, on a fully diluted basis, after all of the New
Notes have been paid or converted into Atlantic Holdings Common Stock, and their
interest in the estimated total enterprise value of Atlantic Holdings of $188.6
million would therefore be $136.8 million in 2008, resulting in an estimated
potential value of the conversion feature of the New Notes of $10.3 million
(which represents the excess of the portion of the estimated total enterprise
value of Atlantic Holdings in 2008 attributable to the Atlantic Holdings Common
Stock issuable upon conversion of all of the New Notes, or $136.8 million, over
the aggregate amount of principal of and interest on the New Notes that would be
paid to the holders of the New Notes if such holders did not convert the New
Notes, or $126.5 million).
Libra Securities then adjusted the estimated potential value of the
conversion feature of the New Notes as follows to estimate the discounted
present value of the conversion feature of the New Notes to reflect the impact
of two factors. Because Libra Securities believed that there is a significant
risk that Atlantic Holdings will not achieve the assumed EBITDA amount in 2008
or otherwise fail to achieve the assumed total enterprise value of Atlantic
Holdings used by Libra Securities in its valuation of the estimated potential
value of the conversion feature of the New Notes, Libra Securities assigned a
probability weighting of 14.0% to the $10.3 million estimated potential value of
the conversion feature of the New Notes. In addition, Libra Securities applied a
discount rate in order to calculate an estimated net present value of the
probability-weighted estimated potential value of the conversion feature of the
New Notes, as the excess value would not be realized until the maturity date of
the New Notes. After applying these factors, the discounted maximum present
value of the conversion feature of the Notes was calculated to be $0.8 million
in the 100% Exchange Scenario. Adding the discounted present value of the New
Notes of $71.5 million to the $0.8 million discounted maximum present value of
the conversion feature resulted in a $72.3 million estimated total value for the
New Notes in the 100% Exchange Scenario.
Estimate of "Intrinsic" Value of the New Notes
Libra Securities next estimated the value of the New Notes using the
"intrinsic value" methodology described above for each of the three scenarios,
assuming conversion of all of the New Notes into Atlantic Holdings Common Stock
upon consummation of the Transaction. In making these estimates, Libra
Securities first estimated the total enterprise value of Atlantic Holdings by
applying a 5.25 multiple to estimated normalized EBITDA of Atlantic Holdings for
the following twelve months of $15.0 million assumed at the time of closing of
the Transaction and then adding estimated excess cash and deducting the consent
fee that would be payable to holders of Existing Notes that exchange into New
Notes. Libra Securities then calculated the portion of this value that would be
held by converting holders of New Notes based on their percentage ownership of
the total common stock of Atlantic Holdings (e.g., in the 100% Exchange
Scenario, converting holders of New Notes would own 72.5% of Atlantic Holdings
Common Stock and therefore are deemed to hold 72.5% of the aggregate enterprise
value of Atlantic Holdings). Applying this methodology in the 100% Exchange
Scenario, 80% Exchange Scenario and 58% Exchange Scenarios resulted in estimated
intrinsic values for the New Notes of $85.4 million, $69.6 million and $51.5
million, respectively. Each of these estimated intrinsic values exceeds the
values determined using the "straight rate" methodology above, and therefore
were used by Libra Securities as the estimated valuation amounts for the New
Notes in the Valuation Estimate.
68
The estimated valuation amounts of the New Notes contained in the
Valuation Estimate were made as of the date of the Valuation Estimate and based
upon the assumptions made, matters considered and the review described in the
Valuation Estimate.
Valuation Estimate for the Warrants
When calculating its valuation estimate for the Warrants, Libra
Securities assumed that conversion of the New Notes occurred upon consummation
of the Transaction.
To estimate the value of the Warrants, Libra Securities used the same
total enterprise value estimates for Atlantic Holdings that were used in
determining the "intrinsic value" of the New Notes as described above. Libra
Securities then determined the portion of the estimated total enterprise value
that would be held by the owners of the Warrants in each scenario (i.e., 27.5%
of such amount, representing the percentage of Atlantic Holdings common stock to
which such Warrant holders would be entitled under all three scenarios).
Applying this methodology to the 100% Exchange Scenario, 80% Exchange Scenario
and 58% Exchange Scenario resulted in estimated values for the Warrants of $32.4
million, $33.0 million and $33.7 million, respectively, which were the estimated
values for the Warrants used by Libra Securities in its Valuation Estimate.
The estimated values of the Warrants contained in the Valuation
Estimate were made as of the date of the Valuation Estimate and based upon the
assumptions made, matters considered and the review described in the Valuation
Estimate.
THE CONSENT SOLICITATION AND EXCHANGE OFFER
In exchange for every $1,000 in principal amount of the Existing Notes
that are validly tendered and not properly withdrawn prior to the expiration
date of the consent solicitation and exchange offer (the "Expiration Date"), we
are offering $1,000 in principal amount of our New Notes, plus the Cash Payment,
plus accrued and unpaid interest on the tendered Existing Notes up to the
Expiration Date. Interest on the New Notes will accrue at the applicable rate
from and after the day immediately following the Expiration Date. For a summary
of the material differences between the Existing Notes, the Existing Notes, as
amended, and the New Notes, see "COMPARISON OF THE EXISTING NOTES, THE EXISTING
NOTES, AS AMENDED, AND THE NEW NOTES" as set forth on page 88.
Concurrently with the exchange offer, we are soliciting consents, on
behalf of GB Holdings, from the holders of Existing Notes to the proposed
amendments to consent to (i) the proposed amendments to the Existing Indenture;
(ii) the release of the liens on the collateral securing the Existing Notes; and
(iii) the terms of the New Indenture. For a description of the proposed
amendments to the Existing Indenture, see "PROPOSED AMENDMENTS" as set forth on
page 80. Holders of the Existing Notes who tender into the exchange offer
(whether directly by such note holders, their brokers or their depositories)
will, by tendering the Existing Notes, be deemed to consent to (i) the proposed
amendments to the Existing Indenture, (ii) the release of the liens on the
collateral securing the Existing Notes, and (iii) the terms of the New
Indenture. The proper completion, execution and delivery of a Consent and Letter
of Transmittal by a holder tendering the Existing Notes pursuant to the exchange
offer will constitute the consent of such holder to (i) the proposed amendments
to the Existing Indenture, (ii) the release of the liens on the collateral
securing the Existing Notes, and (iii) the terms of the New Indenture unless
properly withdrawn in the manner and during the period described herein.
Subject to the instructions herein and in the Consent and Letter of
Transmittal, holders who tender their Existing Notes pursuant to the exchange
offer (whether directly by such noteholders, their brokers or their
depositories) will not be obligated to pay transfer taxes, if any, on the
exchange of their Existing Notes for New Notes. We will pay all charges and
expenses (except as provided below and in the Consent and Letter of Transmittal)
in connection with the exchange offer, see "-- Effects of Tenders and Consents"
as set forth on page 75.
69
The Expiration Date shall be 12:01 a.m., New York City time, on
July 1, 2004, unless we extend the period of the time for which the consent
solicitation and exchange offer is open, in which case the Expiration Date shall
be the latest time and date on which the consent solicitation and exchange
offer, as so extended, expire.
Our obligation to exchange the New Notes for the Existing Notes
tendered pursuant to the exchange offer is subject to several conditions
referred to below under "-- Conditions of the Consent Solicitation and Exchange
Offer" as set forth on page 70. In order to exchange your Existing Notes for New
Notes, you must properly execute your Consent and Letter of Transmittal,
enclosed herein, and deliver it to the exchange agent by the Expiration Date.
Neither the Board of Directors of Atlantic Holdings, the Special
Committee, the Board, the Board of Directors of GB Property, the Board of
Directors of Greate Bay Hotel, the trustee, the solicitation agent, the exchange
agent or the information agent expresses any opinion, and each is remaining
neutral, regarding any recommendation to you whether or not to tender for
exchange your Existing Notes because the risks and benefits of the consent
solicitation and exchange offer to you will depend on your particular situation
or status. In addition, we have not authorized anyone to make a recommendation
regarding this consent solicitation and exchange offer. You must make your own
decision whether to tender for exchange your Existing Notes based upon your own
assessment of the market value of those notes and the likely value of the New
Notes, your liquidity needs and your investment objectives.
CONDITIONS OF THE CONSENT SOLICITATION AND EXCHANGE OFFER
Notwithstanding any other provision of this solicitation statement and
prospectus, and without prejudice to our other rights, we will not be required
to accept for exchange or, subject to any applicable rules of the SEC, exchange
any of the Existing Notes for the New Notes, and we may terminate, extend, or
amend the consent solicitation and exchange offer if, at the Expiration Date, in
our reasonable judgment, we believe that any of the following conditions have
not been satisfied or, to the extent permitted, waived. We will not waive the
minimum tender or registration statement effectiveness conditions. Affiliates of
Carl C. Icahn, the Chairman of the Board of Directors of GB Holdings, own
approximately 58% of the aggregate principal amount of the Existing Notes
outstanding and have indicated their intentions to support the Transaction and
tender their Existing Notes, thereby consenting to (i) the proposed amendments
to the Existing Indenture, (ii) the release of the liens on the collateral
securing the Existing Notes, and (iii) the terms of the New Indenture. The
minimum tender condition will be satisfied upon the tender of the Existing Notes
held by such holders.
Requisite Percentage of Notes Tendered
There must be validly tendered and not properly withdrawn prior to the
Expiration Date a majority of the aggregate principal amount of the Existing
Notes outstanding. Affiliates of Carl C. Icahn hold approximately 58% of the
aggregate principal amount of the Existing Notes outstanding and have indicated
their support of the Transaction and their intent to tender their Existing Notes
thereby consenting to (i) the proposed amendments to the Existing Indenture,
(ii) the release of the liens on the collateral securing the Existing Notes, and
(iii) the terms of the New Indenture. The minimum tender condition will be
satisfied upon the tender of the Existing Notes held by affiliates of Carl C.
Icahn on the date we accept the Existing Notes for exchange pursuant to the
consent solicitation and exchange offer.
Registration Statement Effectiveness
The consent solicitation and exchange offer are conditioned upon the
registration statement on Form S-4, of which this solicitation statement and
prospectus is a part, not being subject to any stop order suspending its
effectiveness or any proceedings seeking a stop order.
Additionally, the consent solicitation and exchange offer are
conditional upon the proxy statement/prospectus on Form S-4, being
simultaneously filed on the date hereof and distributed to the stockholders of
GB Holdings, not being subject to any stop order suspending its effectiveness,
or any proceeding seeking a stop order, and upon GB Holdings obtaining the
approval of a majority of stockholders for the Transaction.
Furthermore, the consent solicitation and exchange offer is conditioned
upon Greate Bay Hotel receiving the required consent from the CCC and consents
from the city of Atlantic City and certain third parties.
70
Other Conditions to the Consent Solicitation and Exchange Offer
The consent solicitation and exchange offer are also subject to the
condition that, at the time of the Expiration Date of the exchange offer, none
of the following shall have occurred which, in our reasonable good faith
judgment, regardless of the circumstances, makes it impossible or inadvisable to
proceed with the exchange offer or consent solicitation:
(i) The CCC shall have failed to deliver its approval of the
Transaction or either the city of Atlantic City or certain third
parties have not provided the necessary consents;
(ii) The Amendment to the Indenture, the Second Amended and Restated
Indenture or the New Indenture shall not have been declared
effective;
(iii) There shall be, or GB Holdings shall have knowledge of, the
existence of any threatened or pending litigation or other legal
action relating to the Transaction;
(iv) There shall be an order, stay, judgment or decree issued by a
court, government, governmental authority or other regulatory or
administrative authority which is in effect, or any statute,
rule, regulation, governmental order or injunction shall have
been proposed, enacted, enforced or deemed applicable to the
exchange offer, any of which would or might restrain, prohibit
or delay completion of the Transaction or impair the
contemplated benefits of the Transaction to us;
(v) The occurrence of the following and the adverse effect of such
occurrence shall, in our reasonable judgment, be continuing:
(a) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange
or in the over-the-counter market in the U.S.;
(b) any extraordinary or material adverse change in U.S.
financial markets generally;
(c) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the U.S.;
(d) any limitation, whether or not mandatory, by any
governmental entity on, or any other event that would
reasonably be expected to materially adversely affect, the
extension of credit by banks or other lending institutions;
or
(e) a commencement of a war or other national or international
calamity directly or indirectly involving the U.S., which
would reasonably be expected to affect materially and
adversely, or to delay materially, the completion of the
exchange offer;
(vi) The existence at the time of commencement of the exchange offer
of any of the situations described above and that situation
deteriorates materially after commencement of the exchange
offer;
(vii) The proposal or announcement by any person or entity of any
tender or exchange offer, other than this exchange offer by us,
with respect to some or all of GB Holdings or our outstanding
Atlantic Holdings Common Stock or any merger, acquisition or
other business combination proposal involving us; or
(viii) The occurrence of any event or events that resulted or may
result, in our judgment, in a material adverse change in the
business condition, income, operations, stock ownership or
prospects of us and our subsidiaries, taken as a whole.
If any of the above events occur, we may:
(i) Terminate the exchange offer and promptly return all tendered
Existing Notes to tendering noteholders;
(ii) Extend the exchange offer and, subject to the withdrawal rights
described in "-- Withdrawal of Tenders and Revocation of
Consents" as set forth on page 77, retain all tendered Existing
Notes until the extended exchange offer expires;
71
(iii) Amend the terms of the exchange offer, which may result in an
extension of the period of time for which the exchange offer is
kept open; or
(iv) Expressly waive the unsatisfied condition and, subject to any
requirement to extend the period of time during which the
exchange offer is open, complete the exchange offer.
The foregoing conditions are solely for our benefit and we may assert
them regardless of the circumstances giving rise to any such conditions. We may
also, in our reasonable discretion, expressly waive these conditions in whole or
in part (subject to the limitations on waiver described in the first paragraph
of this section). The determination by us as to whether any condition has been
satisfied shall be conclusive and binding on all parties. The failure by us at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed a continuing right which may
be asserted at any time and from time to time. All conditions to the offer,
other than those dependent upon the receipt of necessary governmental approvals,
must be satisfied or expressly waived, at such time, prior to the expiration of
the offer, that we determine that the non-satisfaction of such condition does
not render the consummation of the offer impossible or inadvisable.
In the exercise of its business judgment and fiduciary duty pursuant to
Delaware law, the Board, based on the recommendation of the Special Committee,
has the ability, in its sole discretion, to terminate the exchange offer at any
time prior to the expiration of the exchange offer based on (i) (a) the
availability of financing on terms more favorable to GB Holdings than the
Transaction and (b) the availability of an alternative transaction that is more
favorable to GB Holdings or (ii) a material adverse change in (a) the business,
assets, liabilities and prospects of GB Holdings, or its subsidiaries, (b) the
gaming industry, (c) tourism in Atlantic City, or (d) general economic
conditions.
TIMING OF THE CONSENT SOLICITATION AND EXCHANGE OFFER
We hope to complete the consent solicitation and exchange offer by
July 1, 2004. The consent solicitation and exchange offer are currently
scheduled to expire at 12:01 am. on July 1, 2004; however, we may extend the
consent solicitation and exchange offer from time to time as necessary until all
conditions to the consent solicitation and exchange offer have been satisfied or
waived. For more information, see "-- Extension, Termination and Amendment" as
set forth on page 72.
EXTENSION, TERMINATION AND AMENDMENT
We expressly reserve the right, in our sole discretion, at any time or
from time to time, to extend the period of time during which the consent
solicitation and exchange offer will remain open if any condition to the consent
solicitation and exchange offer has not been satisfied, and we can do so by
giving oral or written notice of such extension to the exchange agent. If we
decide to extend the consent solicitation and exchange offer, we will make an
announcement to that effect no later than 9:00 a.m., New York City time, on the
first business day after the previously scheduled Expiration Date. We are not
making any assurances that we will exercise our right to extend the consent
solicitation and exchange offer, although we may do so until all conditions have
been satisfied or, where permissible, waived. During any such extension, all of
the Existing Notes previously tendered and not properly withdrawn and all
related consents previously delivered and not properly revoked will remain
subject to the consent solicitation and exchange offer, respectively, subject to
your right to withdraw your Existing Notes and revoke the related consents. See
"--Withdrawal of Tenders and Revocation of Consents" as set forth on page 77.
Subject to the SEC's applicable rules and regulations, we also reserve
the right, in our sole discretion, at any time or from time to time, to:
(i) delay our acceptance for exchange of any Existing Notes pursuant
to the exchange offer, regardless of whether we previously
accepted Existing Notes for exchange, or terminate the exchange
offer and not accept for exchange, or exchange any Existing
Notes not previously accepted for exchange or exchanged upon the
failure of any of the conditions of the exchange offer, consent
solicitation or Merger to be satisfied; and
(ii) waive any condition (subject to the limits on waiver described
under "-- Conditions of the Consent Solicitation and Exchange
Offer" as set forth on page 52) or otherwise amend or terminate,
pursuant to the exercise of the fiduciary duty of the Special
Committee or the Board of Directors of GB Holdings, the exchange
offer in any respect, by giving oral notice followed by
72
written notice of such delay, termination or amendment to the
exchange agent and by making a public announcement.
We will follow any extension, termination, amendment or delay, promptly, with a
public announcement. In the case of an extension, any such announcement will be
issued no later than 9:00 a.m., New York City time, on the first business day
following the previously scheduled Expiration Date.
If Atlantic Holdings makes a material change in the terms of the
exchange offer or the information concerning the exchange offer or waives a
material condition of the exchange offer, Atlantic Holdings will disseminate
additional materials and extend the exchange offer for the minimum period during
which the exchange offer must remain open following material changes in the
terms of the exchange offer or information concerning the exchange offer, other
than a change in price or a change in percentage of securities sought, such
minimum period will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In a
public release, the Securities and Exchange Commission has stated that in its
view, an exchange offer must remain open for a minimum period of time following
a material change in the terms of the exchange offer and that waiver of a
material condition is a material change in the terms of the exchange offer. The
release states that an exchange offer should remain open for a minimum of five
business days from the date a material change is first published, sent or given
to security holders and that, if material changes are made with respect to
information not materially less significant than the offer price and the number
of shares being sought, a minimum of ten business days may be required to allow
adequate dissemination and investor response. The requirement to extend the
exchange offer will not apply to the extent that the number of business days
remaining between the occurrence of the change and the then scheduled Expiration
Date equals or exceeds the minimum extension period that would be required
because of such amendment.
EXCHANGE OF THE EXISTING NOTES
Upon the terms and subject to the conditions of the exchange offer
(including, if the exchange offer is extended or amended, the terms and
conditions of any such extension or amendment), we will accept for exchange and
will exchange, all Existing Notes validly tendered and not properly withdrawn
promptly after the Expiration Date. In addition, subject to the applicable rules
of the SEC, we expressly reserve the right to delay acceptance of or the
exchange of shares of the Existing Notes until we receive the required
governmental approvals.
For purposes of the exchange offer, we will be deemed to have accepted
for exchange the Existing Notes validly tendered and not properly withdrawn if
and when we notify the exchange agent of our acceptance of the tenders of the
Existing Notes pursuant to the exchange offer. The exchange agent will deliver
the New Notes in exchange for the Existing Notes pursuant to the exchange offer
and the Cash Payment and the accrued and unpaid interest in cash promptly. The
exchange agent will act as agent for holders tendering Existing Notes for the
purpose of receiving New Notes from us and transmitting such notes to you.
If we do not accept any tendered Existing Notes for exchange pursuant
to the terms and conditions of the exchange offer for any reason, we will return
the Existing Notes without expense to the tendering noteholder or, in the case
of notes tendered by book-entry transfer of such notes into the exchange agent's
account at The Depository Trust Company, or "DTC", pursuant to the procedures
set forth below under "-- Procedures for Tendering and Consenting" as set forth
on page 73, those Existing Notes will be credited to an account maintained
within DTC promptly following expiration or termination of the exchange offer.
If we do not accept at least a majority of the aggregate principal amount of the
Existing Notes outstanding for exchange, the exchange offer will not be
completed and the proposed amendment to the Existing Indenture will not be
effected.
PROCEDURES FOR TENDERING AND CONSENTING
For you to validly tender Existing Notes pursuant to the exchange offer
and deliver the related consents to (i) the amendments to the Existing
Indenture, (ii) the release of the liens on the collateral securing the Existing
Notes, and (iii) the terms of the New Indenture, either:
(a) you must (1) submit a properly completed and duly executed
Consent and Letter of Transmittal, together with any required
signature guarantees, and any other required documents, which
must be transmitted to and received by the exchange agent at its
address set forth on the back cover of this solicitation
statement and prospectus or (2) have DTC properly transmit an
agent's message
73
and either (x) the Existing Notes must be received by the
exchange agent at such address or (y) such Existing Notes must
be tendered pursuant to the procedures for book-entry tender
set forth below (and a confirmation of receipt of such tender
received (we refer to this confirmation below as a "book-entry
confirmation")), in each case, before the Expiration Date.
"Agent's message" means a message, transmitted by DTC and
received by the exchange agent and forming part of a
book-entry confirmation, which states that DTC has received an
express acknowledgment from a participant tendering Existing
Notes that are the subject of the book-entry confirmation that
the participant has received and agrees to be bound by the
terms of the Consent and Letter of Transmittal, and that
Atlantic Holdings may enforce that agreement against the
participant. Delivery of the agent's message will satisfy the
terms of the consent solicitation and exchange offer as to
execution and delivery of a Consent and Letter of Transmittal
by the participant identified in the agent's message; or
(b) you must comply with the guaranteed delivery procedure described
below.
Holders of Existing Notes tendered via book-entry or the guaranteed delivery
procedure will still be required to properly complete and execute the Consent
and Letter of Transmittal or have DTC transmit an agent's message.
The exchange agent will establish accounts with respect to the Existing
Notes at DTC for purposes of the consent solicitation and exchange offer within
two business days after the commencement of the exchange offer. Any financial
institution that is a participant in DTC may make book-entry delivery of the
Existing Notes by having DTC transfer such Existing Notes into the exchange
agent's account at DTC in accordance with DTC's procedures for such transfer.
However, although delivery of the Existing Notes may be effected through
book-entry at DTC, the Consent and Letter of Transmittal (or an agent's message
or a manually-signed facsimile of such document), with any required signature
guarantees, and any other required documents, must, in any case, be transmitted
to and received by the exchange agent at its address specified on the back cover
of this solicitation statement and prospectus prior to the Expiration Date, or
the guaranteed delivery procedures described below must be followed.
Any beneficial owner whose Existing Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder of the Existing Notes promptly
and instruct such registered holder of the Existing Notes to tender on behalf of
the beneficial owner. If such beneficial owner wishes to tender on its own
behalf, such beneficial owner must, before completing and executing the Consent
and Letter of Transmittal and delivering its Existing Notes, either make
appropriate arrangements to register ownership of the Existing Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder of the Existing Notes. The transfer of record ownership may
take considerable time.
Consents and Letters of Transmittal must be sent only to the exchange
agent. Do not send Consents and Letters of Transmittal to us, the information
agent or the solicitation agent.
Signatures on all Consents and Letters of Transmittal must be
guaranteed by an eligible institution, as defined in the section entitled "--
Withdrawal of Tenders and Revocation of Consents" as set forth on page 64,
except in cases in which the Existing Notes are tendered either by a registered
holder of the shares who has not completed the box entitled "Special Issuance
Instructions" on the Consent and Letter of Transmittal or for the account of an
eligible institution.
The method of delivery of the Existing Notes and all other required
documents, including delivery through DTC, is at your option and risk, and the
delivery will be deemed made only when actually received by the exchange agent.
If delivery is by mail, we recommend registered mail with return receipt
requested, properly insured. In all cases, you should allow sufficient time to
ensure timely delivery.
TENDER OF EXISTING NOTES HELD THROUGH DTC
Any beneficial owner of Existing Notes held of record by DTC or its
nominee, through authority granted by DTC, must direct the DTC participant
through which such beneficial owner's Existing Notes are held in DTC to execute,
on such beneficial owner's behalf, a Consent and Letter of Transmittal with
respect to Existing Notes beneficially owned by such beneficial owner. To
validly tender Existing Notes that are held through DTC, DTC participants must,
in lieu of physically completing and signing the Consent and Letter of
Transmittal and delivering it to the exchange agent, electronically transmit
their acceptance through DTC's Automated Tender Offer
74
Program ("ATOP") and thereby provide their consent to (i) the proposed
amendments to the Existing Indenture, (ii) the release of the liens on the
collateral securing the Existing Notes, and (iii) the terms of the New
Indenture, and send an Agent's Message to the exchange agent for its acceptance.
The term "Agent's Message" means a message transmitted by DTC to, and received
by, the exchange agent and forming a part of the Book-Entry Confirmation (as
defined below), which states that DTC has received an express acknowledgment
from the participant in DTC tendering the Existing Notes, and that such
participants have received the Consent and Letter of Transmittal, agree to be
bound by the terms of the Consent and Letter of Transmittal and that Atlantic
Holdings may enforce such agreement against such participants. Delivery of
tendered Existing Notes must be made to the exchange agent pursuant to the
book-entry delivery procedures set forth below.
BOOK-ENTRY DELIVERY PROCEDURES
The exchange agent will establish accounts with respect to the Existing
Notes at DTC for purposes of the Tender Offer and the Solicitation within two
business days after the date of this Statement, and any financial institution
that is a participant in DTC must make book-entry delivery of the Existing Notes
by causing DTC to transfer such Existing Notes into the exchange agent's account
in accordance with DTC's procedures for such transfer. Delivery of Existing
Notes may be effected through book-entry transfer into the exchange agent's
account at DTC provided that either an Agent's Message or a Consent and Letter
of Transmittal are also provided or delivery of the Consent and Letter of
Transmittal (or manually signed facsimile thereof), with any required signature
guarantees, and any other required documents, by transmission to the exchange
agent at its address set forth on the back cover page of this Statement on or
prior to the applicable time on the Consent Payment Deadline or the Expiration
Date, as applicable. Delivery of documents to DTC does not constitute delivery
to the exchange agent. The confirmation of a book-entry transfer into the
exchange agent's account at DTC as described above is referred to herein as a
"Book-Entry Confirmation."
GUARANTEED DELIVERY
If you wish to tender for exchange your Existing Notes pursuant to the
exchange offer and you cannot complete the procedure for book-entry transfer on
a timely basis, your Existing Notes may nevertheless be tendered, so long as all
of the following conditions are satisfied:
(i) you make your tender by or through an eligible institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by us, is
received by the exchange agent as provided below on or prior to
the Expiration Date; and
(iii) Existing Notes (or a confirmation of a book-entry transfer of
such securities into the exchange agent's account at DTC as
described above), in proper form for transfer, together with a
properly completed and duly executed Consent and Letter of
Transmittal (or an agent's message or a manually signed
facsimile of such document), with any required signature
guarantees and all other documents required by the Consent and
Letter of Transmittal are received by the exchange agent within
three business days after the date of execution of such Notice
of Guaranteed Delivery.
You may deliver the Notice of Guaranteed Delivery by hand or transmit
it by facsimile transmission or mail it to the exchange agent and must include a
guarantee by an eligible institution in the form set forth in that notice.
In all cases, we will exchange the Existing Notes tendered and accepted
for exchange pursuant to the exchange offer only after timely receipt by the
exchange agent of the Existing Notes (or timely confirmation of a book-entry
transfer of such securities into the exchange agent's account at DTC as
described above), properly completed and duly executed consent(s) and letter(s)
of transmittal and any other required documents.
EFFECTS OF TENDERS AND CONSENTS
Tenders of Existing Notes may be withdrawn before the Expiration Date.
Tenders of Existing Notes pursuant to the consent solicitation and exchange
offer and in the Consent and Letter of Transmittal will constitute a binding
agreement between the tendering holder of the Existing Notes and us upon the
terms and subject to the
75
conditions of the exchange offer. The acceptance of the exchange offer by a
tendering holder of the Existing Notes will constitute the agreement by such
holder to deliver good and marketable title to the tendered Existing Notes free
and clear of all liens, charges, claims, encumbrances, interests and
restrictions of any kind.
Tendering holders of Existing Notes will not be required to pay any fee
or commission to the solicitation agent. However, if the tendering holder
handles the transaction through its broker, dealer, commercial bank, trust
company or other institution, such holder may be required to pay brokerage fees
or commissions.
ACCEPTANCE OF THE EXISTING NOTES AND DELIVERY OF THE NEW NOTES
Once all of the conditions to the exchange offer are satisfied or
waived and GB Holdings has not terminated the Transaction, we will accept all of
the Existing Notes properly tendered and not withdrawn as of the Expiration Date
and will issue the New Notes promptly after the Expiration Date. See "--
Conditions of the Consent Solicitation and Exchange Offer" as set forth on page
58. For purposes of the exchange offer, our giving of oral or written notice of
our acceptance to the exchange agent will be considered our acceptance of the
exchange offer.
In all cases, we will issue the New Notes in exchange for the Existing
Notes that are accepted for exchange only after timely receipt by the exchange
agent of:
o the Existing Notes or a timely book-entry confirmation of
transfer of the Existing Notes into the exchange agent's account
at DTC using the book-entry transfer procedures described above;
o a properly completed and duly executed Consent and Letter of
Transmittal unless an agent's message is received; and
o all other required documents, if any.
We will have accepted validly tendered Existing Notes if and when we
have given oral or written notice to the exchange agent. The exchange agent will
act as agent for the tendering holders for the purposes of receiving the New
Notes from us, and will make the exchange on, or promptly after, the Expiration
Date. Following this exchange the holders in whose names the New Notes will be
issuable upon exchange will be deemed the holders of record of the New Notes.
The reasons we may not accept tendered Existing Notes are:
o the Existing Notes were not validly tendered pursuant to the
procedures for tendering; see "--Procedures for Tendering and
Consenting" as set forth on page 73;
o we determine in our reasonable discretion that any of the
conditions to the exchange offer have not been satisfied; see
"-- Conditions of the Consent Solicitation and Exchange Offer"
as set forth on page 70;
o a holder has validly withdrawn a tender of Existing Notes as
described under; see "-- Withdrawal of Tenders and Revocation of
Consents" as set forth on page 77; or
o we have prior to the Expiration Date of the exchange offer,
delayed or terminated the exchange offer; see "-- Extension,
Termination and Amendment" as set forth on page 72.
If we do not accept any tendered Existing Notes for any reason included
in the terms and conditions of the exchange offer, we will return any unaccepted
packages of non-exchanged Existing Notes to you promptly after the expiration or
termination of the exchange offer.
The Existing Notes which are not tendered for exchange or are tendered
but not accepted in connection with the exchange offer will remain outstanding
and remain subject to the Existing Indenture, as amended by the proposed
amendments.
Any validly tendered Existing Notes acquired in the exchange offer will
be retired and will not be reissuable.
The New Notes will bear interest from the issue date, but such interest
shall accrue and be payable upon maturity. The Existing Notes accepted for
exchange will cease to accrue interest from and after the date of the exchange.
76
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
The Existing Notes tendered for exchange pursuant to the exchange offer
maybe withdrawn at any time prior to the Expiration Date. Consents given
pursuant to the consent solicitation (which we commenced on behalf of GB
Holdings) may be revoked at any time prior to the Expiration Date by the
withdrawal of a tender of the Existing Notes. Any withdrawal of tendered
Existing Notes prior to the Expiration Date will be deemed to be a revocation of
the related consent. Tenders may not be withdrawn and consents may not be
revoked after the Expiration Date.
For your withdrawal to be effective, the exchange agent must receive
from you a written or facsimile transmission notice of withdrawal at its address
set forth on the back cover of this solicitation statement and prospectus, and
your notice must include your name, address, social security number and the
aggregate amount of Existing Notes to be withdrawn as well as the name of the
registered holder, if it is different from that of the person who tendered the
shares.
An eligible institution (as defined below) must guarantee all
signatures on the notice of withdrawal, unless the Existing Notes to be
withdrawn have been tendered for the account of any eligible institution. Most
banks, savings and loan associations and brokerage houses are able to effect
these signature guarantees for you. An "eligible institution" is a financial
institution that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program. If the Existing Notes have been tendered pursuant to
the procedures for book-entry tender as set forth below under "-- Procedures for
Tendering and Consenting" as set forth on page 73, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn Existing Notes and must otherwise comply with DTC's procedures. If
certificates have been delivered or otherwise identified to the exchange agent,
the name of the registered holder and the serial numbers of the particular
certificates evidencing the Existing Notes withdrawn must also be furnished to
the exchange agent, as stated above, prior to the physical release of the
certificates. We will decide all questions as to the form and validity
(including time of receipt) of any notice of withdrawal, in our sole discretion,
and our decision shall be final and binding.
Neither we, the exchange agent, the trustee, the solicitation agent,
the information agent nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
will incur any liability for failure to give any such notification. Any Existing
Notes properly withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer. However, you may re-tender withdrawn Existing
Notes by following one of the procedures described under "-- Procedures for
Tendering and Consenting" as set forth on page 73 or "-- Guaranteed Delivery" as
set forth on page 63 at any time prior to the Expiration Date.
APPRAISAL RIGHTS
Under Delaware General Corporation Law or the Existing Indenture, you
do not have appraisal rights in connection with the consent solicitation and
exchange offer.
CERTAIN LEGAL AND REGULATORY MATTERS
The Transaction is subject to the approval of the CCC. The CCC must,
among other things, approve the issuance of the New Notes and the issuance of a
casino license to ACE Gaming on the same terms and conditions as the license
held by Greate Bay Hotel. A petition has been filed with the CCC seeking the
required approvals.
From time to time, we and certain of our officers, directors, agents
and employees, are subject to various legal and administrative proceedings
incidental to our business. We do not believe any proceedings currently pending
are material to the conduct of our business.
ACCOUNTING TREATMENT
Based on the current third party valuation, the exchange will be
accounted for as a modification of debt. The fees paid in connection with the
exchange (i.e., consent fee) are amortized over the term of the New Notes using
the effective yield method. All external costs (i.e., legal, accountants, etc.)
associated with the issuance of New Notes will be expensed. See "THE CONSENT
SOLICITATION AND EXCHANGE OFFER--Accounting Treatment" as set forth on page 60.
77
SOLICITATION AGENT
We have retained Innisfree M&A Incorporated to act as solicitation
agent for the consent solicitation. The solicitation agent will solicit consents
and receive customary compensation for such services and will be reimbursed for
reasonable out-of-pocket expenses incurred in performing its services.
INFORMATION AGENT
We have retained Innisfree M&A Incorporated to act as information agent
for the consent solicitation and exchange offer. The information agent will
receive customary compensation for such services and will be reimbursed for
reasonable out-of-pocket expenses incurred in performing its services. Questions
concerning tender procedures and requests for additional copies of this
solicitation statement and prospectus, consents and letters of transmittal or
notices of guaranteed delivery should be directed to the information agent at
the address and telephone numbers set forth on the back cover page of this
solicitation statement and prospectus.
EXCHANGE AGENT
We have retained Wells Fargo Bank, National Association, to act as the
exchange agent for the exchange offer. All tendered Existing Notes, executed
consents and letters of transmittal, notices of guaranteed delivery and all
other related documents should be sent to the exchange agent at the address and
telephone numbers set forth on the back cover page of this solicitation
statement and prospectus.
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be
obligated to pay any related U.S. federal transfer taxes, except that holders
who instruct us to register New Notes in the name of, or request that Existing
Notes not tendered or not accepted in the exchange offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer taxes. You should consult with your own tax
adviser as to the applicability of state or local transfer taxes, if any.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE OFFER
Carl C. Icahn serves as the Chairman of the Board of Directors of GB
Property, Greate Bay Hotel, GB Holdings, and Atlantic Holdings. Affiliates of
Mr. Icahn own approximately 77% of the outstanding common stock of GB Holdings,
which owns 100% of GB Property and Greate Bay Hotel, and approximately 58% of
the aggregate principal amount of the Existing Notes outstanding. Upon
consummation of the Transaction, affiliates of Mr. Icahn will beneficially own
approximately 63.4% of the outstanding Atlantic Holdings Common Stock, on a
fully diluted basis, and because of their ownership of approximately 77% of the
common stock of GB Holdings, they will beneficially own up to an additional
23.5% of the Atlantic Holdings Common Stock if between 58% and 100% of the
Existing Notes are exchanged (i.e. the lower the aggregate principal amount of
Existing Notes that are exchanged, the greater the number of additional shares
of Atlantic Holdings Common Stock that GB Holdings will own and the affiliates
will beneficially own). As such, Mr. Icahn's affiliates may have substantial
influence and control over matters voted upon by stockholders of GB Holdings and
Atlantic Holdings (such as the election of the directors to the board of
directors of each of GB Holdings and Atlantic Holdings, mergers and sale of
assets involving GB Holdings and Atlantic Holdings and other matters upon which
stockholders, of either GB Holdings or Atlantic Holdings, vote), as well as
matters to be consented to by the holders of the New Notes, such as the
determination of whether and when the payment in the form of Atlantic Holdings
Common Stock shall be made in satisfaction of the principal and accrued interest
of the New Notes shall occur, or whether to amend the New Indenture (i.e.,
release of the collateral securing the New Notes or waiver of events of
default).
Immediately prior to the consummation of the Transaction, GB Holdings,
Greate Bay Hotel, Atlantic Holdings, and ACE Gaming will enter into a
Contribution Agreement whereby GB Holdings will contribute its assets and
liabilities (other than the stock of Greate Bay Hotel and its obligation to
guarantee the Existing Notes) to Greate Bay Hotel which will then transfer such
assets and liabilities and all of its assets (other than the stock of Atlantic
Holdings) and certain of its liabilities to Atlantic Holdings (which will agree
to issue New Notes in exchange for Existing Notes that are tendered for exchange
and cancel such Notes) and Atlantic Holdings will transfer such assets and
liabilities to ACE Gaming. In turn Atlantic Holdings will transfer the Atlantic
Holdings Securities to Greate Bay Hotel. Additionally, Atlantic Holdings will
agree to provide GB Holdings the funds
78
necessary to continue to pay scheduled interest on the Existing Notes that
remain outstanding after the completion of the Transaction, through their
maturity date on September 29, 2005, subject to sufficient funds being available
to make such payments.
Additionally, GB Property, Greate Bay Hotel and GB Holdings will enter
into a Merger Agreement, through which GB Property, Greate Bay Hotel and GB
Holdings will merge and GB Holdings will be the surviving entity and the sole
stockholder of Atlantic Holdings.
POSSIBLE CONFLICTS OF INTERESTS
Carl C. Icahn, together with his affiliates Cyprus, LLC, Barberry Corp,
Starfire Holding Corporation, American Real Estate Holdings L. P., American Real
Estate Partners, L.P., American Property Investors, Inc., and Beckton Corp.
(collectively with Mr. Icahn, the "Affiliates") (i) beneficially owns
approximately 77% of the outstanding common stock of GB Holdings; (ii) owns
approximately 58% aggregate principal amount outstanding of the Existing Notes;
and (iii) following the consummation of the Transaction may own at least 58% of
the aggregate principal amount outstanding of the New Notes. The Affiliates have
indicated their support of the Transaction, their intent to vote in favor of the
Transaction, and their intent to tender for exchange their Existing Notes. As
such, the Affiliates will have substantial influence and control over matters
voted upon by stockholders (such as the election of the directors to the Board
of Directors of GB Holdings, mergers and sale of assets involving GB Holdings
and other matters upon which stockholders, of either GB Holdings or Atlantic
Holdings, vote). This power, in turn, gives them substantial control over the
business of both GB Holdings and Atlantic Holdings. As a result, upon completion
of the Transaction, the Affiliates may (i) beneficially own approximately 77% of
the Common Stock of GB Holdings; (ii) beneficially own approximately 63.4% (on a
fully diluted basis) of the outstanding Atlantic Holdings Common Stock and if
more than 58%, but less than 100% of the Existing Notes exchange, the Affiliates
may beneficially own up to an additional 23.5% of the outstanding Atlantic
Common Stock because of the Affiliates ownership of approximately 77% of the
outstanding common stock of GB Holdings; (iii) own at least 58% of the
outstanding amount of the New Notes; and (iv) control the Atlantic Holdings
Common Stock held by GB Holdings through its beneficial ownership of
approximately 77% of the outstanding common stock of GB Holdings. Therefore, the
Affiliates may have the ability to:
o elect the Board;
o approve transactions of GB Holdings that may have a significant
impact including mergers or a sale of all, or substantially all,
of the assets of GB Holdings;
o determine when and whether the New Notes will be paid in cash at
maturity or paid in or convertible into Atlantic Holdings Common
Stock, at or prior to, maturity;
o waive events of default under the New Indenture;
o approve certain amendments to the New Indenture;
o approve the subordination of the liens securing the New Notes to
liens securing newly incurred debt that, as a result, will rank
senior to such liens;
o approve the release of collateral securing the New Notes; and
o direct the actions of the trustee under the New Indenture
governing the New Notes.
Additionally, the Affiliates are actively involved in the gaming
industry and casinos owned or managed by him or his affiliates may directly or
indirectly compete with GB Holdings and Atlantic Holdings. Furthermore, the
potential for conflicts of interest exists among GB Holdings or Atlantic
Holdings, and Mr. Icahn or the Affiliates for future business opportunities. Mr.
Icahn and the Affiliates may pursue other business opportunities and there is no
agreement requiring that such additional business opportunities be presented to
GB Holdings or Atlantic Holdings.
In his capacity as Chairman of the Board of Directors of GB Holdings,
Greate Bay Hotel, GB Property, Atlantic Holdings and ACE Gaming, Mr. Icahn is
required to act in a manner consistent with his fiduciary duties under
applicable law. Mr. Icahn is not subject to any fiduciary duty by reason of his
ownership of the Notes. In his capacity as an affiliate of GB Holdings, Mr.
Icahn is bound to act in accordance with applicable law. Additionally, although
no specific measures to resolve such potential conflict of interests have been
formulated, the directors of
79
GB Holdings, GB Property, Greate Bay Hotel, Atlantic Holdings, and ACE Gaming,
have a fiduciary obligation to deal fairly and in good faith with the entities.
The directors intend to exercise reasonable judgement and take such steps as
they deem necessary under all of the circumstances in resolving any specific
conflict of interest which may occur.
At the request of GB Holdings, Ealing Corp., a Nevada corporation and
an affiliate of Mr. Icahn, provided a commitment letter to GB Holdings, dated
January 30, 2004, in which Ealing agreed to provide a revolving credit facility
under which GB Holdings and its subsidiaries may borrow up to an aggregate
amount of $10 million to be used for general working capital purposes. Under the
terms of the commitment letter, the revolving credit facility will expire on
June 30, 2005, borrowings will bear interest at a rate of 10% per annum, and
obligations under the revolving credit facility will be secured by a first lien
on all of the assets of GB Holdings and its subsidiaries (including Atlantic
Holdings) which will be senior to the liens securing the Existing Notes. Upon
the consummation of the Transaction, the obligation will be assumed by Atlantic
Holdings and the lien will be senior to the New Notes. Ealing's obligations to
provide the financing pursuant to the commitment letter is subject to the
negotiation and execution of definitive loan and security agreements and related
documents as well as certain customary conditions. However, there can be no
assurance that the loan agreement with Ealing will be consummated, that if the
loan agreement with Ealing is not consummated, GB Holdings will be able to
obtain financing from another lender on terms as or more favorable than the
terms of the commitment letter, or whether GB Holdings will need to borrow funds
for working capital. Ealing and GB Holdings have agreed to extend the commitment
until July 1, 2004.
PROPOSED AMENDMENTS
GENERAL
The valid tender of your Existing Notes in accordance with the
procedures set forth in "THE CONSENT SOLICITATION AND EXCHANGE OFFER--Procedures
for Tendering and Consenting" as set forth on page 69, will automatically be
deemed your consent to (i) the proposed amendments to the Existing Indenture;
(ii) the release of the liens on the collateral securing the Existing Notes; and
(iii) the terms of the New Indenture. If you tender for exchange your Existing
Notes (whether directly by you, your broker or your depository), you must
deliver a corresponding consent to (i) the proposed amendments to the Existing
Indenture, (ii) the release of the liens on the collateral securing the Existing
Notes, and (iii) the terms of the New Indenture. You may not deliver consents
without tendering for exchange your Existing Notes. The proposed amendments must
be approved by the holders of a majority of the aggregate principal amount of
the Existing Notes outstanding. Affiliates of Carl C. Icahn hold approximately
58% of the aggregate principal amount of the Existing Notes outstanding and have
indicated their support of the Transaction and their intent to tender their
Existing Notes, thereby giving their consent to approve (i) the proposed
amendments to the Existing Indenture, (ii) the release of the liens on the
collateral securing the Existing Notes, and (iii) the terms of the New
Indenture. The minimum consent requirement will be satisfied and the proposed
amendments will be adopted if Mr. Icahn's affiliates tender for exchange their
Existing Notes.
In connection with, but prior to the consummation of, the Transaction,
following the consent of the holders of a majority of the aggregate principal
amount of the Existing Notes outstanding, GB Property, as issuer, GB Holdings
and Greate Bay Hotel, as guarantors, and Wells Fargo Bank, National Association,
as Trustee, will execute the Amendment to the Indenture. The Amendment to the
Indenture will facilitate the steps of the Transaction, among other things, by
amending the Existing Indenture to allow for the Asset Transfer, the Merger, the
Distribution of Atlantic Holdings Securities, and the waiver of any inconsistent
provisions. Also the Amendment to the Indenture will be the document through
which the liens securing the obligations under the Existing Notes will be
released. The Second Amended and Restated Indenture will govern the Existing
Notes following the consummation of the Transaction and will include and further
modify the amendments that are included in the Amendment to the Indenture. By
granting the consent solicited hereby, you will be consenting, approving,
authorizing, and directing all of the matters set forth in the Amendment to the
Indenture and the Second Amended and Restated Indenture (each substantially in
the form attached hereto as Annex F) and all modifications, changes, and waivers
effected thereby and the valid tender of your Existing Notes will be
automatically deemed your consent. This description is qualified by reference to
the Amendment to the Indenture which is attached to the solicitation statement
and prospectus as Annex F.
80
The Second Amended and Restated Indenture will become effective when
the consent solicitation and exchange offer are consummated. The Existing
Indenture states that it is not necessary for consenting holders of the Existing
Notes to approve the particular form of any proposed amendment. Rather it will
be sufficient if such consent approves the substance of any proposed amendment.
Accordingly, GB Holdings reserve the right to modify the form of the proposed
amendments, if the modifications would not, in the aggregate, materially alter
the substance of the proposed amendments described in this solicitation
statement and prospectus. Consents validly given under this solicitation
statement and prospectus will remain valid and effective and will be treated as
consents to the proposed amendments as so modified.
Upon effectiveness of the Transaction, the terms of the Existing
Indenture and Second Amended and Restated Indenture will not apply to Atlantic
Holdings or ACE Gaming.
Set forth below is a brief description of the proposed amendments to be
made to the Existing Indenture. This description is qualified by reference to
the full provisions of the Existing Indenture which is attached to this
solicitation statement and prospectus as Annex E.
THE AMENDMENTS
Collateral. Currently, the Existing Notes are secured by certain of the
assets owned by Greate Bay Hotel and GB Holdings constituting The Sands. After
the Transaction is completed, all of the collateral will be released and
transferred to Atlantic Holdings (and subsequently transferred to ACE Gaming)
subject to a mortgage in favor of the New Notes and, under the Second Amended
and Restated Indenture, all references to collateral would be eliminated and the
Existing Notes will be unsecured.
Events of Default. Section 501 of the Existing Indenture specifies the
types of events that could constitute an event of default under the Existing
Indenture, including, without limitation, cross default to other indebtedness,
certain litigations resulting in significant judgments, bankruptcy proceedings
and cessation of gaming operations. Under the Second Amended and Restated
Indenture, all events of default would be eliminated, other than the failure to
pay interest on the Existing Notes when due and such default continues for 30
days, failure to pay the principal at maturity, default or breach of any
covenants or warranty by GB Holdings (which remains uncured for more than 60
days after notice of such default or breach), the entry of a bankruptcy or
insolvency decree against GB Holdings, and the initiation of bankruptcy or
insolvency proceedings by GB Holdings.
Successors. Section 801(a) and (b) of the Existing Indenture
contemplate that transferees of all or substantially all of the properties of GB
Holdings or its subsidiaries will assume the obligations of GB Holdings under
the Existing Indenture. Under the Second Amended and Restated Indenture, this
section would be modified to eliminate that requirement with respect to the
Asset Transfer and any subsequent transfers.
Corporate Existence. Section 1004 of the Existing Indenture requires
that GB Holdings and its subsidiaries maintain corporate existence and
franchises and protect the security interest granted under the Existing
Indenture. Under the Second Amended and Restated Indenture, this section would
be modified to remove all references to Security Interest and Security
Documents.
Payment of Taxes. Section 1005 of the Existing Indenture requires GB
Holdings and its subsidiaries to pay all of their taxes and all lawful claims
for labor, materials and supplies. Under the Second Amended and Restated
Indenture, this section would be modified to remove all references to Security
Documents.
Maintenance of Properties. Section 1006 of the Existing Indenture
requires GB Holdings to cause all properties owned by it and its subsidiaries
used in the business to be maintained and kept in good condition, repair and
working order. Under the Second Amended and Restated Indenture, this section
would be modified to remove all references to Security Documents.
Insurance. Section 1007 of the Existing Indenture requires GB Holdings
and its subsidiaries to maintain insurance with responsible and reputable
insurance companies covering risk usually covered by companies engaged in
similar businesses. Under the Second and Amended and Restated Indenture, this
section would be deleted.
Change of Control. Section 1010 of the Existing Indenture requires GB
Holdings to offer to purchase all of the Existing Notes at an amount equal to
100% of the principal amount plus accrued interest in the event of the
81
occurrence of a change of control. Under the Second Amended and Restated
Indenture, this section would be deleted.
Limitation on Restricted Payments. Section 1013 of the Existing
Indenture prohibits GB Holdings and its subsidiaries from making any restricted
payment including any declaration or payment of dividends or purchase or
redemption of any common stock. Under the Second Amended and Restated Indenture,
this section would be modified to prohibit dividends on the common stock of GB
Holdings only if an event of default has occurred and is continuing under
section 501.
Limitation on Asset Sales. Section 1017 of the Existing Indenture
requires GB Holdings to sell assets at fair market value for consideration of
which at least 85% is in the form of cash and further requires that the proceeds
thereof be applied to purchase the Existing Notes from the holders thereof at a
price equal to 100% of the principal amount of the Existing Notes plus accrued
interest. GB Holdings is not required to make an offer to acquire the Existing
Notes, unless the aggregate cash proceeds from the asset sale exceeds $5
million. Excess cash must be maintained in a collateral account. Under the
Second Amended and Restated Indenture, this section would be modified to
eliminate the collateral account requirement.
Application Net Cash Proceeds in Event of Loss. Section 1018 of the
Existing Indenture requires proceeds received by GB Property with respect to an
event of loss (which includes destruction, condemnation or seizure of property)
to be used to provide an opportunity to holders of the Existing Notes to sell
the same to GB Property for a purchase price equal to 100% of the principal plus
accrued interest. Certain retained amounts not utilized for that purpose would
be held in a cash collateral account. Under the Second Amended and Restated
Indenture, this section would be deleted.
Ownership of Stock of Subsidiaries. Section 1019 of the Existing
Indenture requires GB Holdings to maintain at all times ownership of each class
of voting stock of, and all other equity securities in, each entity that as of
September 29, 2000 was a subsidiary of GB Holdings and further requires that
such stock be subject to a first priority security interest in favor of the
trustee. Under the Second Amended and Restated Indenture, this section would be
deleted.
Limitation Transactions with Affiliate. Section 1020 of the Existing
Indenture prohibits GB Holdings and its subsidiaries from engaging in
transactions with affiliates without satisfying the criteria specified therein
unless the same are approved in writing by GB Holdings' Board of Directors
(including the majority of the independent members thereof) and that the terms
of the transaction shall be on terms no less favorable than GB Holdings would
obtain in an arm's length transaction with an independent third party. Under the
Second Amended and Restated Indenture, this section would be deleted.
Change In Nature of Business. Section 1021 of the Existing Indenture
prohibits GB Property from owning, managing or conducting any operations other
than in a permitted line of business (which includes the casino gaming business
or any business related to such business). Under the Second Amended and Restated
Indenture, this section would be deleted.
Additional Collateral. Section 1022 of the Existing Indenture requires
GB Property to grant a valid and effective first priority security interest in
any collateral which it owns in favor of the Existing Notes and to execute all
related documents necessary to perfect such security interest. Under the Second
Amended and Restated Indenture, this section would be deleted.
Casino Reinvestment Development Authority. Section 1023 of the Existing
Indenture prohibits GB Holdings from granting any security interest in any CRDA
Investments except to the Casino Reinvestment Development Authority of the State
of New Jersey or other entities as required by applicable law, or to convey such
assets other than for fair value. Under the Second Amended and Restated
Indenture, this section would be deleted.
Subsidiaries. Section 1024 of the Existing Indenture requires GB
Property and GB Holdings to pledge the stock of its subsidiaries as of September
29, 2000. This section also prohibits any person becoming a subsidiary if the
event of default would result therefrom. Under the Second Amended and Restated
Indenture, this section would be deleted.
82
Security Documents. Section 1025 of the Existing Indenture requires GB
Property and GB Holdings to execute security documents creating liens on their
respective assets which secure their respective obligations under the Existing
Indenture. Under the Second Amended and Restated Indenture, this section would
be deleted.
Validity of Security Interests. Section 1026 of the Existing Indenture
provides that GB Holdings and its subsidiaries represent and warrant that they
shall continue to have full power and lawful authority to grant the security
interests and will preserve the same. Under the Second Amended and Restated
Indenture, this section would be deleted.
Security Interests. Sections 1401, 1402, 1403, 1404, 1405, 1406, 1407
and 1408 of the Existing Indenture provide the security interests in favor of
the trustee under the Existing Indenture with respect to the collateral
contemplated therein. Under the Second Amended and Restated Indenture, these
sections would be deleted.
DESCRIPTION OF THE NEW NOTES
The following summarizes the terms of the New Notes:
New Notes
------------------------------------------------------------------
Issuer............................... Atlantic Coast Entertainment Holdings, Inc.
Notes Offered........................ $110 million in aggregate principal amount of 3% Notes due 2008
issued under the New Indenture.
Interest Payments.................... 3% which will accrue annually but will not be payable until
maturity.
Maturity............................. September 29, 2008, or upon demand (a "Demand Payment") of the
"Requisite Lenders" (holders of a majority of the aggregate
principal amount of the New Notes outstanding). In the event of
a Demand Payment, all principal and accrued interest under all
of the New Notes will be satisfied through the payment of
Atlantic Holdings Common Stock, and all of the New Notes will
thereby be extinguished.
Conversion Rights.................... At the election of the Requisite Lenders, each of the holders of
the New Notes will be permitted to convert, in whole or in part,
their New Notes into Atlantic Holdings Common Stock.
Stated Ratio......................... The ratio shall equal 65.909 shares of Atlantic Holdings Common
Stock per $1,000 principal amount of New Notes, subject to
adjustments for stock dividends, stock splits, recapitalizations
and the like that shall be paid upon payment in or conversion
into Atlantic Holdings Common Stock. At this time, it is
impossible to estimate the value of Atlantic Holdings Common
Stock. However, it is possible that the value of such stock,
following payment, would be less than the cash payment to which
the holders of the New Notes would be entitled to at the
maturity of the New Notes.
Underlying Securities................ The shares issuable upon payment, will be registered under the
Securities Act.
83
The maximum number of shares of Atlantic Holdings Common Stock
issued upon payment of the New Notes will represent 72.5% (on a
fully diluted basis) of the Atlantic Holdings Common Stock
outstanding (prorated if less than all of the Existing Notes are
paid in the form of Atlantic Holdings Common Stock), subject to
antidilution provisions set forth herein.
Security Interest/Guaranties......... Secured by a lien on all of our and ACE Gaming's assets,
including after acquired property. Such liens will not be
released or subordinated without the consent of the Requisite
Lenders. Through Carl C. Icahn's control over his affiliates,
who will own at least 58% of the New Notes, Mr. Icahn will have
the ability to release the assets securing the New Notes.
The New Notes are guaranteed by ACE Gaming.
Sinking Fund......................... None.
Optional Redemption.................. At any time prior to the trustee's receipt of a notice that the
New Notes are to be paid in or convertible into Atlantic
Holdings Common Stock, the New Notes are redeemable at our
option (but only if consented to by the Requisite Lenders), in
whole or in part, on not less than 30 days or more than 60 days'
notice, at a price equal to 100% of the principal amount of the
New Notes, plus accrued and unpaid interest up to, but not
including, the date of redemption, payable in cash.
Mandatory Redemption................. None.
Special Redemption................... Each holder, by accepting a note, shall be deemed to have agreed
that if the CCC requires that a holder or the beneficial owner
of notes be licensed, qualified or found suitable under
applicable gaming laws, such holder or beneficial owner, as the
case may be, shall apply for a license, qualification or a
finding of suitability within the required time period. If such
person fails to apply or become licensed or qualified or is
found unsuitable, we shall have the right, at our option: (i) to
require such person to dispose of their New Notes or beneficial
interest therein within 30 days of receipt of notice from our
election, or (ii) to purchase such New Notes at a redemption
price equal to the lesser of (a) the amount the holder or the
beneficial owner paid for the New Notes, plus accrued and unpaid
interest, if any, to the date of determination of
disqualification, (b) 100% of the principal amount or (c) the
market value of the New Notes. In addition, Atlantic Holdings
has the right, with the consent of the Requisite Lenders, in
lieu of a purchase pursuant to (ii) above, to pay the holder in
the form of Atlantic Holdings Common Stock.
Events of Default.................... An event of default shall occur upon any action taken by us
which will cause any of the following to occur:
84
- Failure to make payments on any principal or interest of
the New Notes;
- Default in performance or breach of any warranty or
covenant, of the New Indenture (which remains uncured
for more than 60 days following notice of such breach or
default);
- Defaults on the payment of principal or premium for any
debt aggregating $5 million or more prior to the stated
maturity date of such debt;
- Notification to the trustee of action to be taken to
collect on any indebtedness in excess of $5 million
which resulted from an event of default under an
agreement evidencing such indebtedness;
- Judgment entered into against it for more than $10
million under certain conditions;
- Certain events of bankruptcy, insolvency;
- Alteration of security documents underlying this
Transaction which adversely affects the creditors;
- All gaming activity at The Sands ceases substantially
for more than 60 consecutive days, except if it is a
result of an Event of Loss;
- If ACE Gaming or its affiliates lose the legal right to
own or operate The Sands for more than 60 consecutive
days.
Transfer Restrictions.................. At the closing of the exchange offer, the New Notes will be
registered under the Securities Act, and, so long as not held by
affiliates, will be freely tradable.
Change of Control...................... The New Notes are assumable by a third-party acquirer and will
neither be callable (by a third-party acquirer) nor putable (by
the holders of the New Notes) as a result of such sale or change
of control.
Principal Affirmative Covenants........ Atlantic Holdings is required to:
- Make payment as required pursuant to the New Indenture;
- Maintain offices in the City of New York where the New
Notes may be presented or surrendered for payment,
surrendered for registration of transfer, exchange,
conversion or in respect of a Demand Payment, and where
notices and demands to or upon Atlantic Holdings may be
served;
- Transfer funds to the designated agent;
- Maintain its corporate existence;
85
- Pay taxes and similar assessments prior to delinquency;
- Maintain properties used by the business;
- Maintain adequate insurance in ordinary course of
business;
- Deliver to the trustee an annual officer's statement
indicating compliance with the terms of the New
Indenture;
- Deliver to the trustee notice regarding a default;
- Maintain ownership of ACE Gaming;
- Execute the necessary documents to secure its
obligations under the New Indenture;
- Grant a valid security interest in the collateral; and
- Cooperate with the CCC.
Principal Restrictive Covenants........ Atlantic Holdings is limited in or prohibited from:
- Making restricted payments including: (i) the
declaration or payment of any dividend or any other
distribution on the capital stock of Atlantic Holdings
or any subsidiary or any payment to the direct or
indirect holders of capital stock Atlantic Holdings or
any subsidiary (other than distributions payable solely
in capital stock of Atlantic Holdings), (ii) the
purchase, defeasance, redemption or other acquisition
or retirement for value of any capital stock of
Atlantic Holdings or any subsidiary (other than capital
stock of such subsidiary held by Atlantic Holdings),
and (iii) the making of any principal payment on, or
the purchase, defeasance, repurchase, redemption or
other acquisition or retirement for value of any
indebtedness subordinate to the New Notes (other than
indebtedness permitted under the New Indenture);
- Selling assets;
- Paying net cash proceeds in the event of loss;
- Transacting with affiliates;
- Changing or altering its business and the business of
its subsidiaries;
- Granting a security interest in the CRDA Investments;
- Paying dividends on the Atlantic Holdings Common Stock
other than as required in order to implement the
Transaction;
- Incurring or having our subsidiaries incur additional
indebtedness;
86
- Incurring or having our subsidiaries incur liens; and
- Entering into or having our subsidiaries enter into a -
sale-leaseback transaction.
Amendments to the New Indenture.......... o The consent of holders of New Notes, are not needed for
the following amendments to the New Indenture:
- succession and assumption of another Person to
Atlantic Holdings or guarantor;
- addition of covenants for the benefit of the
holders of the New Notes;
- addition of additional events that would
constitute an Event of Default;
- evidence and provide for the appointment of
successor trustee;
- correction of ambiguities;
- maintain the lien of the New Indenture and the
Security Documents;
- additional types of collateral for securing the
New Notes;
- addition of additional guarantors; and
- any other changes that do not adversely affect
the rights of any holder.
o The consent of the holders of 100% of the aggregate
principal amount of the New Notes outstanding is
required for amendments regarding:
- changes to the maturity date, interest
installments or coin or currency in which
premium or interest is payable; reduction of the
principal amount or interest rate or any premium
payable upon the redemption thereof; or
impairment of the right to institute suit for
enforcement of any payment; and
- reduction in the percentage in principal amount
of the outstanding New Notes, the consent of
whose holders is required for any such
supplemental indenture or any waiver of
compliance with certain provisions of the New
Indenture or certain defaults and their
consequences.
o The consent of the holders of a majority of the
aggregate principal amount of the New Notes outstanding
is required for any other amendments,
87
including the release of the collateral securing the
New Notes. Affiliates of Carl C. Icahn will own at
least 58% of the aggregate principal amount of the New
Notes outstanding. As such, Mr. Icahn's affiliates will
have substantial influence and control over matters to
be consented to by the holders of the New Notes.
Trustee.................................. Wells Fargo Bank, National Association.
COMPARISON OF THE EXISTING NOTES, THE EXISTING NOTES, AS AMENDED, AND
THE NEW NOTES
The following summary compares certain differences among the Existing
Notes (before giving effect to the consent solicitation and exchange offer), the
Existing Notes, as amended by the proposed amendments, and the New Notes. The
statements set forth below do not purport to be complete and are qualified in
their entirety by reference to the Existing Indenture (before giving effect to
the consent solicitation and exchange offer), the Second Amended and Restated
Indenture, and the New Indenture, and the information contained elsewhere in
this solicitation statement and prospectus, including the information under
"RISK FACTORS" as set forth on page 34, "PROPOSED AMENDMENTS" as set forth on
page 80, and "DESCRIPTION OF THE NEW NOTES" as set forth on page 83.
Existing Notes Existing Notes, as amended New Notes
-------------------------------- -------------------------------- ----------------------------
Issuer ......................... GB Property Funding Corp. GB Holdings, Inc Atlantic Coast Entertainment
Holdings, Inc.
Notes Offered.................... $110 million in aggregate Up to $46.2 million in Up to $110 million in
principal amount of 11% Notes aggregate principal amount of aggregate principal amount
due 2005 issued under the 11% Notes due 2005 issued of 3% Notes due 2008 issued
Existing Indenture. under the Existing Indenture, under the New Indenture.
as amended by the proposed
amendments (assumes affiliates
of Carl C. Icahn are the sole
participants in the exchange
offer)
Interest Payments................ 11% Notes due 2005 issued 11% payable on September 29 3% will accrue annually, but
March 29 of each year. and March 29 of each Year. will not be payable until
maturity.
Maturity......................... September 29, 2005 September 29, 2005 (i) September 29, 2008, (ii)
upon demand (a "Demand
Payment") of the "Requisite
Lenders" (holders of a
majority of the aggregate
principal amount of the New
Notes outstanding) or (iii)
if the Requisite Lenders
elect, each holder may be
permitted to convert its New
Notes, in whole or in part,
into Atlantic Holdings Common
Stock and such Notes are
88
satisfied and extinguished.
In the event of a Demand
Payment, all principal and
accrued interest under all of
the New Notes will be
satisfied through the payment
of Atlantic Holdings Common
Stock, and all of the New
Notes will thereby be
extinguished.
Conversion Rights................ None. None. At the election of the
Requisite Lenders, each of
the holders of the New Notes
will be allowed to determine
if and when to convert their
New Notes, in whole or in
part, into Atlantic Holdings
Common Stock.
Stated Ratio..................... Not Applicable. Not Applicable. The ratio shall equal 65.909
shares of Atlantic Holdings
Common Stock per $1,000
principal amount of New
Notes, subject to adjustments
for stock dividends, stock
splits, recapitalizations,
and the like and shall be
provided upon the payment in
or conversion into Atlantic
Holdings Common Stock. At
this time, it is impossible
to estimate the value of
Atlantic Holdings Common
Stock. However, it is
possible that the value of
the such stock, following
payment, would be less than
the cash payment to which the
holders of the New Notes
would be entitled to at the
maturity of the New Notes.
Underlying Securities............ Not Applicable. Not Applicable. The shares of Atlantic
Holdings Common Stock,
issuable upon payment, will
be registered under the
Securities Act.
The maximum number of
shares of Atlantic
89
Holdings Common Stock issued
upon payment of the New
Notes will represent 72.5%
(on a fully diluted basis)
of the outstanding Atlantic
Holdings Common Stock
(prorated if less than all
of the Existing Notes are
paid in Atlantic Holdings
Common Stock), subject to
antidilution provisions set
forth herein.
Security
Interest/Guaranties.............. Secured by a first lien on No collateral to secure the Secured by a lien on all of
certain of the assets owned by general obligations of GB Atlantic Holdings' and ACE
GB Holdings and its Holdings. Gaming's assets, including
subsidiaries (does not include after acquired property.
after acquired property, cash Such liens will not be
or cash equivalents). Not guaranteed. released or subordinated
Affiliates of Carl C. Icahn without the consent of the
own at least 58% of the New Requisite Lenders.
Notes, and as such they will Affiliates of Carl C. Icahn
have the ability to release own at least 58% of the New
the collateral securing the Notes, and as such they
New Notes. will have the ability to
release the collateral
securing the New Notes. The
New Notes are guaranteed by
ACE Gaming.
Guaranteed by GB Holdings and
Greate Bay Hotel.
Optional Redemption.............. At any time on or after At any time on or after At any time prior to the
January 1, 2001, the Existing January 1, 2001, the Existing trustee's receipt of a
Notes are redeemable at GB Notes, as amended, are notice that the New Notes
Property's option, in whole or redeemable at GB Holdings' are to be paid in or
in part, on not less than 30 option, in whole or in part, converted into Atlantic
days or more than 60 days' on not less than 30 days or Holdings Common Stock, the
notice, at a price equal to more than 60 days' notice, at New Notes are redeemable at
100% of the principal amount a price equal to 100% of the our option (but only if
of the Existing Notes, plus principal amount of the consented to by the
accrued and unpaid interest up Existing Notes, as amended, Requisite Lenders), in whole
to, but not including, the plus accrued and unpaid or in part, on not less than
date of redemption, payable in interest up to, but not 30 days or more than 60
cash. including, the date of days' notice, at a price
redemption, payable in cash. equal to 100% of the
principal amount of the New
Notes, plus accrued and
unpaid interest up to, but
not including, the date of
redemption, payable in cash.
90
Mandatory Redemption............. None. None. None.
Special Redemption................ If after a request from the If after a request from the If after a request from the
CCC, a holder or the CCC, a holder or the CCC, a holder or the
beneficial owner of the beneficial owner of the beneficial owner of the New
Existing Notes fails to submit Existing Notes, as amended, Notes fails to submit for
for qualification or is not fails to submit for qualification or is not
qualified under NJCCA, such qualification or is not qualified under NJCCA, such
holder may be required at the qualified under NJCCA, such holder may be required at the
option of GB Property to holder may be required at the option of Atlantic Holdings
dispose of such holder's option of GB Holdings to to dispose of such holder's
Existing Notes. dispose of such holder's New Notes and Atlantic
Existing Notes, as amended. Holdings may choose to
purchase such notes in
exchange for Atlantic
Holdings Common Stock.
Events of Default................ An event of default shall An event of default shall An event of default shall
occur upon any action taken by occur upon any action taken occur upon any action taken
GB Property which will cause: by GB Holdings which will by us which will cause:
cause:
- Default in payment of - Default in payment of - Failure to make
principal or premium principal or premium payments on any
at maturity, or at maturity, or principal or interest
default for 30 days in default for 30 days in of the New Notes;
payment of any payment of any
interest; interest;
- Failure to cure within - Failure to cure, - Default or breach in
60 days of notice a within 60 days the performance of
default in performance following notice, a any warranty or
or breach of any of default in performance covenant of the New
the covenants or or breach of any of Indenture (which
warranties; the covenants or remains uncured for
warranties; or more than 60 days
following notice of
such breach);
- Defaults on the - Entry of decree of - Defaults on the
payment of principal bankruptcy or payment of principal
or premium for any insolvency against, or or premium for any
debt aggregating $5 initiation of debt aggregating $5
million or more; bankruptcy or million or more prior
insolvency by GB to the stated
Holdings. maturity date of such
debt;
- Acceleration of - Notification to the
indebtedness or trustee of action to
required prepayments be taken to collect
or repurchases on any indebtedness
aggregating $5 million in excess of $5
prior to the million which
resulted from an
91
stated maturity date event of default
of such debt; under an agreement
evidencing such
indebtedness;
- Judgment entered into - Judgment entered into
against it for more against us for more
than $10 million under than $10 million
certain conditions; under certain
conditions;
- Certain events of - Certain events of
bankruptcy, insolvency; bankruptcy,
insolvency;
- Security documents no - Alteration of
longer in full force security documents
or effect or ceases to underlying this
create in favor of the transaction which
trustee a valid and adversely affects the
perfected first creditors;
priority lien on the
collateral underlying
this transaction;
- All gaming activity at - All gaming activity
The Sands ceases at The Sands ceases
substantially for 60 substantially for
consecutive days; or more than 60
consecutive days,
except if it is a
result of an Event of
Loss;
- GB Holdings or its - Atlantic Holdings or
affiliates lose the its affiliates lose
legal right to own or the legal right to
operate The Sands. own or operate The
Sands for more than 60
consecutive days.
Transfer Restrictions............. The Existing Notes are The Existing Notes, as At the closing of the
registered under the amended, are registered under exchange offer, the New Notes
Securities Act of 1933, as the Securities Act of 1933, as will be registered under the
amended, and, so long as not amended, and, so long as not Securities Act of 1933, as
held by affiliates, are freely held by affiliates, are freely amended, and, so long as not
tradeable. tradeable. held by affiliates, will be
freely tradeable.
Change of Control.................. Holders may require GB None Assumable by a third-party
Property to repurchase the acquirer and will neither be
Existing Notes at a purchase callable (by a third- party
price equal to 100% of the acquirer) nor putable (by the
principal amount of the holders of the New Notes) as
Existing Notes, plus accrued a result of such sale or
and unpaid interest. change of control.
92
Principal Affirmative Covenants.... GB Property is required to: GB Holdings is required to: We are required to:
- Make payment as - Make payment as - Make payment as
required pursuant to required pursuant to required pursuant to
the Existing Indenture; the Second Amended and the New Indenture;
Restated Indenture;
- Maintain offices in - Maintain offices in - Maintain offices in
the City of New York the City of New York the City of New York
where the Existing where the Existing where the New Notes
Notes may be presented Notes, as amended, may may be presented or
or surrendered for be presented or surrendered for
payment, surrendered surrendered for payment, surrendered
for registration of payment, surrendered for registration of
transfer or exchange, for registration of transfer, exchange,
and where notices and transfer or exchange, conversion or in
demands to or upon GB and where notices and respect of a Demand
Property may be served; demands to or upon GB Payment, and where
Holdings may be served; notices and demands
to or upon Atlantic
Holdings may be
served;
- Transfer funds to the - Transfer funds to the - Transfer funds to the
designated agent; designated agent; designated agent;
- Maintain its corporate - Maintain its corporate - Maintain its
existence; existence; corporate existence;
- Pay taxes and similar - Pay taxes and similar - Pay taxes and similar
assessments prior to assessments prior to assessments prior to
delinquency; delinquency; delinquency;
- Maintain properties - Maintain properties - Maintain properties
used by the business; used by the business; used by the business;
Maintain adequate - Deliver to the trustee Maintain adequate
insurance in ordinary an annual officer's insurance in ordinary
course of business; statement indicating course of business;
compliance with the
terms of the Existing
Indenture; and
- Deliver to the trustee - Deliver to the trustee - Deliver to the
an annual officer's notice regarding a trustee an annual
statement indicating default. officer's statement
compliance with the indicating
93
terms of the Existing compliance with the
Indenture; terms of the
New Indenture;
- Deliver to the trustee - Deliver to the
notice regarding a trustee notice
default; regarding a default;
- Execute necessary - Maintain ownership of
documents to secure ACE Gaming;
its obligations under
the Existing Indenture;
- Grant a valid security - Execute the necessary
interest in the documents to secure
collateral; and its obligations under
the New Indenture;
- Cooperate with the CCC. - Grant a valid
security interest in
the collateral; and
- Cooperate with the
CCC.
Principal Restrictive Covenants..
There are restrictions on the There are restrictions on the here are restrictions on Tur
activities of GB Property, activities of GB Holdings, activities, such as:
such as: such as:
- Prohibition against - Prohibition against - Prohibition against
restricted payments restricted payments restricted payments
including: (i) the including: (i) the including: (i) the
declaration or payment declaration or payment declaration or
of any dividend or any of any dividend or any payment of any
other distribution on other distribution on dividend or any other
the capital stock of the capital stock of distribution on the
GB Holdings or any GB Holdings or any capital stock of
subsidiary or any subsidiary or any Atlantic Holdings or
payment to the direct payment to the direct any subsidiary or any
or indirect holders of or indirect holders of payment to the direct
capital stock of GB capital stock of GB or indirect holders
Holdings or any Holdings or any of capital stock of
subsidiary (other than subsidiary (other than Atlantic Holdings or
distributions payable distributions payable any subsidiary (other
solely in capital solely in capital than distributions
stock of GB Holdings) stock of GB Holdings) payable solely in
and (ii) the purchase, and (ii) the purchase, capital stock of
defeasance, redemption defeasance, redemption Atlantic Holdings);
or other acquisition or other acquisition (ii) the purchase,
or retirement for or retirement for defeasance,
value of any capital value of any capital redemption or other
stock of GB Holdings stock of GB Holdings acquisition or
or any subsidiary or any subsidiary retirement for value
of any capital stock of
Atlantic
94
(other than capital (other than capital - Holdings or any
stock of such stock of such subsidiary (other than
subsidiary held by GB subsidiary held by GB capital
Holdings); Holdings); and subsidiary held by
Atlantic Holdings), and
(iii) the making of any
principal payment on ,
or the purchase,
defeasance, repurchase,
redemption or other
acquisition or
retirement for value of
any indebtedness
subordinate to the New
Notes (other than
indebtedness permitted
under the New
Indenture);
- Limitation on the sale - Limitation on the sale - Limitation on the
of assets except sales of assets except sales sale of assets except
to wholly-owned to wholly-owned sales to wholly-owned
subsidiaries of GB subsidiaries of GB subsidiaries of
Holdings, sales that Holdings, sales that Atlantic Holdings,
are less than or equal are less than or equal sales that are less
to $5 million in any to $5 million in any than or equal to $5
12-month period in the 12-month period in the million in any
aggregate, or sales, aggregate, or sales, 12-month period in
the proceeds of which the proceeds of which the aggregate, or
are, at least equal to are, at least equal to sales, the proceeds
the fair market value the fair market value of which are, at
of such property and of such property and least equal to the
at least 85% of the at least 85% of the fair market value of
proceeds are cash or proceeds are cash or such property and at
cash equivalents; cash equivalents. least 85% of the
proceeds are cash or
cash equivalents;
- Limitation on - Limitation of the
transactions with incurrence of liens
affiliates in excess or additional
of $5 million in any indebtedness by us or
365 day period; our subsidiaries,
other than certain
financings less than
$50 million in the
aggregate related to
furniture, fixture and
equipment of Atlantic
Holdings and certain
liens which do not
exceed $25 million
(plus accrued
95
interest) for working
capital of Atlantic
Holdings;
- Payment of net cash - Limitation on
proceeds in the event entering into or
of loss; having our
subsidiaries enter
into a sale-leaseback
transaction that is
at least equal to the
fair market value of
such property;
- Prohibition against - Limitation on
changing or altering transactions with
the business of GB affiliates in excess
Property and its of $5 million in any
affiliates; and 365 day period;
- Prohibition against - Payment of net cash
granting a security proceeds in the event
interest in the CRDA of loss;
Investments.
- Prohibition against
changing or altering
our business and the
business of our
subsidiaries;
- Prohibition against
granting a security
interest in the CRDA
Investments; and
- Limitation on the
payment of dividends
on the Atlantic
Holdings Common Stock.
Amendments....................... The consent of holders of The consent of holders of The consent of holders of
Existing Notes are not needed Existing Notes, as amended, New Notes are not needed for
for amendments to the Existing are not needed to the Existing amendments to the New
Indenture which are beneficial Indenture, as amended, for Indenture which are
to the holders, such as, amendments which are beneficial to the holders,
addition of additional events beneficial to the holders, such as, addition of
that would constitute an Event such as, addition of additional events that would
of Default; correction of additional events that would constitute an Event of
ambiguities; maintain the constitute an Event of Default; correction of
lien; and addition of Default; correction of ambiguities; maintain the
additional guarantors. ambiguities; adding a lien; lien; and addition of
and addition of guarantors. additional guarantors.
96
The consent of the holders of The consent of the holders of The consent of the holders
100% of the aggregate 100% of the aggregate of 100% of the aggregate
principal amount of the principal amount of the principal amount of the New
Existing Notes outstanding is Existing Notes outstanding, as Notes outstanding is
required for amendments amended, is required for required for amendments
regarding: amendments regarding: regarding:
- changes to the - changes to the - changes to the
maturity date, maturity date, maturity date,
interest installments interest installments interest installments
or coin or currency in or coin or currency in or coin or currency
which premium or which premium or in which premium or
interest is payable; interest is payable; interest is payable;
reduction of the reduction of the reduction of the
principal amount or principal amount or principal amount or
interest rate or any interest rate or any interest rate or any
premium payable upon premium payable upon premium payable upon
the redemption the redemption the redemption
thereof; or impairment thereof; or impairment thereof; or
of the right to of the right to impairment of the
institute suit for institute suit for right to institute
enforcement of any enforcement of any suit for enforcement
payment; payment; of any payment;
- reduction in the - reduction in the - reduction in the
percentage in percentage in percentage in
principal amount of principal amount of principal amount of
the outstanding the outstanding the outstanding New
Existing Notes, the Existing Notes, as Notes, the consent of
consent of whose amended, the consent whose holders is
holders is required of whose holders is required for any such
for any such required for any such supplemental
supplemental indenture supplemental indenture indenture or any
or any waiver of or any waiver of waiver of compliance
compliance with compliance with with certain
certain provisions of certain provisions of provisions of the New
the Existing Indenture the Second Amended and Indenture or certain
or certain defaults Restated Indenture or defaults and their
and their certain defaults and consequences; and
consequences; and their consequences; and
- modification of any - modification of any - modification of any
part of the Existing part of the Second part of the New
Indenture except to Amended and Restated Indenture except to
increase any Indenture except to increase any
percentage or provide increase any percentage or provide
for holder consent to percentage or provide for holder consent to
other modifications for holder consent to other modifications
which currently do not other modifications which currently do
provide for holder which currently do not not provide for
consent. provide for holder holder consent.
consent.
97
The consent of the holders of The consent of the holders of The consent of the holders of
a majority of the aggregate amajority of the aggregate a majority of the aggregate
principal amount of the principal amount of the principal amount of the New
Existing Notes outstanding is Existing Notes outstanding, as Notes outstanding is required
required for any other amended, is required for any for any other amendments,
amendments, including the other amendments. including the release of the
release of the collateral. collateral.
Trustee ..................... Wells Fargo Bank Minnesota, Wells Fargo Bank Minnesota, Wells Fargo Bank, National
National Association. National Association. Association (new name for
Wells Fargo Bank Minnesota,
National Association,
effective February 20, 2004).
DESCRIPTION OF ATLANTIC HOLDINGS CAPITAL STOCK
The following summary of the proposed terms of Atlantic Holdings'
capital stock is subject in all respects to applicable provisions of the
Delaware General Corporation Law and our certificate of incorporation. See
"WHERE YOU CAN FIND MORE INFORMATION" as set forth on page 143.
GENERAL
The total authorized shares of Atlantic Holdings' capital stock
consists of 20 million shares of Atlantic Holdings Common Stock, par value $0.01
per share, and 5 million shares of preferred stock, par value $0.01 per share
(the "Preferred Stock").
ATLANTIC HOLDINGS COMMON STOCK
Holders of Atlantic Holdings Common Stock are entitled to one vote on
each matter submitted to a vote at a meeting of the stockholders of Atlantic
Holdings. The Atlantic Holdings Common Stock does not have cumulative voting
rights, which means that the holders of a majority (or a plurality in the event
of individual candidates) of voting shares voting for the election of directors
can elect all of the members of Atlantic Holdings' Board of Directors. The
Atlantic Holdings Common Stock has no preemptive rights and no redemption or
conversion privileges. Subject to the preferences of any outstanding Preferred
Stock, the holders of the outstanding shares of Atlantic Holdings Common Stock
are entitled to (i) receive dividends out of funds legally available for that
purpose, payable in cash, stock or otherwise, at such times and in such amounts
as Atlantic Holdings' Board of Directors may, from time to time, determine and
(ii) receive, upon liquidation and dissolution, all assets available for
distribution to the stockholders. A majority vote of shares represented at a
meeting at which a quorum is present is sufficient for all actions that require
the vote of stockholders. All of the outstanding shares of Atlantic Holdings
Common Stock will be fully paid and nonassessable.
Except as discussed under "Preferred Stock" below, Atlantic Holdings is
not authorized to create, designate, authorize or cause to be issued any
nonvoting classes or series of stock. The NJCCA also imposes certain
restrictions upon the ownership of securities issued by a corporation that holds
a casino license or is a holding company of a corporate licensee. Among other
restrictions, the sale, assignment, transfer, pledge or other disposition of any
security issued by a corporate licensee or holding company is subject to the
regulation of the CCC. The CCC may require divestiture of any security held by a
disqualified holder such as an officer, director or controlling stockholder who
is required to be qualified under the NJCCA.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, Atlantic Holdings is
authorized to issue one or more series of Preferred Stock, which may be issued
from time to time in one or more series upon authorization by the Board of
Directors of Atlantic Holdings. Atlantic Holdings' Board of Directors, without
further approval of the stockholders,
98
will be authorized to fix the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences and any
other rights, preferences, privileges and restrictions to each series of the
Preferred Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes could, among
other things, adversely affect the voting power of the holders of Atlantic
Holdings Common Stock and, in certain circumstances, make it more difficult for
a third party to gain control of Atlantic Holdings, discourage bids for the
Atlantic Holdings Common Stock at a premium or otherwise adversely affect the
market price of the Atlantic Holdings Common Stock.
WARRANTS
The Warrants will be issued pursuant to an agreement (the "Warrant
Agreement") between Atlantic Holdings and Wells Fargo Bank, National
Association, as warrant agent (the "Warrant Agent"). The following discussion of
the material terms and provisions of the Warrants is qualified in its entirety
by referring to the detailed provision of the Warrant Agreement, the form of
which is attached to this solicitation statement and prospectus as Annex D.
The Warrants will have the following terms:
(i) The Warrants will initially be exercisable for an aggregate of
2,750,000 shares of Atlantic Holdings Common Stock or 27.5% of
the outstanding shares of Atlantic Holdings Common Stock, at an
exercise price of $.01 per share (the "Exercise Price"),
subject to adjustments.
(ii) The Warrants will expire seven years from the date of issuance,
but will be subject to cancellation as set forth below.
(iii) The Warrants will become exercisable, at the election of the
holders, following the earlier of (i) the payment in cash or
Atlantic Holdings Common Stock of the New Notes or conversion
of one or more of the New Notes into Atlantic Holdings Common
Stock in full satisfaction of the principal and accrued
interest due pursuant to such New Notes; (ii) a determination
by a majority of the Board of Directors of Atlantic Holdings
(including at least one independent director) that the Warrants
may be exercised; and (iii) payment in full of the outstanding
principal of the Existing Notes which have not been exchanged
for the New Notes. We cannot make an accurate prediction as to
exactly if and when the first of these conditions will be
satisfied.
(iv) In addition, the Board of Directors of Atlantic Holdings may
elect at any time following the date on which the Warrants
become exercisable to provide notice to the holders of the
Warrants that the Warrants will automatically be cancelled at
least 90 days following the date of such notice, unless
exercised prior to such date. Consequently, if the Board of
Directors of Atlantic Holdings elects, you may have only a
90-day period beginning on the date the Warrants become
exercisable to exercise the Warrants.
(v) The holders may exercise the Warrants by providing notice to
the Warrant Agent and paying the Exercise Price.
(vi) The Exercise Price and number of shares of Atlantic Holdings
Common Stock issuable upon exercise of the Warrants will be
subject to adjustments for certain capital structure changing
events (such as stock dividends, stock splits,
recapitalizations, and the like).
(vii) A holder is unable to exercise the Warrants, unless Atlantic
Holdings has a current registration statement or there is a
valid exemption and Atlantic Holdings will use reasonable
efforts to have a current registration statement in effect with
the SEC and qualification with or approval from various state
securities agencies with respect to the Atlantic Holdings
Common Stock underlying the Warrants, or an opinion of counsel
for Atlantic Holdings that there is an effective exemption from
registration. As long as the Warrants remain outstanding and
exercisable, Atlantic Holdings will use its reasonable efforts
to file a registration statement with the SEC and have such
registration statement declared effective and remain effective.
There can be no assurance, however, that such registration
statement can be kept current. If a registration statement
covering such shares of Atlantic Holdings Common Stock is not
kept current for any reason, and if the shares underlying the
Warrants are not registered in the state in which a holder
resides, the Warrants will not be exercisable and will be
deprived of any value.
99
(viii) The Warrants will be transferable.
Prior to exercise, the Warrants have no voting rights.
GOVERNMENT REGULATION
Casino gaming is strictly regulated in Atlantic City under the New
Jersey Casino Control Act (the "NJCCA") and the regulations of the New Jersey
Casino Control Commission ("CCC"), which affect virtually all aspects of the
operations of The Sands. The NJCCA and regulations affecting Atlantic City
casino licensees concern primarily the financial stability, integrity and
character of casino operators, their employees, their debt and equity security
holders and others financially interested in casino operations; the nature of
casino/hotel facilities; the operation methods (including rules of games and
credit granting procedures); and financial and accounting practices used in
connection with casino operations. A number of these regulations require
practices that are different from those in casinos in Nevada and elsewhere, and
some of these regulations result in casino operating costs greater than those in
comparable facilities in Nevada and elsewhere. The following is only a summary
of the applicable provisions of the NJCCA. It does not purport to be a full
description and is qualified in its entirety by reference to the NJCCA and such
other applicable laws and regulations.
NEW JERSEY GAMING REGULATIONS
In general, the NJCCA and the regulations promulgated thereunder
contain detailed provisions concerning, among other things:
o the granting and renewal of casino licenses;
o the suitability of the approved hotel facility, and the amount of
authorized casino space and gaming units permitted therein;
o the qualification of natural persons and entities related to the
casino licensee;
o the licensing of certain employees and vendors of casino
licensees;
o the rules of the games;
o the selling and redeeming of gaming chips;
o the granting and duration of credit and the enforceability of
gaming debts;
o management control procedures, accounting and cash control methods
and reports to gaming agencies;
o the security standards;
o the manufacture and distribution of gaming equipment; and
o the simulcasting of horse races by casino licensees, advertising,
entertainment and alcoholic beverages.
Casino Control Commission
The ownership and operation of casino/hotel facilities in Atlantic City
are the subject of strict state regulation under the NJCCA. The CCC is empowered
to regulate a wide spectrum of gaming and non-gaming related activities and to
approve the form of ownership and financial structure of not only a casino
licensee, but also its entity qualifiers and intermediary and holding companies
and any other related entity required to be qualified.
Casino License
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the CCC, which has broad discretion with regard to
the issuance, renewal, revocation and suspension of such licenses and approvals,
which are non-transferable. The qualification criteria with respect to the
holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty and integrity;
and the sufficiency of its business
100
ability and casino experience to establish the likelihood of a successful,
efficient casino operation. A plenary license authorizes the operation of a
casino with the games authorized in an operation certificate issued by the CCC,
and the operation certificate may be issued only on a finding that the casino
conforms to the requirements of the NJCCA and applicable regulations and that
the casino is prepared to entertain the public. Under such determination, Greate
Bay Hotel has been issued a plenary casino license. The plenary license issued
to The Sands was renewed by the CCC in September 2000 for a period of four
years. The CCC may reopen licensing hearings at any time, and must reopen a
licensing hearing at the request of the Division of Gaming Enforcement.
To be considered financially stable, a licensee must demonstrate the
following abilities: to pay winning wagers when due; to achieve an annual gross
operating profit; to pay all local, state and federal taxes when due; to make
necessary capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature or become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
CCC may take such action as it deems necessary to fulfill the purposes of the
NJCCA and protect the public interest, including: issuing conditional licenses,
approvals or determinations; establishing an appropriate cure period; imposing
reporting requirements; placing restrictions on the transfer of cash or the
assumption of liabilities; requiring reasonable reserves or trust accounts;
denying licensure; or appointing a conservator. See "-- Conservatorship" as set
forth on page 104.
Pursuant to the NJCCA and the regulations and precedent of the CCC, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other lien acquired in the ordinary course of business)
and any lender, underwriter, agent or employee of the licensee or other person
whom the CCC may consider appropriate, obtains and maintains qualification
approval from the CCC. Qualification approval means that such person must, but
for residence, individually meet the qualification requirements as a casino key
employee.
Control Persons
An entity qualifier or intermediary or holding company, such as Greate
Bay Hotel, GB Holdings, Atlantic Holdings or ACE Gaming is required to register
with the CCC and meet the same basic standards for approval as a casino
licensee; provided, however, that the CCC, with the concurrence of the Director
of the Division of Gaming Enforcement, may waive compliance by a publicly-traded
corporate holding company with the requirement that an officer, director,
lender, underwriter, agent or employee thereof, or person directly or indirectly
holding a beneficial interest or ownership of the securities thereof,
individually qualify for approval under casino key employee standards so long as
the CCC and the Director of the Division of Gaming Enforcement are, and remain,
satisfied that such officer, director, lender, underwriter, agent or employee is
not significantly involved in the activities of the casino licensee, or that
such security holder does not have the ability to control the publicly-traded
corporate holding company or elect one or more of its directors. Persons holding
5.0% or more of the equity securities of such holding company are presumed to
have the ability to control the company or elect one or more of its directors
and will, unless this presumption is rebutted, be required to individually
qualify. Equity securities are defined as any voting stock or any security
similar to or convertible into or carrying a right to acquire any security
having a direct or indirect participation in the profits of the issuer.
Financial Sources
The CCC may require all financial backers, investors, mortgagees, bond
holders and holders of notes or other evidence of indebtedness, either in effect
or proposed, which bear any relation to any casino project, including holders of
publicly-traded securities of an entity which holds a casino license or is an
entity qualifier, subsidiary or holding company of a casino licensee, to qualify
as financial sources. In the past, the CCC has waived the qualification
requirement for holders of less than 15.0% of a series of publicly-traded
mortgage bonds so long as the bonds remained widely distributed and freely
traded in the public market and the holder had no ability to control the casino
licensee. The CCC may require holders of less than 15.0% of a series of debt to
qualify as financial sources even if not active in the management of the issuer
or casino licensee.
101
Institutional Investors
An institutional investor is defined by the NJCCA as any retirement
fund administered by a public agency for the exclusive benefit of federal, state
or local public employees; any investment company registered under the
Investment Company Act of 1940, as amended; any collective investment trust
organized by banks under Part Nine of the Rules of the Comptroller of the
Currency; any closed end investment trust; any chartered or licensed life
insurance company or property and casualty insurance company; any banking and
other chartered or licensed lending institution; any investment advisor
registered under the Investment Advisers Act of 1940, as amended; and such other
persons as the CCC may determine for reasons consistent with the policies of the
NJCCA.
An institutional investor may be granted a waiver by the CCC from
financial source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the
Division of Gaming Enforcement that there is any cause to believe that the
holder may be found unqualified, on the basis of CCC findings that: (i) its
holdings were purchased for investment purposes only and, upon request by the
CCC, it files a certified statement to the effect that it has no intention of
influencing or affecting the affairs of the issuer, the casino licensee or its
holding or intermediary companies; provided, however, that the institutional
investor will be permitted to vote on matters put to the vote of the outstanding
security holders and (ii) if (x) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in any
way to the financing of the casino licensee and represent either (A) 20.0% or
less of the total outstanding debt of the company or (B) 50.0% or less of any
issue of outstanding debt of the company; (y) the securities are equity
securities and represent less than 10.0% of the equity securities of a casino
licensee's holding or intermediary companies; or (z) the securities so held
exceed such percentages, upon a showing of good cause. There can be no
assurance, however, that the CCC will make such findings or grant such waiver
and, in any event, an institutional investor may be required to produce for the
CCC or the Antitrust Division of the Department of Justice upon request, any
document or information which bears any relation to such debt or equity
securities.
Ownership and Transfer of Securities
The NJCCA imposes certain restrictions upon the issuance, ownership and
transfer of securities of a regulated company and defines the term "security" to
include instruments which evidence a direct or indirect beneficial ownership or
creditor interest in a regulated company including, but not limited to,
mortgages, debentures, security agreements, notes and warrants. Each of The
Sands, GB Holdings, Atlantic Holdings and ACE Gaming will be deemed to be a
regulated company and instruments evidencing a beneficial ownership or creditor
interest therein, including a partnership interest, are deemed to be the
securities of a regulated company.
If the CCC finds that a holder of such securities is not qualified
under the NJCCA, it has the right to take any remedial action it may deem
appropriate, including the right to force divestiture by such disqualified
holder of such securities. In the event that certain disqualified holders fail
to divest themselves of such securities, the CCC has the power to revoke or
suspend the casino license affiliated with the regulated company which issued
the securities. If a holder is found unqualified, it is unlawful for the holder
(i) to exercise, directly or through any trustee or nominee, any right conferred
by such securities or (ii) to receive any dividends or interest upon such
securities or any remuneration, in any form, from its affiliated casino licensee
for services rendered or otherwise.
With respect to non-publicly-traded securities, the NJCCA and
regulations of the CCC require that the corporate charter or partnership
agreement of a regulated company establish a right in the CCC of prior approval
with regard to transfers of securities, shares and other interests and an
absolute right in the regulated company to repurchase at the market price or the
purchase price, whichever is less, any such security, share or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
condition that if a holder thereof is found to be disqualified by the CCC, such
holder shall dispose of such securities.
Under the terms of the indentures governing the Notes, if a holder of
the Notes does not qualify under the NJCCA when required to do so, such holder
must dispose of its interest in such securities, and the respective issuer or
issuers of such securities may redeem the securities at the lesser of the
outstanding amount or fair market value.
102
License Fees
The CCC is authorized to establish annual fees for the renewal of
casino licenses. The renewal fee is based upon the cost of maintaining control
and regulatory activities prescribed by the NJCCA, and may not be less than
$200,000 for a four-year casino license. Additionally, casino licensees are
subject to potential assessments to fund any annual operating deficits incurred
by the CCC or the Division of Gaming Enforcement. There is also an annual
license fee of $500 for each slot machine maintained for use or in use in any
casino.
Gross Revenue Tax
Each casino licensee is also required to pay an annual tax of 8.0% on
its gross casino revenues. On July 3, 2002, the State of New Jersey passed the
New Jersey Business Tax Reform Act which, among other things, suspended the use
of the New Jersey net operating loss carryforwards for two years and introduced
a new alternative minimum assessment under the New Jersey corporate business tax
based on gross receipts or gross profits.
On July 1, 2003, the State of New Jersey amended the NJCCA to impose
new and increased taxes on casino revenues, complimentaries and hotel
occupancies, among other things. See "RISK FACTORS -- Risk Factors Related to
the Business of Atlantic Holdings -- Increased state taxation of gaming and
hospitality revenues could adversely affect our results of operations" as set
forth on page 45.
Investment Alternative Tax Obligations
The Sands conducts gaming operations in Atlantic City, New Jersey and
operates a hotel and several restaurants, as well as related support facilities.
The operation of an Atlantic City casino/hotel is subject to significant
regulatory control. Under the NJCCA, Greate Bay Hotel was required to obtain and
is required to periodically renew its operating license. A casino license is not
transferable and, after the initial licensing and two one-year renewal periods,
is issued for a term of up to four years. The plenary license issued to The
Sands was renewed by the CCC in September 2000 and extended through September
2004. The CCC may reopen licensing hearings at any time. If it were determined
that gaming laws were violated by a licensee, the gaming license could be
conditioned, suspended or revoked. In addition, the licensee and other persons
involved could be subject to substantial fines.
The NJCCA requires casino licensees to pay an investment alternative
tax of 2.5% of gross revenue (the "2.5% Tax") or, in lieu thereof, to make
quarterly deposits of 1.25% of quarterly gross revenue with the CRDA (the
"Deposits"). The Deposits are then used to purchase bonds at below-market
interest rates from the CRDA or to make qualified investments approved by the
CRDA. The CRDA administers the statutorily mandated investments made by casino
licensees and is required to expend the monies received by it for eligible
projects as defined in the NJCCA. The Sands has elected to make the Deposits
with the CRDA rather than pay the 2.5% Tax.
As of December 31, 2003 and 2002, The Sands had purchased bonds
totaling $6,875,000 and $6,946,000, respectively. In addition, The Sands had
remaining funds on deposit and held in escrow by the CRDA at December 31, 2003
and 2002, of $15,198,000 and $13,151,000, respectively. The bonds purchased and
the amounts on deposit and held in escrow are collectively referred to as
"obligatory investments" on the accompanying consolidated financial statements
of GB Holdings and its subsidiary.
Obligatory investments at December 31, 2003 and 2002, are net of
accumulated valuation allowances of $11,340,000 and $10,028,000, respectively,
based upon the estimated realizable values of the investments. Provisions for
valuation allowances for the years ended December 31, 2003, 2002 and 2001
amounted to $1,434,000, $1,521,000 and $1,341,000, respectively.
The Sands has, from time to time, contributed certain amounts held in
escrow by the CRDA to fund CRDA sponsored projects. During 2003, The Sands
contributed $695,000 of its escrowed funds to CRDA sponsored projects. During
2002, The Sands contributed $925,000 of its escrowed funds to CRDA sponsored
projects and received $116,000 in a cash refund. In 2001, The Sands contributed
$322,000 of its escrowed funds to CRDA sponsored projects and received $80,000
in a cash refund and $84,000 in waivers of certain future Deposit obligations.
Prior to this, the CRDA had granted The Sands both cash refunds and waivers of
certain of its future Deposit obligations in consideration of similar
contributions. Other assets aggregating $621,000 and $811,000, respectively,
have been recognized on the accompanying consolidated balance sheets at December
31, 2003 and
103
2002, and are being amortized over a period of ten years commencing with the
completion of the projects. Amortization of other assets totaled $205,000,
$199,000, and $202,000, for the years ended December 31, 2003, 2002 and 2001,
respectively, and are included in depreciation and amortization, including
provisions for obligatory investments or accompanying statements of operations.
Atlantic City Fund
On each October 31st during the years 1996 through 2003, each casino
licensee shall pay into an account established in the CRDA and known as the
Atlantic City Fund, its proportional share of an amount related to the amount by
which annual operating expenses of the CCC and the Division of Gaming
Enforcement are less than a certain fixed sum. Additionally, a portion of the
investment alternative tax obligation of each casino licensee for the years 1994
through 1998 allocated for projects in northern New Jersey shall be paid into
and credited to the Atlantic City Fund. Amounts in the Atlantic City Fund will
be expended by the CRDA for economic development projects of a revenue-producing
nature that foster the redevelopment of Atlantic City other than the
construction and renovation of casino hotels.
Conservatorship
If, at any time, it is determined that Greate Bay Hotel, GB Holdings,
Atlantic Holdings or ACE Gaming or any other entity qualifier has violated the
NJCCA or that any of such entities cannot meet the qualification requirements of
the NJCCA, such entity could be subject to fines or the suspension or revocation
of its license or qualification. If a casino license is suspended for a period
in excess of 120 days or is revoked, or if the CCC fails or refuses to renew
such casino license, the CCC could appoint a conservator to operate and dispose
of such licensee's casino hotel facilities. A conservator would be vested with
title to all property of such licensee relating to the casino and the approved
hotel subject to valid liens and/or encumbrances. The conservator would be
required to act under the direct supervision of the CCC and would be charged
with the duty of conserving, preserving and, if permitted, continuing the
operation of the casino hotel. During the period of the conservatorship, a
former or suspended casino licensee is entitled to a fair rate of return out of
net earnings, if any, on the property retained by the conservator. The CCC may
also discontinue any conservatorship action and direct the conservator to take
such steps as are necessary to effect an orderly transfer of the property of a
former or suspended casino licensee. Such events could result in an event of
default under the terms of the indentures governing the Notes.
Treasury Regulations
The United States Department of the Treasury has adopted regulations
pursuant to which a casino is required to file a report of each deposit,
withdrawal, exchange of currency, gambling tokens or chips, or other payments or
transfers by, through or to such casino which involves a transaction in currency
of more than $10,000 per patron, per gaming day. Such reports are required to be
made on forms prescribed by the Secretary of the Treasury and are filed with the
Commissioner of the Internal Revenue Service. In addition, ACE Gaming is
required to maintain detailed records (including the names, addresses, social
security numbers and other information with respect to its gaming customers)
dealing with, among other items, the deposit and withdrawal of funds and the
maintenance of a line of credit.
In the past, the Internal Revenue Service had taken the position that
winnings from table games by nonresident aliens were subject to a 30.0%
withholding tax. The Internal Revenue Service, however, subsequently adopted a
practice of not collecting such tax. Recently enacted legislation exempts from
withholding tax table game winnings by nonresident aliens, unless the Secretary
of the Treasury determines by regulation that such collections have become
administratively feasible.
DESCRIPTION OF THE BUSINESS OF ATLANTIC HOLDINGS AND ITS SUBSIDIARIES
GENERAL
Atlantic Holdings is a Delaware corporation and a newly formed,
wholly-owned subsidiary of Greate Bay Hotel which is a wholly-owned subsidiary
of GB Holdings. Atlantic Holdings was formed in November 2003 for the purpose of
the contemplated exchange of the Existing Notes for the New Notes. The
contemplated exchange includes the transfer of substantially all of the assets
and liabilities of GB Holdings to Atlantic Holdings.
104
Upon consummation of the Transaction, Atlantic Holdings will own a
subsidiary with substantially the same assets as Greate Bay Hotel and have the
same directors and management as GB Holdings. Also Atlantic Holdings will manage
the business of ACE Gaming in a manner identical to GB Holdings' management of
Greate Bay Hotel. See "DESCRIPTION OF THE BUSINESS OF GB HOLDINGS AND ITS
SUBSIDIARIES" set forth on page 105.
DESCRIPTION OF THE BUSINESS OF GB HOLDINGS AND ITS SUBSIDIARIES
GENERAL
GB Holdings is a Delaware corporation and was a wholly-owned subsidiary
of Pratt Casino Corporation, a Delaware corporation ("PCC"), through December
31, 1998. PCC was incorporated in September 1993 and was wholly-owned by PPI
Corporation, a New Jersey corporation ("PPI") and a wholly-owned subsidiary of
Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC
transferred 21% of the stock ownership in GB Holdings to PBV, Inc., a newly
formed entity controlled by certain stockholders of GBCC ("PBV"). As a result of
a certain confirmed plan of reorganization of PCC and others in October 1999,
the remaining 79% stock interest of PCC in GB Holdings was transferred to Greate
Bay Holdings, LLC ("GBLLC"), whose sole member as a result of the same
reorganization was PPI. In February 1994, GB Holdings acquired Greate Bay Hotel
through a capital contribution by its then parent. Greate Bay Hotel's principal
business activity is its ownership of The Sands Hotel and Casino located in
Atlantic City, New Jersey. GB Property, a Delaware corporation and a
wholly-owned subsidiary of GB Holdings, was incorporated in September 1993 as a
special purpose subsidiary of GB Holdings for the purpose of borrowing funds for
the benefit of Greate Bay Hotel. Atlantic Holdings, a Delaware corporation and a
wholly-owned subsidiary of Greate Bay Hotel, was incorporated on October 31,
2003. ACE Gaming, a New Jersey limited liability company and a wholly-owned
subsidiary of Atlantic Holdings, was formed on November 5, 2003. GB Holdings has
no operating activities and its only source of income is interest on cash
equivalent investments. GB Holdings' only significant assets are its investment
in Greate Bay Hotel and its cash balance at March 31, 2004 of $12.5 million.
On January 5, 1998, GB Holdings and its subsidiaries filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). On August 14, 2000, the Bankruptcy Court
entered an order (the "Confirmation Order") confirming the Modified Fifth
Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code
Proposed by the Official Committee of Unsecured Creditors and High River Limited
Partnership and its affiliates (the "Plan") for the Parent Company. High River
Limited Partnership ("High River") is an entity controlled by Carl C. Icahn. On
September 13, 2000, the CCC approved the Plan. On September 29, 2000, the Plan
became effective (the "Effective Date"). All material conditions precedent to
the Plan becoming effective were satisfied on or before September 29, 2000.
Accordingly, the accompanying consolidated financial statements have been
prepared in accordance with Statement of Position No. 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). In
addition, as a result of the Confirmation Order and the occurrence of the
Effective Date, and in accordance with SOP 90-7, GB Holdings and its
subsidiaries adopted "fresh start reporting" in the preparation of the
accompanying consolidated financial statements. GB Holdings and its
subsidiaries' emergence from Chapter 11 resulted in a new reporting entity with
no retained earnings or accumulated deficit as of September 30, 2000. As a
result, the consolidated financial statements for the periods subsequent to
September 30, 2000, reflect the new basis of accounting and are not comparable
to consolidated financial statements presented prior to September 30, 2000. A
black line has been drawn on the accompanying consolidated financial statements
to distinguish between the pre-reorganization and post-reorganization entities.
On the Effective Date, GB Property's existing debt securities,
consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "10
7/8% Old Notes") and all of GB Holdings' issued and outstanding shares of common
stock owned by PBV and GBLLC were cancelled. As of the Effective Date, an
aggregate of 10,000,000 shares of new common stock of GB Holdings (the "New GB
Holdings Common Stock") were issued and outstanding, and the Existing Notes were
issued by GB Property. Holders of the 10 7/8% Old Notes received a distribution
of their pro rata shares of (i) the Existing Notes and (ii) 5,375,000 shares of
the New GB Holdings Common Stock.
GB Holdings and GB Property listed the New GB Holdings Common Stock and
the Existing Notes, respectively, on AMEX on March 27, 2001.
105
THE SANDS
The Sands has segregated its gaming customers into three broad
categories:
o The Premium Categories - Those customers who have a high potential
loss per trip. This category has the lowest profit margin
percentage per customer.
o The Middle Categories - Those customers who have a high repeat
trip frequency along with a potential loss per trip that equates
to a high annual potential loss per customer.
o The Mass Categories - Those customers who have a low casino
loyalty and a low potential loss per trip. This category has the
highest profit margin percentage per customer.
Business Strategy
Traditionally, The Sands' marketing strategy in the highly competitive
Atlantic City market has consisted of seeking premium category patrons. In the
past, The Sands has been successful in its marketing efforts towards these
premium patrons through its offering of private, limited-access facilities,
related amenities and use of sophisticated information technology to monitor
patron play, control certain casino operating costs and target marketing efforts
toward frequent visitors with above average gaming budgets. While The Sands
strived to maintain market share within this category, competition within the
industry for the premium category (both table and slot) reduced The Sands'
ability to attract this type of player on a profitable basis.
In 2001, The Sands focused on the "Value Gaming" concept. The general
concept in "Value Gaming" is to provide the customer with the best possible
gaming experience for the amount of time that the customer is on property.
Whether that experience is enhanced by competitive odds on games, the ability to
find a food outlet that provides an affordable quality food product, or superior
service, the intent is to provide all categories with an expanded and improved
entertainment experience that would lead to an increase in subsequent trips.
As part of its commitment to make the "Value Gaming" concept a reality
for its customers, The Sands continued to provide the "loosest" slots in the
Atlantic City market during 2001 and through the first quarter of 2002. That is,
The Sands provided the best overall odds for winning at slots of any casino in
Atlantic City, according to monthly data filed with the CCC.
Additionally in 2001, The Sands invested approximately $4.6 million in
new slot machines, gaming equipment and casino renovations. The Boardwalk Buffet
reopened after renovations in the summer of 2001, providing guests with an
expanded buffet outlet featuring a wide variety of culinary choices at an
affordable price in a nostalgic Atlantic City atmosphere.
In the second quarter of 2002, The Sands changed its marketing strategy
to reduce its focus on the lower profit margin table games business and focus
almost exclusively on the slot machine business. In the process, The Sands
reduced the number of table games from 69 to 26 and increased its number of slot
machines by approximately 400 units. The Sands began to market its product
predominantly to the mass slot player categories. As part of this strategy, The
Sands, in keeping with its "Value Gaming" concept, increased the number of lower
denomination slot machines, thus making the product more available to this mass
category. However, the increase in the number of lower denomination slot
machines created a more competitive slot machine hold percentage and, as a
result, caused The Sands to move away from its "loosest" slots in Atlantic City.
The "Value Gaming" concept continued to be reinforced through the availability
of slot machines, discounted food product and availability of hotel rooms to the
mass category.
At the end of the third quarter of 2002, it had become apparent that
the gain in slot machine revenue could not offset the loss of table game
revenue. In addition, the volume required from the mass slot player categories,
to make up the loss of the middle to premium slot player categories, could not
be accommodated in a property with the physical constraints of The Sands.
Subsequent review of marketing data revealed that the loss in table game play
had a direct effect on the loss in some slot machine play, as many slot patrons
who frequented The Sands with family and friends were forced to patronize
competitors to find the variety of gaming experience they desired. As a result,
by the end of the fourth quarter of 2002, The Sands had added fourteen table
games to bring the total number of table games to forty, and changed its
marketing strategy to focus more on the middle to premium categories of slot
players.
106
During 2002 and 2003, The Sands continued to invest in improvements and
upgrades to the casino hotel complex. These improvements included new slot
machines, renovations to the first floor casino, the showroom, two private
lounges for casino guests, and hotel room renovations to both The Sands and the
Madison House Hotel, see "--Description of Properties" as set forth on page 112.
GB Holdings recognized that "The Sands" name had a strong brand
recognition and a rich heritage in gaming that went back to the original
property in Las Vegas of the 1950's. Beginning in 2003, the Atlantic City Sands
stylized a new Sands logo, which reflected this rich heritage and began to
transform the property theme into the "Players' Place." The Players' Place
identity was woven into the value gaming strategy to provide the customer with
ample access to a variety of gaming and entertainment experiences that harkened
back to the glamorous era of the Las Vegas strip. The Property will offer
outstanding gaming odds, highest table limits, more liberal player rewards to
the avid customer and unparalleled, personal boutique service that exceeds guest
expectations; all in an environment that makes the better player feel like he
has a "home court advantage."
In 2003, further renovations to the casino floor occurred that
supported this theme. Swingers lounge was constructed in the center of the
casino to provide a multi-faceted state-of-the-art entertainment experience. The
Swingers lounge includes bartop slot machines and is staffed by "Flair
Bartenders" (part mixologist, part performance artist). In addition, further
renovations to the bus lobby entrance, the promotions center and the Platinum
and Plaza Clubs improved the customer experience by providing easier access to
facilities, shorter lines and a more relaxing and personal environment. More
table games including poker were added during 2003 and some slot machines were
displaced. However, the slot product was upgraded during 2003 including the
initial phase of converting the slots to coinless system technology. These slots
accept paper cash, coin or coupons and allow the player an option to return
winnings or cash-outs in the form of redeemable tickets.
This technology has gained customer acceptance at competitors and
management believes it will enhance profitability by reducing labor intensive
slot transactions while providing greater customer service and more
uninterrupted player time on machines.
As part of The Sands capital expenditure program, certain improvements,
additions and enhancements have been made, or are planned to be made, to the
facility, including upgrades and amenities to the casino floor, slot machines,
other gaming equipment and other physical plant renovations. In 2004, an entire
floor of 37 rooms in The Sands will be converted into suites to improve the
inventory of accommodations for the premium category players. These additions
and enhancements will primarily benefit guests in a variety of services and will
compliment the "Players' Place" image and the "Value Gaming" marketing strategy.
The Sands Management believes this is a valuable tool and strategy that allows
The Sands to compete effectively in the Atlantic City market.
The Sands uses sophisticated information technology that enables it to
track and rate patrons' play through the use of identification cards, which it
issues to patrons. All of the slot machines at The Sands are connected with, and
information with respect to table games activity can be input into, a computer
network. When patrons insert their casino players' card into slot machines or
present them to supervisors at table games, meaningful information, including
amounts wagered and duration of play, is transmitted in real-time to a casino
management database. The information contained in the database facilitates the
implementation of targeted and cost effective marketing programs, which
appropriately recognize and reward patrons during current and future visits to
The Sands, certain of these marketing programs allow patrons to obtain
complimentaries based on levels of play. Such complimentaries include free
meals, hotel accommodations, entertainment, retail merchandise, parking, and
sweepstakes giveaways. Management believes that its ability to reward its
customers on a "same-visit" basis is valuable in encouraging the loyalty of
repeat visits. The Sands Management believes this is a valuable tool and
strategy that allows The Sands to compete effectively in the Atlantic City
market.
Management primarily focuses its marketing efforts on patrons who have
been identified by its casino management computer system as profitable patrons.
Management believes that its philosophy of encouraging participation in its
casino players' card program, using the information obtained thereby to identify
the relative playing patterns of patrons and tailoring specific marketing
programs and property amenities to this market category enhances profitability
of The Sands.
The Sands also markets to the mass casino patron market through various
forms of direct and indirect advertising, and group and bus tour programs. Once
new patrons are introduced to The Sands' "Value Gaming"
107
concept and the casino players' card program, management uses its information
technology capabilities to directly market to these patrons to encourage repeat
patronage.
Competition
The Sands faces intense competition from the eleven other existing
Atlantic City casinos, including the newly opened Borgata. According to reports
of the CCC, the twelve Atlantic City casinos currently offer approximately 1.4
million square feet of gaming space.
After completion of the acquisition of Caesars by Park Place
Entertainment Corp. in December 1999, Park Place Entertainment connected Caesars
to Bally's Park Place and added slot machines in the connecting space. In
January 2001, over the objections of The Sands, the CCC determined that the
proposed acquisition of the Claridge Hotel and Casino by Park Place
Entertainment which is located adjacent to The Sands and with whom The Sands
jointly operates the "People Mover" walkway from the boardwalk would not violate
the NJCCA's prohibition against undue economic concentration. As a result of the
confirmation of the Claridge Chapter 11 Plan by the Bankruptcy Court, Park Place
Entertainment acquired the Claridge, and Park Place Entertainment constructed a
connection between the Claridge and Bally's Park Place Casino, which was already
interconnected to the Park Place Entertainment controlled Caesars Hotel and
Casino. In 2003, Bally's Park Place Casino merged the Claridge operations into
its corporate structure and under its casino license similar to its operation of
the Wild, Wild West Casino.
Currently, Park Place Entertainment has changed its name to Caesars
Entertainment. Of the twelve Atlantic City casinos Caesars Entertainment
controls three casinos, the Trump Organization controls three and the Harrah's
Organization controls two. Caesars Entertainment also controls the so-called
Traymore site located between the boardwalk and The Sands and has acquired a
property contiguous to The Sands parking garage that formerly contained the
Continental Motel property. Caesars Entertainment announced that it may develop
another hotel-casino complex on this site but has not announced specific plans
at this time.
On July 3, 2003, The Borgata, a joint venture of Boyd Gaming
Corporation and MGM Mirage, opened in the marina district of Atlantic City. The
Borgata features a 40-story tower with 2,010 rooms and suites, as well as a
135,000 square-foot casino, restaurants, retail shops, a spa and pool, and
entertainment venues. This project represents a significant increase to capacity
in the market. In addition, other of the Company's competitors in Atlantic City
have recently completed expansions of their hotels or have announced expansion
projects. For example, Tropicana Atlantic City is constructing a 502-room hotel
tower, a 25-room conference center, a 2,400 space parking garage, an expanded
casino floor and a 200,000 square foot themed shopping, dining and entertainment
complex called The Quarter. Tropicana intends to complete the project in the
third quarter of 2004. Resorts is currently constructing a hotel room addition
of approximately 400 rooms and is scheduled to open in the third quarter of
2004. The business of the Company may be adversely impacted (i) by the
additional gaming and room capacity generated by this increased competition in
Atlantic City and/or (ii) by other projects not yet announced in New Jersey or
in other markets (e.g., Pennsylvania, Maryland, New York and Connecticut).
The gaming industry is highly competitive and the Company's competitors
may have greater resources than the Company. If other properties operate more
successfully, if existing properties are enhanced or expanded, or if additional
hotels and casinos are established in and around the location in which the
Company conducts business, the Company may lose market share. In particular,
expansion of gaming in or near the geographic area from which the Company
attracts or expects to attract a significant number of customers could have a
significant adverse effect on the Company's business, financial condition and
results of operations. The Sands competes, and will in the future compete, with
all forms of existing legalized gaming and with any new forms of gaming that may
be legalized in the future. Additionally, the Company faces competition from all
other types of entertainment.
The Casino Reinvestment Development Authority ("CRDA") is a
governmental agency that administers the statutorily mandated investments
required to be funded by casino licensees. Legislation enacted during 1993 and
1996 allocated an aggregate of $175 million of CRDA funds and credits to
subsidize and encourage the construction of additional hotel rooms by Atlantic
City casino licensees. Competitors of The Sands that have the financial
resources to construct hotel rooms can take advantage of such credits more
readily than The Sands. The Sands has an approved hotel expansion program with
the CRDA and a retail entertainment development project. Plans have been
announced by other casino operators to complete expansions within the required
subsidy period.
108
The expansion of existing gaming facilities and the addition of new casinos will
continue to increase competition within the Atlantic City market.
In this highly competitive environment, each property's relative
success is affected by a great many factors that relate to its location and
facilities. These include the number of parking spaces and hotel rooms it
possesses, close proximity to Pacific Avenue, the Boardwalk and to other
casino/hotels and access to the main expressway entering Atlantic City. GB
Holdings and its subsidiaries believe that, in prior years, its operating
strategy enabled The Sands to compete against most other Atlantic City
casino/hotels. In the past, many of their competitors had greater financial
resources for capital improvements, marketing and promotional activities than GB
Holdings and its subsidiaries and, as a result, The Sands' facilities and
amenities fell behind many of the other casinos. In order to improve GB
Holdings' and its subsidiaries' competitive position, they sought the approval
of the Bankruptcy Court for a capital expenditure program to renovate the
majority of its hotel rooms and suites and to purchase approximately 700 slot
machines. The Bankruptcy Court approved the capital expenditure program in the
amount of approximately $13.6 million in March 1998. In addition, the lack of
access to Pacific Avenue hampered The Sands' efforts to expand its "drive-in"
patron base. In 1999, in an effort to increase and utilize available Pacific
Avenue frontage, The Sands acquired land parcels on Pacific Avenue and
demolished the existing structures and constructed a new front entrance to The
Sands' facility on Pacific Avenue, which opened in June 2000. During 2003, the
new front entrance was redesigned and refurbished as an exclusive entrance for
its bus patrons, complete with a new and expanded bus waiting lounge. Also
during 2003, the porte cochere was renovated and expanded in order to make The
Sands more easily accessible to the drive-in customer.
In order to enhance its competitive position in the marketplace, a
capital expenditure plan was recently approved by the Board and management
believes that cash generated from operations and cash reserves will be
sufficient to meet the requirements of the capital expenditure plan. Based upon
expected cash flow generated from operations, management determined that it
would be prudent for GB Holdings to obtain a line of credit to provide
additional cash availability, to meet working capital needs, in the event that
anticipated cash flow is less than expected or expenses exceed those
anticipated. At the request of GB Holdings, Ealing agreed to provide a revolving
credit facility, secured by a first lien on all of the assets of GB Holdings and
its subsidiaries (including Atlantic Holdings), under which GB Holdings may
borrow up to an aggregate amount of $10 million for general working capital
purposes. Ealing's obligation to provide the financing pursuant to the
commitment letter is subject to the negotiation and execution of definitive loan
and security agreements and related documents as well as certain customary
conditions. However, there can be no assurance that the loan agreement with
Ealing will be consummated, that if the loan agreement with Ealing is not
consummated, the Company will be able to obtain financing from another lender on
terms as or more favorable than the terms of the commitment letter, or whether
the Company will need to borrow funds for working capital. Ealing and GB
Holdings have agreed to extend the commitment until July 1, 2004.
The Sands also competes with legalized gaming from casinos located on
Native American tribal lands. In October 2001, the New York State Legislature
enacted a bill, which the governor signed, authorizing a total of six Indian
casinos in the State of New York - three in Western New York and three in the
Catskill Region - and approved the use of video lottery terminals at racetracks
and authorized the participation of New York State in a multi-state lottery. On
January 29, 2002, a lawsuit was commenced contesting the above legislation
package on the grounds that certain of its provisions were adopted in violation
of the State's constitution. The likely outcome of this lawsuit cannot be
ascertained at this time. The implementation of VLTs and the outcome of this
lawsuit could adversely affect visitation of The Sands from New York.
Pennsylvania and Maryland are among the other states currently
contemplating some form of gaming legislation. Legislative proposals introduced
in Pennsylvania would potentially allow for a wide range of gaming activities,
including riverboat gaming, slot machines at racetracks, video lottery terminals
at liquor stores and the formation of a gaming commission. Maryland's proposed
legislation would authorize video lottery terminals at some of Maryland's racing
facilities. The results of the gubernatorial elections in Pennsylvania and
Maryland in 2002 have also increased the likelihood of gaming legislation in
such states. Neither Pennsylvania nor Maryland enacted any legalized gaming
legislation in their respective legislative sessions during the three months
ended March 31, 2004. Since The Sands' market is primarily a drive-to-market,
legalized gambling in Pennsylvania or one or more states neighboring or within
close proximity to New Jersey could have a material adverse effect on the
Atlantic City gaming industry overall, including The Sands.
109
A significant amount of The Sands' revenues is derived from patrons
living within a 120-mile radius of Atlantic City, New Jersey, particularly
northern New Jersey, southeastern Pennsylvania and metropolitan New York City.
Proposals to allow casino gaming in certain areas of Pennsylvania have been
defeated within the past three years. If casino gaming were to be legalized in
those areas or in other venues that are more convenient to those areas, it could
have a material adverse effect on The Sands. Gaming is currently conducted on
Indian lands in nearby states, including the Foxwoods and Mohegan Sun Casinos in
Connecticut and the Turning Stone Casino in Oneida, New York near Syracuse.
Casino Niagara, which has operated a temporary casino facility in Niagara Falls,
Ontario, since 1996, intends to open an expanded permanent facility in the
spring of 2004. In addition, New York State passed legislation that was signed
by the Governor in October 2001 to allow slot machines at racetracks and six
Indian owned casinos within the State of New York. The legislation also allowed
the State to join the multi-state Powerball lottery. The gaming portion of the
legislation may face legal challenges including a challenge based on the New
York State Constitution. Therefore, it is not possible to determine the timing
or financial impact of this legislation on Atlantic City at this time.
Industry Developments
On July 1, 2003, the State of New Jersey amended the NJCCA to impose
various tax increases on Atlantic City casinos, including The Sands. Among other
things, the amendments to the NJCCA include the following new tax provisions:
(i) a new 4.25% tax on casino complimentaries, with proceeds deposited to the
Casino Revenue Fund; (ii) an 8% tax on casino service industry multi-casino
progressive slot machine revenue, with the proceeds deposited to the Casino
Revenue Fund; (iii) a 7.5% tax on adjusted net income of licensed casinos in
State fiscal years 2004 through 2006 based upon 2003 Net Income with a minimum
payment of $350,000, with the proceeds deposited to the Casino Revenue Fund;
(iv) a fee of $3.00 per day on each hotel room in a casino hotel facility that
is occupied by a guest, for consideration or as a complimentary item, with the
proceeds deposited into the Casino Revenue Fund in State fiscal years 2004
through 2006 and, beginning in State fiscal year 2007, $2.00 of the fee
deposited into the Casino Revenue Fund and $1.00 to be transferred to the CRDA;
(v) an increase in the amount paid by the casino hotel for patron cars parked
from $1.50 to $3.00, of the minimum casino hotel parking charge from $2.00 to
$3.00, with $1.50 of the fee to be deposited into the Casino Revenue Fund in
State fiscal years 2004 through 2006 and, beginning in State fiscal year 2007,
$0.50 to be deposited into the Casino Revenue Fund and $1.00 to be transferred
to the CRDA for its purposes pursuant to law, and for use by the CRDA to bond
for $30 million for deposit into the Casino Capital Construction Fund, which was
also created by the July 1, 2003 Act that amended the NJCCA; and (vi) the
elimination of the deduction from casino licensee calculation of gross revenue
for uncollectible gaming debt. These changes to the NJCCA, and the new taxes
imposed on The Sands and other Atlantic City casinos, will reduce our
profitability. It is anticipated that these new and increased taxes will cost
The Sands approximately $1.5-$2.0 million annually in additional expenses.
Slot machines have become increasingly more popular than table games
particularly with frequent patrons and with recreational and other casual
visitors. Casino operators have been catering increasingly to slot patrons
through new forms of promotions and incentives such as slot machines that are
linked among the various casinos enabling the pay out of large pooled jackpots,
and through more attractive and entertaining gaming machines with secondary
jackpots. Various competitors have committed efforts to provide coinless
technology in their slot product, which appears to be an industry trend for the
future. Slot machines generally produce higher margins and profitability than
table games because they require less labor and have lower operating costs. As a
result, slot machine revenue growth has outpaced table game revenue growth in
recent years. In 2003, according to Commission filings, slot win accounted for
approximately 74.8% of total Atlantic City gaming win. However, table games
remain important to a select category of gaming patrons. Management believes the
availability of table games provides a varied gaming experience that benefits
both slot and table game revenues.
Casino Credit
Casino operations are conducted on both a credit and a cash basis.
Patron gaming debts incurred in accordance with the NJCCA are enforceable under
New Jersey law. For the year ended December 31, 2003, gaming credit extended to
The Sands' table game patrons accounted for approximately 22.0% of overall table
game wagering, and table game wagering accounted for approximately 10.2% of
overall casino wagering during the period. At December 31, 2003, gaming
receivables amounted to $9.5 million before an allowance for uncollectible
gaming receivables of $5.6 million. For the three months ended March 31, 2004,
gaming credit extended to The Sands' table game patrons accounted for
approximately 25.6% of overall table game
110
wagering, and table game wagering accounted for approximately 12.2% of overall
casino wagering during the period. At March 31, 2004, gaming receivables
amounted to $8.5 million before an allowance for uncollectible gaming
receivables of $4.9 million. Management believes that such allowance is
adequate.
License Agreement
Greate Bay Hotel's rights to the trade name "The Sands" (the "Trade
Name") were derived from a license agreement between Greate Bay Casino
Corporation and an unaffiliated third party. Amounts payable by Greate Bay Hotel
for these rights were equal to the amounts paid to the unaffiliated third party.
On September 29, 2000, High River Limited Partnership assigned to Greate Bay
Hotel the rights under a certain agreement with the owner of the Trade Name to
use the Trade Name as of September 29, 2000 through May 19, 2086 subject to
termination rights for a fee after a certain minimum term. High River is an
entity controlled by Carl C. Icahn. High River received no payments for its
assignment of these rights. Payment is made directly to the owner of the Trade
Name. For the three months ended March 31, 2004 and the years ended December 31,
2003, 2002 and 2001 the license fee amounted to $53,000, $263,000, $272,000 and
$268,000, respectively.
Employees and Labor Relations
In Atlantic City, all employees, except certain hotel employees, must
be licensed under the NJCCA. Due to the seasonality of the operations of The
Sands, the number of employees varies during the course of the year. At December
31, 2003, The Sands had approximately 2,211 employees. The Sands has collective
bargaining agreements with three unions that represent approximately 818
employees, most of whom are represented by the Hotel, Restaurant Employees and
Bartenders International Union, AFL-CIO, Local 54. The collective bargaining
agreement with Local 54 expires in September 2004. The collective bargaining
agreements with the Carpenters, Local 623 and Entertainment Workers, Local 68
expire in April and July 2005, respectively. Management considers its labor
relations to be good.
Casino Licenses
The NJCCA requires that all casino owners and management contractors be
licensed by the Commission and that all employees (except for certain non-casino
related job positions), major shareholders and other persons or entities
financially interested in the casino operation be either licensed or approved by
the Commission. A license is not transferable and may be revoked or suspended
under certain circumstances by the Commission. A plenary license authorizes the
operation of a casino with the games authorized in an operation certificate
issued by the Commission, and the operation certificate may be issued only on a
finding that the casino conforms to the requirements of the Casino Act and
applicable regulations and that the casino is prepared to entertain the public.
Under such determination, Greate Bay Hotel has been issued a plenary casino
license. The plenary license issued to The Sands was renewed by the Commission
in September 2000 for a period of four years.
In order to renew Greate Bay Hotel's casino license, the Commission
must determine that Greate Bay Hotel and GB Holdings are financially stable. In
order to be found "financially stable" under the NJCCA, Greate Bay Hotel and GB
Holdings must demonstrate, among other things, their ability to pay, exchange,
or refinance debts that mature or otherwise become due and payable during the
license term, or to otherwise manage such debts. Because the Existing Notes will
become due during the period following the renewal of the license in 2004, the
Commission will require Greate Bay Hotel and GB Holdings to indicate the efforts
they will pursue or are pursuing to refinance the Existing Notes prior to
maturity and during the new license term. Currently, the Commission is and will
continue to monitor the efforts of Greate Bay Hotel and GB Holdings to manage
and refinance the Existing Notes. There has been no precedent of non-renewal of
a casino license in this situation.
The NJCCA provides for a casino license fee of not less than $200,000
based upon the cost of the investigation and consideration of the license
application, and a renewal fee of not less than $100,000 or $200,000 for a one
year or four year renewal, respectively, based upon the cost of maintaining
control and regulatory activities. In addition, a licensee must pay annual taxes
of 8% of casino win (as defined in the NJCCA), net of a provision for
uncollectible gaming debts of up to 4% of casino win up to June 30, 2003, and
then not allowed as a deduction ("Gross Revenue"). During the three months ended
March 31, 2004 and the years ended December 31, 2003, 2002 and 2001, the taxes
and the license and other fees incurred by The Sands amounted to $4.5 million,
$19.0 million, $21.3 million, $23.0 million and $22.7 million, respectively.
111
The NJCCA also requires casino licensees to pay an investment
alternative tax of 2.5% of gross revenue (the "2.5% Tax") or, in lieu thereof,
to make quarterly deposits of 1.25% of quarterly Gross Revenue with the CRDA
(the "Deposits"). The Deposits are then used to purchase bonds at below-market
interest rates from the CRDA or to make qualified investments approved by the
CRDA. The CRDA administers the statutorily mandated investments required to be
funded by casino licensees and is required to expend the monies received by it
for eligible projects as defined in the NJCCA. The Sands has elected to make the
Deposits with the CRDA rather than pay the 2.5% Tax.
The Sands has, from time to time, contributed certain amounts held in
escrow by the CRDA to fund CRDA sponsored projects. During 2003, The Sands
contributed $694,000 of its escrowed funds to CRDA sponsored projects. No
specific refund or future credit has been associated with the 2003
contributions. During 2002, The Sands contributed $925,000 of its escrowed funds
to CRDA sponsored projects and received $116,000 in a cash refund. In 2001, The
Sands contributed $322,000 of its escrowed funds to CRDA sponsored projects and
received $80,000 in a cash refund and $84,000 in waivers of certain future
Deposit obligations. Prior to this, the CRDA had granted The Sands both cash
refunds and waivers of certain of its future Deposit obligations in
consideration of similar contributions. Other assets aggregating $621,000 and
$811,000, respectively, have been recognized on the accompanying consolidated
balance sheets at December 31, 2003 and 2002, and are being amortized over a
period of ten years commencing with the completion of the projects. Amortization
of other assets totaled $205,000, $199,000 and $202,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.
The NJCCA also imposes certain restrictions upon the ownership of
securities issued by a corporation that holds a casino license or is a holding
company of a corporate licensee. Among other restrictions, the sale, assignment,
transfer, pledge or other disposition of any security issued by a corporate
licensee or holding company is subject to the regulation of the Commission. The
Commission may require divestiture of any security held by a disqualified holder
such as an officer, director or controlling stockholder who is required to be
qualified under the NJCCA.
Note holders are also subject to the qualification provisions of the
NJCCA and may, in the sole discretion of the Commission, be required to make
filings, submit to regulatory proceedings and qualify under the Casino Act. If
an investor is an "Institutional Investor" such as a retirement fund for
governmental employees, a registered investment company or adviser, a collective
investment trust, or an insurance company, then, in the absence of a prima facie
showing by the New Jersey Division of Gaming Enforcement that the "Institutional
Investor" may be found unqualified, the Commission shall grant a waiver of this
qualification requirement with respect to publicly-traded debt or equity
securities of parent companies or affiliates if the investor will own (i) less
than 10% of the common stock of the company in question on a fully diluted basis
or (ii) less than 20% of such company's overall indebtedness provided the
investor owns less than 50% of an outstanding issue of indebtedness of such
company; the Commission, upon a showing of good cause, may, in its sole
discretion, grant a waiver of qualification to an "Institutional Investor" not
satisfying the above percentage criteria. An "Institutional Investor" must also
purchase securities for investment and have no intent to influence the
management or operations of such company. The Commission may, in its sole
discretion, grant a waiver of the qualification requirement to investors not
qualifying as "Institutional Investors" under the Casino Act if such investors
will own less than 5% of the publicly-traded common stock of such company on a
fully diluted basis or less than 15% of the publicly-traded outstanding
indebtedness of such company.
DESCRIPTION OF PROPERTIES
The Sands is located in Atlantic City, New Jersey, on approximately 6.1
acres of land one-half block from the Boardwalk at Brighton Park between Indiana
Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently
consists of a casino and simulcasting facility with approximately 78,000 square
feet of gaming space containing approximately 2,202 slot machines and
approximately 73 table games; 2 hotels (see discussion on the Madison House
Hotel immediately below) with an overall total of 637 rooms (including 170
suites); five restaurants; two cocktail lounges; two private lounges for invited
guests; an 800-seat cabaret theater; retail space; an adjacent nine-story office
building with approximately 77,000 square feet of office space for its
executive, financial and administrative personnel; the "People Mover," an
elevated, enclosed, one-way moving sidewalk connecting The Sands to the
Boardwalk using air rights granted by an easement from the City of Atlantic City
and a garage and surface parking for approximately 1,750 vehicles.
112
The Sands entered into a long-term lease of the Madison House Hotel.
The initial lease period is from December 2000 to December 2012 with lease
payments ranging from $1.8 million per year to $2.2 million per year. The
Madison House is physically connected at two floors to the existing Sands
casino-hotel complex. The Sands recently completed renovations to upgrade and
combine the rooms of the Madison House into a total of 113 suites and 13 single
rooms. It is the intention of The Sands to maintain and operate the Madison
House at the same quality level as The Sands.
With the exception of the land over which the People Mover is
constructed, The Sands owns the land and improvements comprising The Sands
facility. The Sands owns and operates the casino, the hotel, all of the
restaurants, the cocktail lounge, the private lounges, the theatre and a retail
gift shop. In addition, The Sands has licensed certain space within the hotel
building to unrelated third parties who operate a beauty shop, a peanut shop, a
game room and a coffee stand.
LEGAL PROCEEDINGS
Tax appeals on behalf of GB Holdings and its subsidiaries and the City
of Atlantic City challenging the amount of GB Holdings' real property
assessments for tax years 1996 through 2003 are pending before the NJ Tax Court.
In 2001, GB Holdings discovered certain failures relating to currency
transaction reporting which resulted in the failure of GB Holdings to file
legally required currency transaction reports. Following this discovery, GB
Holdings self-reported the situation to the applicable regulatory agencies. GB
Holdings conducted an internal examination of the matter and the New Jersey
Division of Gaming Enforcement conducted a separate review. There has not been
an impact on GB Holdings' financial reporting because of these failures. GB
Holdings has revised internal control processes and taken other measures to
address the situation. GB Holdings may be subjected to regulatory sanctions
which may include cash penalties. However, the potential cash penalties cannot
be estimated at this time. In May 2003, GB Holdings was advised by the
Department of the Treasury that it will not pursue a civil penalty.
By letter dated January 23, 2004, Sheffield Enterprises, Inc. asserted
potential claims against The Sands under the Lanham Act for permitting a show
entitled The Main Event, to run at The Sands during 2001. Sheffield also asserts
certain copyright infringement claims growing out of the Main Event
performances. It has not yet been determined whether or not the claims made by
Sheffield would, if adversely determined, materially impact the financial
position or results of operations of GB Holdings.
On February 26, 2003, The Sands received a letter from counsel for Mr.
Frederick H. Kraus, Executive Vice President, General Counsel and Secretary,
indicating that he had been retained to represent Mr. Kraus "in regards to a
constructive discharge, breach of contract, severance pay" and other claims.
This matter has been amicably resolved.
GB Holdings is a party in various legal proceedings with respect to the
conduct of casino and hotel operations and has received employment related
claims. Although a possible range of losses cannot be estimated, in the opinion
of management, based upon the advice of counsel, GB Holdings does not expect
settlement or resolution of these proceedings or claims to have a material
adverse impact upon their consolidated financial position or results of
operations, but the outcome of litigation and the resolution of claims is
subject to uncertainties and no assurances can be given. The consolidated
financial statements do not include any adjustments that might result from these
uncertainties.
From time to time, GB Holdings and certain of its officers, directors,
agents and employees, are subject to various legal and administrative
proceedings incidental to the business of GB Holdings. GB Holdings does not
believe any proceedings currently pending are material to the conduct of the
business of GB Holdings.
113
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GB HOLDINGS AND ITS SUBSIDIARIES
GENERAL
This management's discussion and analysis of financial condition and
results of operations of GB Holdings and its subsidiaries and other portions of
this solicitation statement and prospectus contain forward-looking statements
about the business, financial condition and prospects of GB Holdings and its
subsidiaries (hereinafter collectively referred to as the "Parent Company"). The
actual results could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties. Such
risks and uncertainties are beyond management's ability to control and, in many
cases, cannot be predicted by management. When used in this solicitation
statement and prospectus, the words "believes," "estimates," "anticipates,"
"expects," "intends" and similar expressions as they relate to the Parent
Company or its management are intended to identify forward-looking statements.
The Parent Company faced a number of competitive challenges during
fiscal 2003, including increased competition from the newly opened Borgata,
increased competition from existing casinos that invested in capital
improvements, and a corresponding increase in competition for slot machine
players. Severe winter weather and a loss of customers resulting in part from
The Sands' decreased table gaming capacity also had a negative effect on
revenues for the first half of fiscal 2003. These factors resulted in a decline
of $23.2 million (12%) in net revenues as compared to the prior fiscal year, and
a net loss of $17.7 million compared to a net loss of $7.3 million in the prior
fiscal year.
Management is currently focused on restructuring its debt to
significantly reduce the cash requirements for debt service and defer the
payment of principal which is presently due in September 2005, for three years.
These funds would then be available for operational and capital investment,
including opportunities that arise to expand The Sands' casino, rooms, parking,
entertainment and retail facilities.
Pursuant to New Jersey law, Greate Bay Hotel is required to maintain a
casino license in order to operate The Sands. The gaming licenses required to
own and operate The Sands must be renewed in 2004, which requires that the CCC
determine that Greate Bay Hotel and GB Holdings are financially stable. In order
to be found "financially stable" under NJCCA, Greate Bay Hotel and GB Holdings
must demonstrate among other things, their ability to pay, exchange, or
refinance debts that mature or otherwise become due and payable during the
license term, or to otherwise manage such debts. If the CCC determines that GB
Holdings may be unable to make the required payments pursuant to the Existing
Notes or pay the principal when it becomes due in 2005, Greate Bay Hotel may be
unable to obtain renewal of the casino license required to own and operate The
Sands. Currently, the CCC is and will continue to monitor the effect of Greate
Bay Hotel and GB Holdings to manage and refinance the Existing Notes. There has
been no precedent of non-renewal of a casino license in this situation.
The Sands primarily generates revenues from gaming operations in its
Atlantic City facility (see Properties). Although The Sands' other business
segments including rooms, entertainment, retail store, food and beverage
operations also generate some cash sales, these revenues are nominal in
comparison to the casino operations. The non-casino segments primarily support
the casino operation by providing complimentary goods and services to deserving
casino customers (see Promotional Allowances). The Company competes in a capital
intensive industry (see Competition) that requires continual reinvestment in its
facility and technology.
Below is Management's discussion and analysis of the financial
condition and results of operations of GB Holdings and its subsidiaries. Upon
consummation of the Transaction, Atlantic Holdings will own a subsidiary with
substantially the same assets as Greate Bay Hotel and have the same directors
and management as GB Holdings. Also, Atlantic Holdings will manage the business
of ACE Gaming in a manner identical to GB Holdings' management of Greate Bay
Hotel.
LIQUIDITY AND CAPITAL RESOURCES
Summary
During 2004, management anticipates making tax payments of
approximately $1.1 million to the State of New Jersey. Management believes that
cash flows generated from operations during 2004, as well as available
114
cash reserves, will be sufficient to meet its operating plan. In the first
quarter of 2004, the Board approved a capital expenditures program for 2004
under which GB Holdings and its subsidiaries anticipate making capital
expenditures of up to $23.6 million to invest in and upgrade The Sands.
Management believes that cash generated from operations and cash reserves will
be sufficient to meet the requirements of the plan. Based upon expected cash
flow generated from operations, management determined that it would be prudent
for the Company to obtain a line of credit to provide additional cash
availability, to meet the Company's working capital needs, in the event that
anticipated cash flow is less than expected or expenses exceed those
anticipated. At the request of the Company, Ealing Corp., a Nevada corporation
and an affiliate of Mr. Icahn, agreed to provide a revolving credit facility,
secured by a first lien on all of the assets of the Company, under which the
Company may borrow up to an aggregate amount of $10 million for general working
capital purposes. Ealing's obligation to provide the financing pursuant to the
commitment letter is subject to the negotiation and execution of definitive loan
and security agreements and related documents as well as certain customary
conditions. However, there can be no assurance that the loan agreement with
Ealing will be consummated, that if the loan agreement with Ealing is not
consummated, the Company will be able to obtain financing from another lender on
terms as or more favorable than the terms of the commitment letter, or whether
the Company will need to borrow funds for working capital. Ealing and GB
Holdings have agreed to extend the commitment until July 1, 2004.
Costs Associated with the Transaction
If less than 100% of the Existing Notes are tendered for exchange in
the Transaction, the ability of GB Holdings to pay the principal due on the
Existing Notes at maturity is dependent upon its ability to sell all or a
portion of the Atlantic Holdings Common Stock, held by GB Holdings to engage in
a financing transaction or through the payment of dividends from Atlantic
Holdings, although any such dividends require the consent of the holders of the
New Notes. There can be no assurances that GB Holdings will be able to pay the
principal amount of the Existing Notes when due at maturity in September 2005.
Operating Activities
At March 31, 2004, the Company had cash and cash equivalents of $28.1
million. The Company used $2.8 million of net cash from operations during the
three months ended March 31, 2004 compared to using $1.6 million during the same
prior year period. The 2004 decrease in net cash from operations was primarily
due to a reduction in accounts payable and accrued liabilities for the period.
Investing Activities
Capital expenditures at The Sands for the three months ended March 31,
2004 amounted to approximately $2.1 million compared to $1.9 million in 2003. In
order to enhance its competitive position in the market place, The Sands may
determine to incur additional substantial costs and expenses to maintain,
improve and expand its facilities and operations. Management has approval from
its Board of Directors for a 2004 capital expenditure plan of up to $23.6
million, which includes a renovation of one floor of standard hotel rooms to
suites, new slot machines, casino and hotel renovations as well as replacement
and upgrades to infrastructure and technology. However, in order to avoid
disruption of its operations during the peak summer season and based upon
operating results and available cash, management may defer some slot machine
replacements and casino renovations to the latter half of 2004 or beyond,
thereby reducing capital expenditures for 2004. Accordingly, additional
financing requirements could be reduced significantly.
The Sands is required by the NJCCA to make certain quarterly deposits
based on gross revenue with the CRDA in lieu of a certain investment alternative
tax. Deposits for the three months ended March 31, 2004 and 2003 amounted to
$517,000 and $568,000, respectively.
Financing Activities
There were no financing activities during the three months ended March
31, 2004. As of March 31, 2004, the only scheduled payment of long-term debt is
the Existing Notes, which mature on September 29, 2005.
On July 14, 2003, a Form 8-K was filed with the SEC reporting that a
committee of the independent directors of the Parent Company approved a proposed
restructuring of the Existing Notes, together with various other corporate
changes to be accomplished in connection with the proposed restructuring. In
connection with the foregoing, on November 13, 2003, Atlantic Holdings filed
with the SEC, a Registration Statement on Form S-4
115
(which contains a preliminary prospectus), under the Securities Act of 1933, as
amended (the "Securities Act"), to transfer substantially all of the assets and
liabilities of GB Holdings, Greate Bay Hotel, and GB Property, to Atlantic
Holdings, in exchange for Atlantic Holdings issuance of 3% Notes due 2008 in
exchange for the Existing Notes and the cancellation of such Notes) and the
registration of certain securities to be issued to the stockholders of GB
Holdings; and, also on such date, Atlantic Holdings and ACE Gaming filed with
the SEC, a Registration Statement on Form S-4 under the Securities Act, with
respect to a consent solicitation and exchange offer with respect to the
Existing Notes. Neither of such Registration Statements have been declared
effective and each was amended by filing Amendments No. 1, 2 and 3 to Form S-4/A
on February 13, 2004, March 22, 2004 and April 22, 2004, respectively. The
Company and Atlantic Holdings also filed with the SEC a Schedule 13E-3, under
the Securities and Exchange Act of 1934, with respect to such transactions,
which was also amended by the filings of a Schedule 13E-3/A on November 17, 2003
and February 13, 2004.
During 2004, Management anticipates making its next scheduled interest
payment on the Existing Notes of $6.1 million on September 29, 2004; interest on
such notes accrue at a rate of up to $1.0 million per month, and if the
anticipated exchange is consummated prior to September 29, 2004, holders that
exchange will be entitled to payments for the accrued interest at the time of
the exchange. The Board adopted the Special Committee's belief that, based on a
review of the business, financial condition, and prospects of GB Holdings and
its subsidiaries, it is reasonably likely that GB Holdings would not have
sufficient funds to pay the $110 million principal, plus accrued interest, on
the Existing Notes at maturity in 2005 and that refinancing the Existing Notes
now was in the best interest of GB Holdings and its subsidiaries. Also, the
Board adopted the Special Committees' determination that it is reasonably likely
that prior to maturity in 2005, GB Holdings would not be able to refinance the
Existing Notes on favorable terms or at all and that such inability could result
in a default on the Existing Notes and the possibility of GB Holdings being
forced to seek bankruptcy protection.
Management estimates that consent fees associated with the exchange of
Existing Notes will be between $6.4 million and $11.0 million. Additional
financing fees are estimated to be between $700,000 and $800,000.
Pursuant to New Jersey law, Greate Bay Hotel is required to maintain a
casino license in order to operate The Sands. The gaming licenses required to
own and operate The Sands must be renewed in September 2004, and for each
renewal the CCC must determine that Greate Bay Hotel and GB Holdings are
financially stable. In order to be found "financially stable" under NJCCA,
Greate Bay Hotel and GB Holdings must demonstrate among other things, their
ability to pay, exchange, or refinance debts that mature or otherwise become due
and payable during the license term, or to otherwise manage such debts. If the
CCC determines that GB Holdings may be unable to make the required payments
pursuant to the Existing Notes or pay the principal when it becomes due in 2005,
Greate Bay Hotel may be unable to obtain renewal of the casino license required
to own and operate The Sands. Greate Bay Hotel's inability to obtain renewal of
is casino license will have a material adverse effect on GB Holdings.
Critical Accounting Policies and Estimates
The Parent Company's discussion and analysis of its results of
operations and financial condition are based upon its consolidated financial
statements that have been prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP"). The preparation
of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities. Estimates and assumptions are evaluated on an ongoing basis and are
based on historical and other factors believed to be reasonable under the
circumstances. The results of these estimates may form the basis of the carrying
value of certain assets and liabilities and may not be readily apparent from
other sources. Actual results, under conditions and circumstances different from
those assumed, may differ from estimates. The impact and any associated risks
related to estimates, assumptions, and accounting policies are discussed within
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as in the Notes to the Consolidated Financial Statements, if
applicable, where such estimates, assumptions, and accounting policies affect
the Parent Company's reported and expected financial results.
116
The Parent Company believes the following accounting policies are
critical to its business operations and the understanding of results of
operations and affect the more significant judgments and estimates used in the
preparation of its consolidated financial statements:
Allowance for Doubtful Accounts - The Parent Company maintains accounts
receivable allowances for estimated losses resulting from the inability of its
customers to make required payments. The adequacy of the allowance is determined
by management based on a periodic review of the receivable portfolio. Additional
allowances may be required if the financial condition of the Parent Company's
customers deteriorates.
Commitments and Contingencies - Litigation - On an ongoing basis, the
Parent Company assesses the potential liabilities related to any lawsuits or
claims brought against the Parent Company. While it is typically very difficult
to determine the timing and ultimate outcome of such actions, the Parent Company
uses its best judgment to determine if it is probable that it will incur an
expense related to the settlement or final adjudication of such matters and
whether a reasonable estimation of such probable loss, if any, can be made. In
assessing probable losses, the Parent Company makes estimates of the amount of
insurance recoveries, if any. The Parent Company accrues a liability when it
believes a loss is probable and the amount of loss can be reasonably estimated.
Due to the inherent uncertainties related to the eventual outcome of litigation
and potential insurance recovery, it is possible that certain matters may be
resolved for amounts materially different from any provisions or disclosures
that the Parent Company has previously made.
Impairment of Long-lived Assets - The Parent Company periodically
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assumptions and estimates used in the determination of impairment
losses, such as future cash flows and disposition costs, may affect the carrying
value of long-lived assets and possible impairment expense in the Parent
Company's consolidated financial statements.
Self-Insurance - The Parent Company retains the obligation for certain
losses related to customer's claims of personal injuries incurred while on the
Parent Company property as well as workers compensation claims beginning in 2002
and major medical claims for non-union employees in 2003. The Parent Company
accrues for outstanding reported claims, claims that have been incurred but not
reported and projected claims based upon management's estimates of the aggregate
liability for uninsured claims using historical experience, and adjusting
company's estimates and the estimated trends in claim values. Although
management believes it has the ability to adequately project and record
estimated claim payments, it is possible that actual results could differ
significantly from the recorded liabilities.
Allowance for Obligatory Investments - The Parent Company maintains
obligatory investment allowances for its investments made in satisfaction of its
CRDA obligation. The obligatory investments may ultimately take the form of CRDA
issued bonds, which bear interest at below market rates, direct investments or
donations. CRDA bonds bear interest at approximately one-third below market
rates. Management bases its reserves on the type of investments the obligation
has taken or is expected to take. Donations of The Sands' quarterly deposits to
the CRDA have historically yielded a 51% future credit or refund of obligations.
Therefore, management has reserved the predominant balance of its obligatory
investments at between 33% and 49%.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004
Gaming Operations
Information contained herein, regarding Atlantic City casinos other
than The Sands, was obtained from reports filed with the CCC.
The following table sets forth certain unaudited financial and
operating data relating to The Sands' and all other Atlantic City casinos'
capacities, volumes of play, hold percentages and revenues:
117
Three Months Ended
March 31,
------------------------
2004 2003
----------- ----------
(Dollars in Thousands)
Units: (at end of period)
Table Games - Sands 61 40
- Atlantic City (ex. Sands) 1,128 1,039
Slot Machines - Sands 2,201 2,295
- Atlantic City (ex. Sands) 39,720 36,131
Gross Wagering (1)
Table Games - Sands $ 59,897 $ 45,171
- Atlantic City (ex. Sands) 1,782,104 1,519,996
Slot Machines - Sands 431,548 479,250
- Atlantic City (ex. Sands) 9,813,809 8,715,722
Hold Percentages (2)
Table Games - Sands 15.41% 13.99%
- Atlantic City (ex. Sands) 16.34% 16.65%
Slot Machines - Sands (accrual basis) 8.09% 7.75%
- Sands (cash basis) 8.34% 7.96%
- Atlantic City (ex. Sands) (accrual basis) N/A N/A
- Atlantic City (ex. Sands) (cash basis) 8.09% 8.02%
Revenues (2)
Table Games - Sands $ 9,233 $ 6,319
- Atlantic City (ex. Sands) 291,216 253,145
Slot Machines - Sands (accrual basis) 34,926 37,162
- Sands (cash basis) 36,010 38,132
- Atlantic City (ex. Sands) (accrual basis) N/A N/A
- Atlantic City (ex. Sands) (cash basis) 793,840 699,039
Other (3) - Sands 341 158
- Atlantic City (ex. Sands) 13,721 9,831
- -------------------------------
(1) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (the "Drop") and coins
wagered in slot machines (the "Handle").
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the
"hold percentage." The Sands' hold percentages and revenues are
reflected on an accrual basis. Comparable accrual basis data for the
remainder of the Atlantic City gaming industry as a whole is not
available; consequently, industry hold percentages and revenues are
based on information available from the CCC.
(3) Consists of revenues from poker and simulcast horse racing wagering.
Comparable information for the remainder of the Atlantic City gaming
industry is not available.
Patron Gaming Volume
Information contained herein, regarding Atlantic City casinos other
than The Sands, was obtained from reports filed with the CCC.
Table game drop increased by $14.7 million (32.6%) during the three
months ended March 31, 2004 compared with the same prior year period. By
comparison, according to CCC reports, table game drop at all other
118
Atlantic City casinos during the same period increased 17.2%. The Sands'
increase in table game drop is a direct result of an increase in the number of
table games from 40 during the 2003 period to 61 during the 2004 period. The
increase in the number of table games was the result of a change in business
strategy, to balance the gaming experience between table games and slot
machines. Table game hold percentage increased 1.4 percentage points to 15.4%
for the three months ended March 31, 2004 compared to the same period last year.
The 2004 table game hold percentage is slightly higher than expected. However,
the increase over the prior year is primarily attributable to one high end
patron winning approximately $1 million in March 2003. Aggregate gaming space at
all other Atlantic City casinos increased by approximately 135,000 square feet
(10.7%) at March 31, 2004 compared to March 31, 2003 primarily due to the
Borgata opening in July 2003. The amount of gaming space at The Sands remained
the same at approximately 78,000 square feet.
Slot machine handle decreased $47.7 million (10.0%) during the three
months ended March 31, 2004, compared with the same period of 2003. By
comparison, the percentage increase in slot machine handle for all other
Atlantic City casinos in the first three months of 2004 vs. the same period in
2003 was 12.6%. The Sands' 2004 decrease in handle is primarily attributed to
the effect of a new competitor that entered the Atlantic City marketplace in
July 2003. This decrease in slot machine handle is offset slightly by an
increase in hold percentage to 8.1% from 7.8% in the 2004 period compared to the
2003 period. The number of slot machines decreased 4.1% at The Sands to 2,201 at
March 31, 2004 compared to March 31, 2003. On an industry-wide basis, excluding
The Sands, the number of slot machines increased 9.9% in the first quarter of
2004 compared to the first quarter of 2003.
The following table sets forth the changes in operating revenues and
expenses (unaudited) for the three month period ended March 31, 2004 and 2003:
Three Months Ended March 31,
-----------------------------------------------
Increase (Decrease)
2004 2003 $ %
---------- ---------- --------- ------------
(Dollars In Thousands)
Revenues:
Casino $ 44,500 $ 43,639 $ 861 1.97
Rooms 2,285 2,459 (174) (7.08)
Food and Beverage 4,988 4,664 324 6.95
Other 930 883 47 5.32
Promotional Allowances 11,254 11,844 (590) (4.98)
Expenses:
Casino 30,331 31,886 (1,555) (4.88)
Rooms 608 434 174 40.09
Food and Beverage 2,090 2,056 34 1.65
Other 697 604 93 15.40
General and Administrative 2,873 2,522 351 13.92
Depreciation and Amortization 4,073 3,731 342 9.17
Loss on disposal of assets - 4 (4) (100.00)
Income/(loss) from Operations 777 (1,436) 2,213 154.00
Non-operating expense, net 3,650 2,806 844 30.08
Income Tax Provision 267 159 108 67.92
Revenues
Overall casino revenues increased $861,000 for the three months ended
March 31, 2004 compared to the same prior year period. The increase in casino
revenue is a result of increased table game win of $3,100,000 offset by reduced
slot win of $2,239,000.
119
Rooms revenue decreased $174,000 for the three months ended March 31,
2004 compared to the same prior year period as a result of decreased occupancy.
The decrease in occupancy was primarily attributable to a reduction in
promotional room nights.
Food and beverage revenues increased $324,000 for the three
months ended March 31, 2004 compared to the same prior year period. This
increase is a direct result of a new casino bar ("Swingers") ($309,000), which
opened in July 2003.
Promotional Allowances
Promotional allowances are comprised of (i) the estimated retail value
of goods and services provided free of charge to casino customers under various
marketing programs; (ii) the cash value of redeemable points earned under a
customer loyalty program based on the amount of slot play; and (iii) coin and
cash coupons and discounts. As a percentage of casino revenues, promotional
allowances decreased to 25.3% during the three months ended March 31, 2004 from
27.1% during the same period of 2003. The decrease in this ratio is directly
attributable to The Sands' strategy to continue to monitor the reinvestment in
the casino customer based upon the competitiveness within the Atlantic City
market.
Departmental Expenses
Casino expenses at The Sands decreased by $1.6 million for the three
months ended March 1, 2004 compared to the same prior year period. The decrease
in casino expenses is primarily due to the reduction of allocable expenses
($865,000) from other departments due to the reduction in complimentaries and
other cost reductions. Inspection and licensing fees decreased $292,000 for the
three months ended March 31, 2004 compared to the same prior year period. The
decrease is due to a credit received from surplus NJCCC funds, caused by initial
licensing and registration fees related to a newly opened Atlantic City Casino.
Gaming revenue tax increased $119,000 as a result of increased casino revenues.
Rooms expenses increased $174,000 for the three months ended March 31,
2004 compared to the same prior year period. The increases were due to a larger
share of costs allocated to casino expenses ($292,000) as a result of decreased
room complimentaries generated by casino promotions. Total complimentary room
nights decreased by 5,906 or 15.3% over the same prior year period. Rooms
payroll and benefits decreased $91,000 year to year due to a decrease in the
number of rooms sold.
Food and beverage expenses increased $34,000 for the three months ended
March 31, 2004 compared to the same prior year period. The increases were due to
increases in food and beverage cost of sales ($136,000) as a result of increased
revenue.
Other expenses increased $93,000 for the three months ended March 31,
2004, compared to the same prior year period as a result of an increase to
entertainment expenses ($158,000) and a decrease in the allocation of
entertainment complimentaries by casino operations ($106,000).
General and Administrative Expenses
General and administrative expenses increased $351,000 for the three
months ended March 31, 2004, compared to the same period last year. The
increases were due to lower allocable costs from general and administrative
expenses to operating departments ($563,000). These were offset by decreases in
payroll and benefits ($251,000) and property taxes ($95,000).
Depreciation and Amortization, Including Provision for Obligatory
Investments
Depreciation and amortization expense increased $342,000 for the three
month period ended March 31, 2004, compared to the same prior year period due to
an increase in depreciation expense ($259,000) as a result of the continued
investment in infrastructure and equipment during the current and preceding
year. Also increased amortization of CRDA losses ($82,000) as a result of
increased casino revenues contributed to the overall increase.
120
Interest Income and Expense
Interest income decreased by $77,000 during the three month period
ended March 31, 2004, compared to the same prior year period. The decrease was
due to smaller earnings on decreased cash reserves.
Interest expense increased $56,000 during the three month period ended
March 31, 2004, compared to the same period in 2003. The increase is due to a
lower accrual of capitalized interest in 2004 ($28,000) compared to 2003
($91,000). It is The Sands' policy to capitalize interest on construction
projects in excess of $250,000.
Income Tax Provision
Federal and State income tax benefits or provisions are based upon the
results of operations for the current period and the estimated adjustments for
income tax purposes of certain nondeductible expenses.
Due to recurring losses, The Sands has not recorded Federal income tax
benefit or provision for the three months ended March 31, 2004.
The State income tax provision increased $108,000 (67.9%) during the
three months ended March 31, 2004 compared to the same prior year period. The
increase is primarily due to the newly enacted Casino Net Income tax ($88,000)
which did not affect the 2003 period. Increased revenues resulted in a $20,000
increase in the Alternative Minimum Assessment for 2004 compared to 2003.
Inflation
Management believes that, in the near term, modest inflation and
increased competition within the gaming industry for qualified and experienced
personnel will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
Seasonality
Historically, The Sands' operations have been highly seasonal in
nature, with the peak activity occurring from May to September. Consequently,
the results of operations for the first and fourth quarters are traditionally
less profitable than the other quarters of the fiscal year. In addition, The
Sands' operations may fluctuate significantly due to a number of factors,
including chance. Such seasonality and fluctuations may materially affect casino
revenues and profitability.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
Gaming Operations
Information contained herein, regarding Atlantic City casinos other
than The Sands, was obtained from reports filed with the CCC.
121
The following table sets forth certain unaudited financial and
operating data relating to The Sands' and all other Atlantic City casinos'
capacities, volumes of play, hold percentages and revenues:
Year Ended December 31,
-----------------------------------------------
2003 2002 2001
------------ ------------ --------------
(Dollars in Thousands)
Units: (at year end)
Table Games -Sands 73 40 69
-Atlantic City (ex. Sands) 1,311 1,167 1,061
Slot Machines -Sands 2,202 2,322 2,060
-Atlantic City (ex. Sands) 40,176 35,795 35,423
Gross Wagering (1)
Table Games -Sands $ 217,984 $ 242,731 $ 457,992
-Atlantic City (ex. Sands) 6,858,441 6,684,168 6,773,640
Slot Machines -Sands 1,920,379 2,227,830 2,348,180
-Atlantic City (ex. Sands) 39,025,945 38,237,932 36,772,969
Hold Percentages (2)
Table Games -Sands 14.89% 15.00% 14.92%
-Atlantic City (ex. Sands) 15.91% 15.73% 15.65%
Slot Machines -Sands (Accrual Basis) 7.78% 7.57% 6.88%
-Sands (Cash Basis) 7.94% 7.76% 7.10%
-Atlantic City (ex. Sands) (Accrual Basis) N/A N/A N/A
-Atlantic City (ex. Sands) (Cash Basis) 8.14% 8.08% 8.09%
Revenues (2)
Table Games -Sands $ 32,451 $ 36,401 $ 68,351
-Atlantic City (ex. Sands) 1,091,479 1,051,103 1,059,881
Slot Machines -Sands (Accrual Basis) 149,394 168,697 161,503
-Sands (Cash Basis) 152,527 172,833 166,657
-Atlantic City (ex. Sands) (Accrual Basis) N/A N/A N/A
-Atlantic City (ex. Sands) (Cash Basis) 3,174,834 3,089,067 2,974,610
Other (3) -Sands 1,191 1,319 2,515
-Atlantic City (ex. Sands) 45,510 41,735 42,554
- --------------
(1) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (the "Drop") and coins, cash
and/or equivalent value tickets wagered in slot machines (the "Handle").
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the
"hold percentage." The Sands' hold percentages and revenues are
reflected on an accrual basis. Comparable accrual basis data for the
remainder of the Atlantic City gaming industry as a whole is not
available; consequently, industry hold percentages and revenues are
based on information available from the CCC. Cash basis slot machine
revenue does not include an accrual for industry-wide progressive slot
jackpots, whereas accrual basis slot machine revenue does include such
accrual.
(3) Consists of revenues from poker and simulcast horse racing wagering. The
Sands provides its customers both poker and simulcast horse wagering,
however, not all Atlantic City Casinos provide these same gaming
options.
122
Patron Gaming Volume
Information contained herein, regarding Atlantic City casinos other
than The Sands, was obtained from reports filed with the CCC.
Table game drop decreased by $24.7 million (10.2%) during 2003 compared
with 2002 and by $215.3 million (47.0%) in 2002 compared to 2001. By comparison,
according to CCC reports, table game drop at all other Atlantic City casinos
increased 2.6% in 2003 compared to 2002 and decreased 1.3% in 2002 compared to
2001. During 2003, The Sands increased the number of table games from 40 to 73
units in an effort to recapture market share by providing the customer ample
access to a variety of table games. The increase in table game capacity was
supported by marketing, player development and customer service programs that
focused on attracting premium and middle category table game players.
During the second half of 2003, table game drop increased $36.3 million
(43.5%) compared to the same prior year period. This occurred despite a
significant increase in table games in the Atlantic City market as a result of
the opening of a new casino in July 2003. However, these positive results were
not enough to offset the decline in table game drop in the first half of 2003
compared to the same prior year period, which was negatively impacted by severe
winter weather.
Slot machine handle decreased $307.5 million (13.8%) during 2003,
compared with 2002 and $120.4 million (5.1%) in 2002 compared to 2001. By
comparison, according to CCC reports, the percentage increase in slot machine
handle for all other Atlantic City casinos for the same periods was 2.1% and
4.0%, respectively. The decreased Sands slot handle during 2003 can be
attributed to a combination of a decrease in the number of units and an increase
in competitive capacity in the Atlantic City Market. The number of slot machines
decreased 5.2% at The Sands to 2,202 at December 31, 2003 compared to December
31, 2002. For all other Atlantic City casinos, the number of slot machines
increased 12.2% in 2003 compared to 2002, primarily due to the opening of a new
casino in July 2003.
The majority (52.3%) of the 2003 decrease in Sands slot machine
handle occurred during the second half of 2003 compared to the same prior year
period. This was primarily due to increased market capacity as a result of the
Borgata opening on July 3, 2003.
Aggregate gaming space at all other Atlantic City casinos
increased by approximately 144,000 square feet (12.1%) at December 31, 2003
compared to December 31, 2002, primarily due to the opening of a new casino in
July 2003. The amount of gaming space at The Sands decreased approximately 781
square feet (1.0%) between periods.
Revenues
Casino revenues at The Sands decreased by $23.4 million (11.3%) in 2003
compared to 2002 and decreased by $26.0 million (11.2%) in 2002 compared to
2001. The 2003 decrease was due to the $19.3 million decline in slot revenues,
which was a result of the $307.5 million (13.8%) decrease in slot handle. An
increase in slot hold percentage from 7.57% in 2002 to 7.78% in 2003 slightly
offset the impact of the decrease in slot handle. The 2002 decrease was due to
the $32.1 million decline in table game revenues, which was a result of the
$215.3 million (47.0%) decrease in table game drop. The decrease in table game
drop was primarily due to fewer table games available during the third quarter
2002. Slot revenues increased during 2002 as a result of increased hold
percentage despite a decrease in handle of $120.4 million. The increase in slot
machine revenue was not enough to offset the decrease in table game revenue. As
a result, the Parent Company, by the end of 2002, had replaced 14 of the table
games removed in the second quarter of 2002 and shifted its marketing strategy
to focus on the middle and premium category slot player business.
Room revenues decreased by $157,000 (1.4%) in 2003 compared to 2002 and
decreased by $430,000 (3.7%) in 2002 compared to 2001. The 2003 decrease is due
to a decrease in occupied room nights while average room rates remained flat.
This was a result of a decrease in occupied room nights for cash sales, offset
slightly by an increase in occupied room nights for complimentary rooms. The
decline in occupied room nights for cash sales is primarily due to the increased
rooms inventory in the Atlantic City market as a result of the Borgata, which
opened in July 2003, as well as room additions at existing competitors.
Management believes competition in this market will increase as further
expansion of the rooms inventory in Atlantic City is expected in 2004. The 2002
decrease is due
123
to a decrease in occupied room nights and a slightly lower average daily room
rate. The 2002 decrease in occupied room nights is due to a decrease in
complimentary rooms.
Food and beverage revenues decreased $1.4 million (5.8%) in 2003
compared to 2002 and decreased by $6.1 million (20.8%) in 2002 compared to 2001.
The 2003 decrease is due to a decrease in food revenue ($2.2 million) partially
offset by an increase in beverage revenues ($841,000). The decrease in food
revenue occurred predominantly in the high volume outlets (Boardwalk Buffet and
Food Factory). The Food Factory has been closed since December 2002. In 2002,
these outlets were the preferred choice of the mass category slot player. The
2003 increase in beverage revenue is primarily due to the new Swingers lounge,
which opened in July 2003, as well as increases in room service and casino
service bars. The 2002 decrease was due to a decrease in the average check of
$6.89 (25.6%) as a result of fewer complimentaries to premium outlets.
Other revenues increased $186,000 (5.0%) in 2003 compared to 2002 and
decreased by $944,000 (20.2%) in 2002 compared to 2001. The 2003 increase is due
to increased revenue in entertainment ($338,000), lobby store sales ($142,000)
and parking ($53,000). These increases were primarily from complimentaries
provided to customers in the middle and premium categories. The 2002 decrease is
predominantly due to the decline in entertainment revenues, $470,000 (47.9%)
which was primarily a result of discontinuation of review shows in 2002.
Promotional Allowances
Promotional allowances are comprised of (i) the estimated retail value
of goods and services provided free of charge to casino customers under various
marketing programs; (ii) the cash value of redeemable points earned under a
customer loyalty program based on the amount of slot play; and (iii) coin and
cash coupons and discounts. As a percentage of casino revenues, promotional
allowances increased to 27.1% during 2003 compared to 24.8% during 2002 and
26.8% in 2001. The 2003 increase is primarily attributable to marketing, player
development and customer service programs implemented to recapture lost market
share in the middle and premium player categories due to the reduction in table
games and the marketing program during the summer of 2002 that focused on the
mass slot player category.
Departmental Expenses
Casino expenses at The Sands decreased by $12.1 million (8.4%) in 2003
compared to 2002 and by $25.5 million (15.1%) in 2002 compared to 2001. The 2003
decrease is primarily due to reduction in casino payroll and employee benefits
($2.9 million) as a result of a full year of lower employment levels related to
a series of layoffs and job eliminations beginning in 2001. Other favorable
casino expense variances in 2003 were directly related to the lower casino
revenues, which in turn, lowers general, marketing and promotional allocations
($6.6 million) and gaming taxes ($1.8 million). The 2002 decrease in casino
expenses is primarily due to the reduction of complimentary costs associated
with food and beverage provided free of charge. Casino payroll expenses
decreased due to the reduction in table games. The decrease in the provision for
doubtful accounts expense was caused by a reduction in credit issuance due to
lower table game activity. Lower costs for customer transportation were a result
of reduced volume in air travel and ground transportation. Reductions in
advertising expense and gaming revenue tax also contributed significantly to the
decreases in casino expenses in 2002.
Room expenses decreased by $631,000 (21.1%) in 2003 compared to 2002
and $406,000 (12.0%) in 2002 compared to 2001. The 2003 decrease is primarily
due to reductions in staffing, which reduced payroll and employee benefits.
Linen usage and laundry expense decreased as a result of fewer occupied rooms in
2003 compared to 2002. The 2002 decreases were due to a decrease in housekeeping
supplies expense, amenity package costs, linen and uniform usage, which resulted
from fewer occupied room nights and also outside maintenance contracts.
Food and beverage expenses decreased by $1.5 million (13.3%) in 2003
compared to 2002 and by $1.1 million in 2002 compared to 2001. The 2003 decrease
is due to a decrease in payroll and employee benefits as a result of staffing
reductions. Food cost of sales decreased as a result of lower food costs in the
Boardwalk Buffet and the closing of the Food Factory in 2002. These favorable
variances were offset slightly by lower allocable food and beverage costs
transferred to other departments. The 2002 increases were due to a smaller share
of costs allocated to casino expense as a result of a decrease in food and
beverage complimentaries generated by casino operations. These were offset
slightly by decreases in payroll, benefits and food and beverage cost of sales
as a result of the lower volume.
124
Other expenses increased by $492,000 (18.7%) in 2003 compared to 2002
and decreased by $749,000 (22.2%) in 2002 compared to 2001. The 2003 increase
was due to increased entertainment costs as the theatre was open more often with
headliner entertainers than it was in 2002. The decrease in 2002 is primarily
due to savings resulting from discontinuation of review shows in the theatre.
General and Administrative Expenses
General and administrative expenses decreased by $1.2 million (9.5%) in
2003 compared to 2002 and increased by $1.3 million (11.2%) in 2002 compared to
2001. The 2003 decrease was primarily due to lower payroll and benefits costs
($2.1 million) as a result of continued staff reductions. Also contributing to
the decrease in 2003, was lower severance payouts ($1.6 million) than in 2002 as
a result of smaller adjustments in staffing levels than in the prior year. These
favorable variances were offset somewhat by increases in insurance premiums and
reserves due to market conditions and higher payouts and more significant claims
in 2003. The 2002 increase was due to costs arising from severance packages and
higher costs for insurance, property taxes and utilities.
Depreciation and Amortization, including Provision for Obligatory
Investments
Depreciation and amortization, including provision for obligatory
investments, increased by $787,000 (5.1%) in 2003 compared to 2002 and by $3.3
million (27.4%) in 2002 compared to 2001. The 2003 increase is due to increased
depreciation expense ($826,000) resulting from further renovations and upgrades
to infrastructure and public areas such as Swingers lounge, Platinum Club and
the new bus entrance and waiting area. The provision for obligatory investments
decreased in 2003 ($441,000) primarily due to a decrease in casino revenues, on
which the obligation is based. The 2002 increase is a result of the continued
investment in and renovation of the casino, hotel and administrative complex at
The Sands.
Interest Income and Expense
Interest income decreased by $440,000 (41.2%) in 2003 compared to 2002
and decreased by $1.6 million (60.1%) in 2002 compared to 2001. The 2003
decrease was due to lower invested cash reserves. The decrease in 2002 was due
to earnings on decreased cash reserves and lower interest rates.
Interest expense increased by $387,000 (3.3%) in 2003 compared to 2002
and $361,000 (3.2%) in 2002 compared to 2001. The increase in 2003 is due to
lower levels of capitalized interest than in 2002. The 2002 increase is due to a
lower amount of capitalized interest partially offset by the elimination of
debt.
Income Tax Provision
Income tax provision increased $174,000 (22.2%) in 2003 compared to
2002 and $729,000 (1,325.5%) in 2002 compared to 2001. The 2003 increase is
predominantly due to the newly enacted New Jersey Casino Net Income Tax
($175,000), which became effective in July 2003. The increase in 2002 was
directly related to the enactment of New Jersey alternative minimum assessment
in July 2002, which is based on gross receipts or gross profits.
Cash flow
GB Holdings used $2.3 million of net cash from operations during the
year ended December 31, 2003 compared to generating $9.7 million during the same
prior year period. The 2003 decrease in net cash from operations was primarily
due to the decline in net revenues as a result of the increased competition and
capacity in the Atlantic City market. The 2002 increase in net cash from
operations is a result of a combination of a decrease in accounts receivable and
an increase in depreciation expense that offset a decrease in income from
operations. During 2002, based upon a periodic review of long-lived assets for
impairment in conjunction with a review of the GB Holdings' marketing programs
and product mix, certain expenditures incurred for property expansion plans,
that were included in construction in progress, were determined to be unusable
and resulted in a loss on asset impairment in the amount of $1.3 million.
Capital expenditures at The Sands for the year ended December 31, 2003
amounted to approximately $12.8 million compared to $14.1 million in 2002 and
$23.1 million in 2001. The Sands is required by the Casino Act to make certain
quarterly deposits based on gross revenue with the CRDA in lieu of a certain
investment alternative
125
tax. Deposits for the years ended December 31, 2003, 2002 and 2001 amounted to
$2.3 million, $2.5 million and $2.8 million, respectively.
There were no financing activities during the year ended December 31,
2004.
Contractual Obligations
The following table sets forth the contractual obligations of the
Parent Company at December 31, 2003:
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------
LESS MORE
THAN 1-3 3-5 THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
-------------- ------------ -------------- ------------ ------------
Long-Term Debt.............................. $ 110,000,000 $ -- $ 110,000,000 $ -- $ --
Capital Lease Obligations................... -- -- -- -- --
Obligatory Contributions.................... 4,808,000 72,000 228,000 2,244,000 2,264,000
Operating Leases:
Madison House............................ 18,026,000 1,800,000 5,797,000 3,996,000 6,433,000
Equipment................................ 352,000 186,000 166,000 -- --
Purchase Obligations........................ -- -- -- -- --
Other Long-term liabilities on balance
sheet under GAAP......................... -- -- -- -- --
------------------------------------------------------------------------
Total Contractual Obligations............... $ 133,186,000 $ 2,058,000 $ 116,191,000 $ 6,240,000 $ 8,697,000
============== ============ ============== ============ ============
New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" ("EITF 94-3") and requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value in the period in which the liability is
incurred. Under EITF 94-3, a liability for an exit cost was required to be
recognized at the date of an entity's commitment to an exit plan. The adoption
of SFAS 146 is expected to result in delayed recognition for some types of costs
as compared to the provisions of EITF 94-3. FAS No. 146 is effective for new
exit or disposal activities that are initiated after December 31, 2002, and does
not affect amounts currently reported in the Parent Company's consolidated
financial statements. SFAS 146 will affect the types and timing of costs
included in future restructuring programs, if any.
On January 1, 2003, the Parent Company adopted SFAS No. 143, "Asset
Retirement obligations" ("SFAS 143"), which provides the accounting requirements
for retirement obligations associated with tangible long-lived assets. This
statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. The adoption of
SFAS 143 did not have any impact on the Parent Company's consolidated financial
statements.
On January 1, 2003, the Parent Company adopted SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS
148"), which provides alternative methods of transition for companies that
choose to switch to the fair value method of accounting for stock options. SFAS
148 also makes changes in the disclosure requirements for stock-based
compensation, regardless of which method of accounting is chosen. The adoption
of SFAS 148 did not have any impact on the Parent Company's consolidated
financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from changes in market rates
and prices, such as interest rates and foreign currency exchange rates. The
Parent Company does not have securities subject to interest rate fluctuations
and has not invested in derivative-based financial instruments.
At March 31, 2004, the fair value of the Parent Company's fixed rate
debt was $88.1 million compared with its carrying amount of $110 million.
126
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 27, 2002, the CCC entered an order prohibiting the Parent
Company, as well as all other New Jersey casino licensees, from conducting
business with Arthur Andersen LLP after May 15, 2002. On May 16, 2002, the
Parent Company's Board of Directors' dismissed Arthur Andersen LLP as
independent auditors and appointed KPMG LLP to serve as the Parent Company's
independent auditors for the fiscal year ended December 31, 2002. The decision
to appoint KPMG LLP was made after an extensive evaluation process by the Parent
Company's Board of Directors, Audit Committee and management.
Arthur Andersen LLP's reports on the Parent Company's consolidated
financial statements for the years ended 2000 and 2001, included elsewhere in
this solicitation statement and prospectus, did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During the years ended December 31, 2000 and 2001 and through the date
of this solicitation statement and prospectus, there were no disagreements with
Arthur Andersen LLP on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen LLP's satisfaction, would have caused them to make reference to
the subject matter in connection with their report on the Parent Company's
consolidated financial statements for such years; and there were no reportable
events as set forth in applicable SEC regulations.
The Parent Company provided Arthur Andersen LLP with a copy of the
above disclosures. In a letter dated May 21, 2002, Arthur Andersen LLP confirmed
its agreement with these statements.
During the years ended December 31, 2000 and 2001 and through the date
of their engagement, the Parent Company did not consult KPMG LLP with respect to
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Parent Company's consolidated financial statements, or any other matters or
reportable events as set forth in applicable SEC regulations.
On June 15, 2002, Arthur Andersen LLP was convicted of federal
obstruction of justice charges arising from the government's investigation of
its role as auditors for Enron Corp. None of the Arthur Andersen LLP personnel
who were involved with the Enron account were involved with the audit of the
Parent Company's financial statements for the years ended December 31, 2000 and
2001.
Arthur Andersen LLP did not participate in the preparation of this
registration statement or reissue its report, dated March 8, 2002, on the Parent
Company's 2001 financial statements included in this solicitation statement and
prospectus. You are unlikely to have any effective remedies against Arthur
Andersen LLP in connection with a material misstatement or omission in these
financial statements. See "RISK FACTORS -- Risk Factors Related to the Business
of Atlantic Holdings" as set forth on page 45.
Although the Parent Company does not believe that the conviction of
Arthur Andersen LLP will materially adversely affect it, should the Parent
Company seek to access the public capital markets after the Transaction is
completed, SEC rules will require it to include or incorporate by reference in
any prospectus three years of audited financial statements. Until our audited
financial statements for the year ending December 31, 2004 become available in
the first quarter of 2005, the SEC's current rules would require the Parent
Company to present audited financial statements audited by Arthur Andersen LLP.
On August 31, 2002, Arthur Andersen LLP ceased practicing before the SEC, but
the SEC has continued to accept financial statements audited by Arthur Andersen
LLP. However, if the SEC ceases to accept financial statements audited by Arthur
Andersen LLP, the Parent Company would be unable to access the public capital
markets unless KPMG LLP, the Parent Company's current independent accounting
firm, or another independent accounting firm, is able to audit the 2000 and 2001
financial statements, which Arthur Andersen LLP originally audited.
Additionally, Arthur Andersen LLP cannot consent to the inclusion or
incorporation by reference in any prospectus of their report on the Parent
Company's audited financial statements for the years ended December 31, 2000 and
2001 and investors in any future offerings for which we use their audit report
will not be entitled to recovery against them under Section 11 of the Securities
Act of 1933 for any material misstatements or omissions in those financial
statements. The Parent Company may not be able to bring to the market
successfully an offering of
127
its securities in the absence of Arthur Andersen LLP's participation in the
transaction, including its consent. Consequently, the Parent Company's financing
costs may increase or the Parent Company may miss attractive market
opportunities if either the Parent Company's annual financial statements for
2000 and 2001 audited by Arthur Andersen LLP should cease to satisfy the SEC's
requirements or those statements are used in a prospectus but investors are not
entitled to recovery against auditors for material misstatements or omissions in
them. See "RISK FACTORS -- Risk Factors Related to the Business of Atlantic
Holdings" as set forth on page 45.
MANAGEMENT OF GB HOLDINGS AND ATLANTIC HOLDINGS
DIRECTORS AND EXECUTIVE OFFICERS
Prior to and immediately following the consummation of the Transaction,
the Board of Directors and executive officers of Atlantic Holdings shall be
identical to the Board and executive officers of GB Holdings and, consequently,
the following information is applicable to both GB Holdings and Atlantic
Holdings.
The Board consists of: Carl C. Icahn, Michael L. Ashner, Martin Hirsch,
Harold First, Auguste E. Rimpel, Jr. and John P. Saldarelli. Messrs. Ashner,
First and Rimpel, Jr. are independent members of the Board and members of GB
Holding's Audit Committee and for purposes of the Transactions were Members of
the Special Committee.
Set forth below is information concerning each of GB Holding's
directors and executive officers, including information furnished by them as to
principal occupations, certain other directorships held by them, any
arrangements pursuant to which they were elected as directors and their ages.
Name Age Position
- ---------------------------- ----- -----------------------------------------
Carl C. Icahn............... 68 Chairman of the Board of Directors
Martin Hirsch............... 49 Director
John P. Saldarelli.......... 62 Director
Michael L. Ashner........... 51 Director
Harold First................ 67 Director
Auguste E. Rimpel, Jr....... 64 Director
Richard P. Brown............ 56 Chief Executive Officer
George Toth................. 57 Interim President
Douglas S. Niethold......... 48 Interim Vice President, Finance, Chief
Financial Officer and Principal
Accounting Officer
Carl C. Icahn has served as Chairman of the Board of Directors and a
director of Starfire Holding Corporation (formerly Icahn Holding Corporation), a
privately-held holding company, and Chairman of the Board of Directors and a
director of various subsidiaries of Starfire, including ACF Industries,
Incorporated, a privately-held railcar leasing and manufacturing company, since
1984. He has also been Chairman of the Board of Directors and President of Icahn
& Co., Inc., a registered broker-dealer and a member of the NASD Inc., since
1968. Since November 1990, Mr. Icahn has been Chairman of the Board of Directors
of American Property Investors, Inc., the general partner of American Real
Estate Partners, L.P., a public limited partnership that invests in real estate.
Mr. Icahn has been a director of Cadus Pharmaceutical Corporation, a firm which
holds various biotechnology patents, since 1993. Since August 1998 he has also
served as Chairman of the Board of Directors of Lowestfare.com, LLC, an internet
travel reservations company. From October 1998, Mr. Icahn has been the President
and a director of Stratosphere Corporation which operates the Stratosphere Hotel
and Casino. Mr. Icahn received his B.A. from Princeton University. Since
September 29, 2000, Mr. Icahn has served as the Chairman of the Board of
Directors of GB Holdings, GB Property and Greate Bay Hotel. Since October 31,
2003, Mr. Icahn has served as the Chairman of the Board of Directors of Atlantic
Holdings.
Martin Hirsch has served as a Vice President of American Property
Investors, Inc. since March 18, 1991, where he is involved in investing,
managing and disposing of real estate properties and securities. Mr. Hirsch was
elected as Executive Vice President and Director of Acquisitions of American
Property Investors, Inc. in 2000. From January 1986 to January 1991, he was at
Integrated Resources, Inc. as a Vice President where he was involved
128
in the acquisition of commercial real estate properties and asset management.
From 1985-1986, he was a Vice President of Hall Financial Group where he
acquired and financed commercial and residential properties. Mr. Hirsch
currently serves on the Board of Directors of Stratosphere Corp. He received his
M.B.A. from The Emory University Graduate School of Business. Mr. Hirsch has
served as a director of GB Holdings and GB Property since September 29, 2000 and
as a director of Greate Bay Hotel since February 28, 2001. Since October 31,
2003, Mr. Hirsch has served as a member of Atlantic Holdings' Board of
Directors.
John P. Saldarelli has served as Vice President, Secretary and
Treasurer of American Property Investors, Inc. (general partner of American Real
Estate Partners) since March 18, 1991. Mr. Saldarelli was also President of
Bayswater Realty Brokerage Corp. from June 1987 until November 19, 1993, and
Vice President of Bayswater Realty & Capital Corp. from September 1979 until
April 15, 1993. In October 1998, Mr. Saldarelli was appointed to the Board of
Directors of Stratosphere and in June 2000, Mr. Saldarelli was given the
additional title of Chief Financial Officer. Mr. Saldarelli has served as a
director of GB Holdings, GB Property and Greate Bay Hotel since February 28,
2001. Since October 31, 2003, Mr. Saldarelli has served as a member of Atlantic
Holdings' Board of Directors.
Michael L. Ashner has served as Chairman, President and CEO of Winthrop
Associates, a real estate consulting firm, since 1995. Mr. Ashner has also
served as General Partner of Cecil Associates, a limited liability company which
owns twenty Comfort Inns, since 1996. Mr. Ashner has been CEO of Newkirk
Associates, a limited liability company which owns and manages more than 40
million square feet of office and retail space, since 1997. Mr. Ashner has also
been Managing Director of AP-USX, LLC, a limited liability company which owns a
28 million square foot office tower, since 1998. Since 1999, Mr. Ashner has
served as President and CEO of Presidio Capital Corporation, an investment
banking firm, Mr. Ashner has been President and CEO since 2000 of GFB-AP Fort,
LLC, a limited liability company involved in independent and assisted living
communities. Mr. Ashner has been President and sole shareholder since 1981 of
Exeter Capital Corporation, which provides real estate consulting to real estate
investors. Mr. Ashner currently serves as a director of NBTY, Inc., a
publicly-traded company that is a manufacturer, marketer, and retailer of
nutritional supplements. Mr. Ashner is the President and CEO and a director of
Shelbourne Properties I, Shelbourne Properties II, and Shelbourne Properties
III, three separate publicly-traded real estate investment trusts that are
listed on the American Stock Exchange and are currently liquidating. Since
December 31, 2003, Mr. Ashner has been the President and CEO of First Union Real
Estate Equity and Mortgage Investment, an unincorporated business trust engaged
in the business of owning and managing and lending to, real estate and related
investments which is publicly-traded and listed on the New York Stock Exchange.
Mr. Ashner has served as a director of GB Holdings and GB Property since
September 29, 2000, as a member of the Audit Committee of GB Holdings since
October 3, 2000, and as a member of the Board of Directors of Greate Bay Hotel
since June 6, 2001. Since March 12, 2003, Mr. Ashner has been a member of the
Special Committee. Since October 31, 2003, Mr. Ashner has served as a member of
Atlantic Holdings' Board of Directors.
Harold First has been a financial consultant since 1993. From December
1990 through January 1993, Mr. First served as Chief Financial Officer of Icahn
Holding Corp., a privately held holding company. He has served as a director of
Taj Mahal Holding Corporation, a public casino and gaming corporation, Trump Taj
Mahal Realty Corporation, a privately held real estate company, Memorex Telex
N.V., a public technology company, Trans World Airlines, Inc., a public airline
company, ACF Industries, Inc., a privately-held railcar leasing and
manufacturing company, Cadus Pharmaceutical Corporation, a biotech research
company, Talkamerica, Inc., a public long distance telephone service company,
Marvel Entertainment Group, Inc., a public entertainment company, Toy Biz, Inc.,
a public toy company and Vice Chairman of the Board of Directors of American
Property Investors, Inc., the general partner of American Real Estate Partners,
L.P., a public limited partnership that invests in real estate. Mr. First
currently serves on the Boards of Directors of Panaco Inc., an oil and gas
drilling company, and was a director of Philip Services Corporation, a privately
held company that is a leading integrated provider of industrial and metals
services. He is a Certified Public Accountant and holds a B.S. from Brooklyn
College. He has served as a member of the Audit Committee and the Board since
April 25, 2001, and as a director of GB Property and Greate Bay Hotel since June
6, 2001. Since March 12, 2003, Mr. First has been a member of the Special
Committee. Since October 31, 2003, Mr. First has served as a member of Atlantic
Holdings' Board of Directors.
Auguste E. Rimpel, Jr. has been a retired partner of
PricewaterhouseCoopers LLP ("PwC") since 2000. He was with PwC and its
predecessor firm, Price Waterhouse, since 1983, most recently as Managing
Partner of International Consulting services for the Washington Consulting
Practice of the firm. Prior to his tenure at PwC, he served as a Partner with
Booz Allen & Hamilton, Inc., a management consulting firm and as a Vice
President of
129
Arthur D. Little International, Inc., a management consulting firm. Dr. Rimpel
currently serves as Chairman of the Board of Trustees of the University of the
Virgin Islands. Dr. Rimpel received a Ph.D. in chemical engineering from
Carnegie Institute of Technology and was an International Fellow at Columbia
University Graduate School of Business. He has served as a member of the Audit
Committee and Board of Directors of GB Holdings since April 25, 2001, and as a
director of GB Property and Greate Bay Hotel since June 6, 2001. Since March 12,
2003, Mr. Rimpel has been a member of the Special Committee. Since October 31,
2003, Mr. Rimpel has served as a member of Atlantic Holdings' Board of
Directors.
Richard P. Brown, serves as President and Chief Executive Officer for
Carl C. Icahn's Nevada gaming properties, the Stratosphere Casino Hotel and
Tower, Arizona Charlie's Decatur and Arizona Charlie's Boulder. All three
properties are located in Las Vegas. In addition, Mr. Brown serves as Chief
Executive Officer of Greate Bay Hotel, GB Holdings and GB Property. Mr. Brown
reports directly to Mr. Icahn and oversees strategic planning, operating,
financial and capital investment direction for the Icahn gaming properties. His
role also encompasses development of new business opportunities and company
policies. Mr. Brown joined Mr. Icahn's gaming properties in March 2000 as
Executive Vice President of Marketing for the Stratosphere and both Arizona
Charlie's properties while also serving as one of three key executives
responsible for overall operations of the Stratosphere. In January 2001, he was
promoted to Chief Operating Officer, responsible for the operations of all three
properties. Mr. Brown was promoted to the position of President and Chief
Executive Officer of Mr. Icahn's gaming properties in Nevada in June 2002. In
addition, he was promoted to the role of Chief Executive Officer of Greate Bay
Hotel, GB Holdings and GB Property in September 2002. Prior to joining the
Stratosphere, Mr. Brown held executive positions with Harrah's Entertainment
(1994-2000) and the Hilton Corporation (1992-1994). In addition, he has held
vice president positions with the New York Racing Association, the Travelers
Companies of Hartford, Connecticut and the J. Walter Thompson Company in New
York, New York. Mr. Brown earned a bachelor's degree in business economics from
Southern Connecticut State College. Since October 31, 2003, Mr. Brown has served
as GB Holdings' President and Chief Executive Officer.
George Toth was appointed Interim President of Greate Bay Hotel in
February 2004. Prior to that, Mr. Toth was Vice President of Hotel Operations
and Security for GB Holdings, GB Property, Greate Bay Hotel, and Atlantic
Holdings and has held various positions in the company since 1994, including
Vice President of Construction and Operations and Executive Director of Support
Services. Mr. Toth received his MBA from Monmouth University in 1996.
Douglas S. Niethold was appointed Interim Vice President, Finance,
Chief Financial Officer and Principal Accounting Officer of GB Holdings, GB
Property and Atlantic Holdings in January 2004. Mr. Niethold has also served as
Treasurer of Brighton Park Maintenance Corporation since 1996. Previously, Mr.
Niethold served as Executive Director, Finance from 2000 to 2003 and Director,
Financial Planning from 1994 to 2000, for Greate Bay Hotel. Mr. Niethold
received his Bachelors degree from Northeastern University and his MSBA from
Temple University.
The Board of Directors has determined that Harold First qualifies as an
"audit committee financial expert" as defined in ITEM 401(h) of Regulation S-K
of the Exchange Act, and that Mr. First is independent of management as that
term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
There are no arrangements or understandings pursuant to which any
person has been elected as a director of GB Holdings. Directors are elected
annually by the stockholders and hold office until the next annual meeting of
stockholders or until their respective successors are elected and qualified.
Executive officers are elected by the Board of Directors and hold office until
their respective successors are elected and qualified. No family relationships
exist between any of GB Holdings' directors or executive officers.
EXECUTIVE COMPENSATION OF ATLANTIC HOLDINGS, GB HOLDINGS AND ITS SUBSIDIARIES
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
Neither GB Holdings nor GB Property pays any compensation to any
employee, executive officer or director. Greate Bay Hotel pays the compensation
of the independent directors (see "EXECUTIVE COMPENSATION OF ATLANTIC HOLDINGS
GB HOLDINGS AND ITS SUBSIDIARIES -- Compensation Of Directors" as set forth on
page 130). The following table provides certain summary information concerning
130
compensation paid or accrued by Greate Bay Hotel's, to or on behalf of (i)
Greate Bay Hotel's Chief Executive Officer; (ii) each of the other executive
officers of Greate Bay Hotel determined as of the end of the last fiscal year;
and (iii) additional individuals who would have qualified as among the executive
officers of Greate Bay Hotel but for the fact that the individual was not
serving as an executive officer at the end of the last year (hereafter referred
to as the named executive officers), for the years ended December 31, 2003, 2002
and 2001. It is anticipated that ACE Gaming will pay comparable compensation to
such officers and directors such that the overall compensation paid to such
officers and directors remains constant.
Annual Compensation
-----------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation(1)
- -------------------------------------- ------ ---------- -------- ------------- ------------------
Richard P. Brown...................... 2003 $ 106,252 $ -- $ -- $ --
Chief Executive Officer 2002 -- -- -- --
2001 -- -- -- --
Timothy A. Ebling..................... 2003 278,106 -- 7,700 4,534
Executive Vice President, 2002 250,000 -- 8,400 4,500
Chief Financial Officer, 2001 250,000 -- 8,400 4,250
Principal Accounting Officer
Thomas Davis.......................... 2003 247,067 -- -- --
President 2002 -- -- -- --
2001 -- -- -- --
William Cooney (2).................... 2003 159,374 2,000 -- 2,721
Senior Vice President 2002 180,654(4) -- -- --
Customer Development 2001 210,000 -- -- 4,463
Carmen Hirst(3)....................... 2003 143,402 6,000 -- --
Vice President Information 2002 74,996 -- -- --
Technology, CIO 2001 -- -- -- --
- --------------
(1) Includes matching contributions by Greate Bay Hotel to The Sands
Retirement Savings Plan on behalf of the named executive officer.
(2) William Cooney has served Greate Bay Hotel as Senior Vice President,
Customer Development since February 2003. Prior to that, Mr. Cooney was
Vice President, Player Development at Tropicana Casino from May 2002
until February 2003. Mr. Cooney had previously served Greate Bay Hotel
as Executive Vice President, Marketing Operations from February 2001
until May 2002 and Vice President, Marketing from March 2000 until
February 2001 and Vice President, Player Development from September 1999
until March 2000. Prior to that, Mr. Cooney served as Executive Director
of Player Development.
(3) Carmen Hirst has served Greate Bay Hotel as Vice President/CIO since
April 2003 and served as Executive Assistant to the President/CIO from
August 2002 until April 2003 and Executive Assistant to the President
beginning in June 2002. Prior to that, Ms. Hirst served as Executive
Director of Information Technology at Resorts Casino from December 2001
until May 2002 and Director of Information Services at Showboat Casino
from May 1991 until December 2001.
(4) Includes severance compensation.
OPTION GRANTS IN LAST FISCAL YEAR
GB Holdings does not have a stock option plan.
131
EMPLOYMENT CONTRACTS
Timothy A. Ebling, formerly Executive Vice President, Chief Financial
Officer and Principal Accounting Officer of Greate Bay Hotel, and appointed
Interim Chief Operating Officer beginning January 2002 and ending March 18, 2002
and as President from October 2002 until January 10, 2003, was under an
employment agreement, amended as of March 11, 1998, through November 30, 2003.
The terms of the agreement provided for an annual base salary of $190,000,
subject to annual increases on each anniversary date of the agreement equal to
no less than the change in the Consumer Price Index, as defined, and no more
than five percent. In October 2000, Mr. Ebling's base salary was increased to
$250,000. Mr. Ebling's contract was not renewed and he left the Parent Company
as of November 30, 2003. Mr. Ebling received a payment of $265,338 and provided
GB Holdings a general release.
Frederick H. Kraus, Executive Vice President, General Counsel and
Secretary of Greate Bay Hotel, was under an employment agreement, amended as of
March 11, 2998, in such capacities continuing through December 31, 2003. Mr.
Kraus left the employ of the Parent Company as of March 26, 2003.
The Parent Company currently has no individual employees under
employment contracts.
EMPLOYEE RETIREMENT SAVINGS PLAN
Greate Bay Hotel administers and participates in The Sands Retirement
Plan, a qualified defined contribution plan for the benefit of all of Greate Bay
Hotel's employees, who satisfy certain eligibility requirements.
The Sands Retirement Plan is qualified under the requirements of
Section 401(k) of the Code allowing participating employees to benefit from the
tax deferral opportunities provided therein. All employees of Greate Bay Hotel,
who have completed one year of service, as defined, and who have attained the
age of 21, are eligible to participate in the Savings Plan.
The Sands Retirement Plan provides for a matching contribution by
Greate Bay Hotel based upon certain criteria, including levels of participation
by Greate Bay Hotel's employees. Greate Bay Hotel incurred matching
contributions totaling $406,000, $575,000, and $700,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.
COMPENSATION OF DIRECTORS
Prior to September 29, 2000, independent directors of GB Holdings, GB
Property and Greate Bay Hotel received an annual fee of $10,000 for service on
the Boards of Directors and a fee of $500 for each meeting attended. Independent
directors of the Board of Directors of GB Holdings are entitled to receive an
annual fee of $22,500. The Board held 11 meetings either in person or by
unanimous consent during the year ended December 31, 2002. All directors
attended at least 75% of all meetings of the Board and committees thereof for
which they were eligible to serve.
The Board also has an Audit Committee. Prior to September 29, 2000, the
external members of the Audit Committee received an annual fee of $5,000 for
service on the committee and a fee of $500 for each meeting attended. As of
September 29, 2000, compensation for members of the Audit Committee is included
in the compensation described above.
Each member of the Special Committee received a one time cash payment
of $35,000, on or about April 5, 2003, shortly after the formation of the
Special Committee, as payment for their services as members of the Special
Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On October 3, 2000, GB Holdings established a Compensation Committee
consisting of Messrs. Hirsch and Ashner.
Mr. Icahn (including certain related entities) is actively involved in
the gaming industry and currently owns 77.49% of the outstanding common stock of
GB Holdings. Casinos owned or managed by Mr. Icahn may directly or indirectly
compete with GB Holdings. In addition, the potential for conflicts of interest
exists among
132
Atlantic Holdings and Mr. Icahn for future business opportunities.
Mr. Icahn may pursue other business opportunities and there is no agreement
requiring that such additional business opportunities be presented to Atlantic
Holdings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF ATLANTIC HOLDINGS AND GB HOLDINGS
ATLANTIC HOLDINGS
The following table sets forth as of March 15, 2004, certain
information regarding the beneficial ownership of shares of Atlantic Holdings
Common Stock by each director and executive officer of Atlantic Holdings, each
person known to Atlantic Holdings to be the beneficial owner of more than 5% of
the outstanding shares and all directors and executive officers as a group.
Except as otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder. A person is deemed to beneficially own a security if such person
has or shares the power to vote or dispose of the security or has the right to
acquire it within 60 days.
Prior to Transaction Subsequent to Transaction (1)
------------------------ ------------------------------
Number of Percent Number of
Name Shares Shares Percent
- -------- ---------- ------- ------------- ---------
Carl C. Icahn (2).............. -- -- 2,130,975 77.49%
Martin Hirsch.................. -- -- -- --
John P. Saldarelli............. -- -- -- --
Michael L. Ashner.............. -- -- -- --
Harold First................... -- -- -- --
Auguste E. Rimpel, Jr.......... -- -- -- --
Douglas S. Niethold ........... -- -- -- --
Richard P. Brown............... -- -- -- --
Thomas Davis .................. -- -- -- --
All Directors and Officers..... -- -- 2,130,975 77.49%
- --------------
(1) Assuming that 100% of the Existing Notes are exchanged for New Notes.
(2) It is anticipated that Carl C. Icahn, Cyprus, Barberry Corp.
("Barberry"), Starfire Holding Corporation ("Starfire"), American Real
Estate Holdings Limited Partnership ("AREH"), American Real Estate
Partners, L.P. ("AREP"), American Property Investors, Inc. ("API") and
Beckton Corp. ("Beckton") will acquire beneficial ownership of a
majority of the Atlantic Holdings Common Stock outstanding after
consummation of the Transaction. Mr. Icahn owns 100% of Barberry,
Starfire and Beckton. Barberry is the managing member of Cyprus. Mr.
Icahn is (i) the sole director and the Chairman of the Board, President
and Secretary of Barberry; (ii) the sole director, Chairman of the Board
and President of Starfire; and (iii) the sole director, Chairman of the
Board, President and Secretary of Beckton. API is the general partner of
both AREH and AREP, and AREP is a limited partner of AREH owning a 99%
limited partnership interest therein. API is 100% owned by Beckton. As a
result of Mr. Icahn's ownership of and position(s) with Barberry,
Starfire and Beckton, Mr. Icahn is in a position to directly and
indirectly determine the investment and voting decisions made by the
entities named above.
GB HOLDINGS
The following table sets forth as of March 15, 2004, certain
information regarding the beneficial ownership of shares of common stock of GB
Holdings by each director and executive officer of GB Holdings, each person
known to GB Holdings to be the beneficial owner of more than 5% of the
outstanding shares and all directors and executive officers as a group. Except
as otherwise indicated, each such stockholder has sole voting and investment
power with respect to the shares beneficially owned by such stockholder. A
person is deemed to beneficially own a security if such person has or shares the
power to vote or dispose of the security or has the right to acquire it within
60 days.
133
Prior to and
Subsequent to the
Transaction
-------------------------
Number of
Shares Percent
------------- ----------
HMC Investors, L.L.C. (1)................. 795,771 8.0%
c/o International Fund Services
3rd Floor, Bishops Square
Redmonds Hill
Dublin, Ireland
Carl C. Icahn (2)......................... 7,748,744 77.49%
Martin Hirsch............................. -- --
John P. Saldarelli........................ -- --
Michael L. Ashner......................... -- --
Harold First.............................. -- --
Auguste E. Rimpel, Jr..................... -- --
Carmen Hirst.............................. -- --
Richard P. Brown.......................... -- --
Thomas Davis.............................. -- --
All Directors and Officers................ 7,748,744 77.49%
- --------------
(1) Includes 772,696 shares held by Harbert Distressed Investment Master
Fund Ltd. (the "Fund"). HMC Investors, L.L.C. is the managing member of
the investment manager of the Fund. Phillip Falcone, portfolio manager
of the Fund, and Raymond Harbert and Michael D. Luce, members of HMC
Investors, L.L.C, may be deemed to share beneficial ownership of the
shares of common stock of GB Holdings held by HMC Investors, L.L.C.
Information concerning HMC Investors, L.L.C. and its affiliates is
based upon a Schedule 13G filed with the SEC on February 4, 2004.
(2) As of July 14, 2003, Cyprus, an entity affiliated with Mr. Icahn,
directly beneficially owned 4,121,033 shares of common stock of GB
Holdings and American Real Estate Holdings Limited Partnership, a
limited partnership controlled by Mr. Icahn, directly beneficially owned
3,627,711 shares of common stock of GB Holdings. Mr. Icahn owns 100% of
Barberry, Starfire and Beckton. Barberry is the managing member of
Cyprus. Mr. Icahn is (i) the sole director and the Chairman of the
Board, President and Secretary of Barberry; (ii) the sole director,
Chairman of the Board and President of Starfire; and (iii) the sole
director, Chairman of the Board, President and Secretary of Beckton.
American Property Investors, Inc. ("API") is the general partner of both
AREH and AREP, and AREP is a limited partner of AREH owning a 99%
limited partnership interest therein. API is 100% owned by Beckton. As a
result of Mr. Icahn's ownership of and position(s) with Barberry,
Starfire and Beckton, Mr. Icahn is in a position to directly and
indirectly determine the investment and voting decisions made by the
entities named above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the effectiveness of the Modified Fifth Amended Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code Proposed by the Official
Committee of Unsecured Creditors and High River Limited Partnership and its
affiliates (the "Plan"), neither Mr. Icahn nor any of his affiliates owned
equity securities of GB Holdings or its predecessors. At the time of the
effectiveness of the Plan, Cyprus LLC and Larch LLC were entities indirectly
owned and affiliated with Mr. Icahn. Each of Cyprus and Larch held $31,416,500
principal amount of the Old Notes which, under the Plan, were canceled, and on
or about November 1, 2000, each of Cyprus and Larch received in respect thereof
$18,935,337 principal amount of Existing Notes and 925,280.50 shares of common
stock of GB Holdings. In addition, and pursuant to the Plan (effective September
29, 2000), Cyprus purchased 4,625,000 shares of common stock of GB Holdings for
$65 million. The consideration for the purchase of the shares was described in a
bankruptcy court approved joint plan of reorganization of GB Holdings, which was
filed with the SEC
134
on November 29, 2000 as Exhibit 99.2 to GB Holding's Current Report on Form 8-K.
See "DESCRIPTION OF THE BUSINESS OF GB HOLDINGS AND ITS SUBSIDIARIES--General"
as set forth on page 105.
Greate Bay Hotel's rights to the trade name "The Sands" (the "Trade
Name") were derived from a license agreement between Greate Bay Casino
Corporation and an unaffiliated third party. Amounts payable by Greate Bay Hotel
for these rights, being 3% of the Gross Room Charges, as defined, at the hotel
were equal to the amounts paid to the unaffiliated third party. On September 29,
2000, High River Limited Partnership assigned to Greate Bay Hotel the rights
under a certain agreement with the owner of the Trade Name to use the Trade Name
as of September 29, 2000 through May 19, 2086, subject to paying sums equal to
3% of the Gross Room Charges, as defined, at the hotel to the owner of the Trade
Name and also subject to termination rights for a fee after a certain minimum
term. High River is an entity controlled by Carl C. Icahn. High River received
no payments for its assignment of these rights. Payment is made directly to the
owner of the Trade Name. For the three months ended March 31, 2004 and the years
ended December 31, 2003, 2002 and 2001, such charges amounted to $53,000,
$263,000, $272,000 and $268,000, respectively.
On October 12, 2001, as a result of, and pursuant to the terms of, a
consent solicitation dated September 20, 2001 to holders of the Existing Notes,
holders that consented were paid $17.50 for each $1,000 of principal amount of
notes held, thus affiliates of Mr. Icahn were paid $1,118,670 because they
consented to certain amendments to the Indenture, dated as of September 29,
2000, among GB Property, as issuer, GB Holdings and Greate Bay Hotel, as
guarantors, and Wells Fargo Bank Minnesota, National Association, as Trustee.
The Stratosphere Casino Hotel & Tower (the "Stratosphere"), an entity
affiliated with Carl C. Icahn, allocates a portion of certain executive
salaries, including the salary of Richard P. Brown, as well as other charges for
tax preparation, legal fees, travel and entertainment to Greate Bay Hotel.
Payments for such charges incurred from the Stratosphere for the year ended
December 31, 2003 amounted to $191,000, including $106,000 for Mr. Brown's
salary. There were no similar charges for the year ended December 31, 2002.
On February 28, 2003, Greate Bay Hotel entered into a two year
agreement with XO New Jersey, Inc., an entity affiliated with Carl C. Icahn. The
agreement, pursuant to which XO provides long-distance telephone service to GB
Holdings and its subsidiaries, can be extended beyond the minimum two year term
on a month-to-month basis. Payments for such charges incurred for the three
months ended March 31, 2004 and the year ended December 31, 2003 amounted to
$41,000 and $127,000, respectively.
At the request of GB Holdings, Ealing provided a commitment letter to
GB Holdings, dated January 30, 2004, under which Ealing agreed to provide a
revolving credit facility under which GB Holdings and its subsidiaries may
borrow up to an aggregate amount of $10 million to be used for general working
capital purposes. Under the terms of the commitment letter the revolving credit
will expire on December 31, 2004, and borrowings will bear interest at a rate of
10% per annum, and obligations under the revolving credit facility will be
secured by a first lien on all of the assets of GB Holdings and its subsidiaries
which will be senior to either the liens securing the Existing Notes or the New
Notes, depending on when the loan is funded. Ealing's obligations to provide the
financing pursuant to the commitment letter is subject to the negotiation and
execution of definitive loan and security agreements and related documents and
certain customary conditions. However, there can be no assurance that the loan
agreement with Ealing will be consummated, that if the loan agreement with
Ealing is not consummated, GB Holdings will be able to obtain financing from
another lender on terms as or more favorable than the terms of the commitment
letter, or whether GB Holdings will need to borrow funds for working capital.
Ealing and GB Holdings have agreed to extend the commitment until July 1, 2004.
During the years ended December 31, 2003 and 2002, Greate Bay Hotel
borrowed $15.4 million and $6.5 million, respectively, from GB Holdings. This
borrowing is eliminated in the consolidation of, and has no impact on, the
accompanying consolidated financial statements.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a discussion of material U.S. federal income tax
consequences resulting from the exchange offer to holders of Existing Notes that
either participate in the exchange or retain their Existing Notes. The
discussion is based on the Code, Treasury Regulations promulgated under the
Code, and administrative and judicial
135
decisions interpreting the Code and the Treasury Regulations. The discussion
assumes that you hold your Existing Notes, Existing Notes, as amended, and New
Notes as capital assets for U.S. federal income tax purposes. This section does
not apply to you if you are a member of a class of holders subject to special
rules, such as:
o a dealer in securities or currencies;
o a person related, for U.S. federal income tax purposes, to GB
Holdings or its subsidiaries;
o a controlling shareholder(s);
o a trader in securities that elects to use a mark-to-market method
of accounting for its securities holdings;
o a bank, an insurance company or other financial institution;
o a tax-exempt organization;
o a person that owns Existing Notes, Existing Notes, as amended, or
New Notes that are a hedge or that are hedged against interest
rate risks;
o a person that acquired its Existing Notes through the exercise of
options or otherwise as compensation;
o a person that has entered into a constructive sale of its Existing
Notes under the Code;
o a person that owns Existing Notes, Existing Notes, as amended, or
New Notes as part of a straddle, conversion or other risk
reduction transaction for U.S. federal income tax purposes; or
o a U.S. holder (as defined below) whose functional currency for
U.S. income tax purposes is not the U.S. dollar.
The discussion below does not address all of the tax consequences that
may be relevant to you. In particular, it does not address:
o the U.S. federal estate, gift or alternative minimum tax
consequences of the exchange offer; or
o state, local or foreign tax consequences of the exchange offer.
We have not sought, and will not seek, a ruling from the Internal
Revenue Service ("IRS") with respect to any of the U.S. federal income tax
consequences discussed below. No assurance can be given that the IRS will not
take positions contrary to the U.S. federal income tax consequences discussed
below. As a result, no assurance can be given that the IRS will agree with the
tax characterizations and tax consequences described below.
Because individual circumstances may vary, each holder should consult
his or her own tax advisor to determine the particular U.S. federal income tax
consequences and any other tax consequences of the offer, including the
application and effect of the alternative minimum tax, any state, local and
foreign tax laws and the effect of any changes in such laws.
ISSUE PRICE AND PUBLICLY TRADED
As further described below, the Issue Price of the New Notes and the
Existing Notes, as amended, is relevant to holders of the Existing Notes, in
part, because the determination of your gain, if any, from the Transaction
(regardless of whether you participate in the consent solicitation and exchange
offer) is based on the Issue Price of either the New Notes or the Existing
Notes, as amended. The Issue Price of the New Notes and the Existing Notes, as
amended, is also relevant to GB Holdings, in part, because the determination of
whether the GB Holdings consolidated group recognizes any cancellation of
indebtedness income ("COD Income") is based on the Issue Price of either the New
Notes or the Existing Notes, as amended. The determination of the Issue Price of
the New Notes depends on whether either the New Notes or the Existing Notes are
"Publicly Traded," as defined below. The determination of the Issue Price of the
Existing Notes, as amended, depends on whether either the Existing Notes, as
amended, or the Existing Notes are Publicly Traded. We believe that neither the
Existing Notes, the Existing Notes, as amended, nor the New Notes will be
Publicly Traded. The "Issue Price" of a new non-Publicly Traded debt instrument
exchanged, or deemed to be exchanged, for an existing non-Publicly Traded debt
instrument equals either the face value of the new debt instrument or the
Imputed Principal Amount of the new debt instrument,
136
depending on whether the new debt instrument provides for "adequate stated
interest," as defined in the Code. The Imputed Principal Amount of a debt
instrument with a term of three to nine years equals the present value of all
payments under the debt instrument using a discount rate equal to the lowest
mid-term applicable federal rate for the three-month period ending on calendar
month in which the exchange, or deemed exchange, occurs.
A debt instrument is considered to be "Publicly Traded" if it:
(i) is listed on a national or international securities exchange;
(ii) appears on a "quotation medium", defined as a system of general
circulation that provides a reasonable basis to determine the
fair market value;
(iii) is of a kind of property either traded in the futures market or
an interbank market; or
(iv) the price of the debt instrument is readily available from
dealers, brokers or traders, unless, among other things, no other
debt instrument of the issuer is described in items (i) through
(iii) above.
None of the Existing Notes, the Existing Notes, as amended, nor the New
Notes should be the kind of property traded on a futures or interbank market and
GB Holdings and its subsidiaries have not issued any other debt instrument that
is described in items (1) through (3) above. Therefore, the Existing Notes, the
Existing Notes, as amended, and the New Notes should not be considered Publicly
Traded, provided that the Existing Notes are delisted at least thirty (30) days
prior to the Transaction and that none of the Existing Notes, the Existing
Notes, as amended, or the New Notes are either listed on a national securities
exchange or appear on a "quotation medium," defined as a system of general
circulation that provides a reasonable basis to determine the fair market value.
The AMEX delisted the Existing Notes effective April 19, 2004, which is
more than thirty (30) days prior to the Transaction and GB Holdings does not
anticipate that either the Existing Notes, the Existing Notes, as amended, or
the New Notes will appear on a quotation medium or otherwise be Publicly Traded.
GB Holdings anticipates taking the position that neither the New Notes nor the
Existing Notes will be Publicly Traded if no active market is made in the New
Notes or the Existing Notes. As the determination of whether the New Notes or
the Existing Notes are Publicly Traded will depend on facts, not within our
control, in existence thirty (30) days before and the time period after the
Transaction, our counsel, Katten Muchin Zavis Rosenman, cannot opine as to the
Issue Price of the New Notes.
GB Holdings anticipates that the New Notes will not provide for
adequate stated interest. GB Holdings anticipates that the Existing Notes will
provide for adequate stated interest. If so, the "Issue Price" of the New Notes
should equal their Imputed Principal Amount and the "Issue Price" of the
Existing Notes, as amended, should equal their face value. Based on the
applicable federal rate as of June 2004, the Imputed Principal Amount of the New
Notes should be slightly less than the face value of the New Notes. If the Issue
Price of the New Notes and the Existing Notes, as amended, is based on their
Imputed Principal Amount or face values, respectively, the GB Holdings
consolidated group should not recognize any COD Income. It should also be noted
that US GAAP requires that the Selected Unaudited Pro Forma Condensed
Consolidated Financial Statements and the Unaudited Pro Forma Condensed
Consolidated Financial Statements contained in this exchange offer assume that
the Transaction will result in the GB Holdings consolidated group recognizing
COD Income for federal income tax purposes, producing a tax liability. There
would not be any such taxes if there is no recognition of COD Income. Such
assumption and estimate is required under US GAAP because GB Holdings' belief
that there should be no COD Income incurred is based upon events which will
occur after the Transaction is completed and under US GAAP, such a determination
cannot be made where post transaction events will affect the results. Although
no assurances can be given, GB Holdings does not believe that COD Income will
result because GB Holdings does not believe an active trading market in the
Existing Notes will exist during any of the 30 days prior to the transaction or
an active trading market in the New Notes or the Existing Notes will develop
after the Transaction is completed, and unless such an active trading market
develops, a tax liability related to COD income will not be incurred.
However, either the New Notes or the Existing Notes, as amended, may be
Publicly Traded. The "Issue Price" of a new Publicly Traded debt instrument
exchanged, or deemed to be exchanged, for an existing debt instrument equals the
fair market value of the new debt instrument, measured at the time of the
exchange. Therefore, if the New Notes are Publicly Traded, their Issue Price
should be their fair market value at the time of the exchange.
137
If the Existing Notes, as amended, are Publicly Traded, their Issue Price should
be their fair market value at the time of the deemed exchange.
It is also possible that, although neither the New Notes nor the
Existing Notes, as amended, will be Publicly Traded, the Existing Notes will be
Publicly Traded. The Issue Price of a new non-Publicly Traded debt instrument
exchanged, or deemed to be exchanged, for an existing Publicly Traded debt
instrument equals the fair market value of the existing Publicly Traded debt
instrument, measured at the time of the exchange. In such a situation, the Issue
Price of both the New Notes and the Existing Notes, as amended, should be the
fair market value of the Existing Notes at the time of the exchange.
U.S. HOLDERS
You are a "U.S. holder" if you are a beneficial owner of an Existing
Note and you are, for U.S. federal income tax purposes:
o a citizen or resident of the United States;
o a domestic corporation;
o an estate whose income is subject to U.S. federal income tax
regardless of its source;
o a trust over whose administration a U.S. court can exercise
primary supervision and all substantial decisions of which one or
more U.S. persons are authorized to control; or
o a trust that was in existence on August 20, 1996 and treated as a
domestic trust on August 19, 1996 and made an election to continue
to be treated as a domestic trust.
This Section does not apply to you if you are a "non-U.S. holder." You
are a non-U.S. holder if you are a beneficial owner of an Existing Note and you
are, for U.S. federal income tax purposes, not a U.S. holder.
If you are a non-U.S. holder, please see the section entitled
"--Non-U.S. Holders" as set forth on page 141.
TREATMENT OF U.S. HOLDERS EXCHANGING THE EXISTING NOTES FOR THE NEW NOTES
Exchange Offer
As further set out below, the tax treatment of U.S. holders who
participate in the exchange offer will depend on whether or not the exchange
offer qualifies as a tax-free recapitalization under the Code. Specifically, the
exchange offer will qualify as a tax-free recapitalization only if the Existing
Notes and the New Notes are considered "securities," for U.S. federal tax law
purposes, issued by the same person. As to the Existing Notes and the New Notes
both being securities, neither the Code nor the Treasury Regulations promulgated
thereunder define "security" for purposes of a tax-free recapitalization.
Instead, the cases and IRS rulings interpreting the Code have generally tested
whether a debt instrument qualifies as a "security" on a case-by-case basis,
using the facts and circumstances surrounding the issuance of the debt
instrument. We have been advised by counsel that, although their opinion is not
free from doubt, it is more likely than not that the exchange offer should be a
taxable transaction. Our counsel's opinion is not free from doubt because the
application of the relevant case law to the exchange offer is unclear since
cases and IRS rulings concerning debt instruments somewhat similar to the Notes
have reached inconsistent conclusions as to whether the debt instrument was a
"security" for tax-free recapitalization purposes. Moreover, such determination
may depend, in part, on future events which are not now known, such as whether
and when the New Notes are converted into Atlantic Holdings Common Stock, as the
common stock of a company is generally a "security" for purposes of tax-free
recapitalization treatment. Further, such determination may also depend, in
part, on factors that our counsel would be unable to determine, such as the
intent of the note holders in acquiring the Existing Notes or the New Notes, as
such factors are sometimes relevant in determining whether the Notes represent a
long-term proprietary investment or a short-term loan. In light of the foregoing
and despite our counsel's opinion that it is more likely than not that the
exchange offer should be a taxable transaction, our counsel has also advised us
that the exchange offer may be a tax-free recapitalization for a participant in
the exchange offer for whom both the Existing Notes and the New Notes represent
a continuing proprietary interest in the business of the respective issuer. The
following paragraphs describe the different U.S. federal income tax
consequences, depending on whether the exchange offer qualifies as a tax-free
recapitalization.
138
If the exchange offer qualifies as a tax-free recapitalization, no gain
or loss would be recognized by you on your exchange of your Existing Notes for
the New Notes. However, you should recognize gain upon your receipt of the Cash
Payment equal to the lesser of the Cash Payment and the gain you would have
recognized had the exchange offer not been a tax-free recapitalization. Assuming
that you hold your Existing Notes as a capital asset, gain generally recognized
by reason of the Cash Payment would be treated as capital gain, and should be
long-term capital gain if the Existing Notes had been held for more than one
year at the time of the exchange. Further, payment of all accrued but unpaid
interest on the Existing Notes through the date of the exchange should be
treated as ordinary income. Your initial tax basis in the New Notes would equal
the tax basis you had in your Existing Notes, decreased by the amount of the
Cash Payment, and increased by the amount of gain recognized upon receipt of the
Cash Payment. Your holding period for your New Notes would include the period
during which you held your Existing Notes.
If the exchange offer does not qualify as a tax-free recapitalization,
you should recognize gain or loss on the exchange equal to the amount, if any,
by which the sum of (i) Issue Price of the New Notes and (ii) Cash Payment,
exceeds your adjusted tax basis in your Existing Notes. As discussed above, the
Issue Price of the New Notes may be based on either the Imputed Principal Amount
of the New Notes or the fair market value of the New Notes or the Existing Notes
depending on whether the New Notes or the Existing Notes are Publicly Traded. GB
Holdings anticipates taking the position that neither the New Notes nor the
Existing Notes will be Publicly Traded if no active market is made in the New
Notes or the Existing Notes. No assurance can be given, however, that the IRS
will agree with this position. In the event that neither the New Notes nor the
Existing Notes are Publicly Traded, the Issue Price of the New Notes should
equal their Imputed Principal Amount so that, assuming your tax basis in the
Existing Notes is equal to the face value of the New Notes (e.g., you did not
purchase your Existing Notes at a premium or discount) you should have taxable
gain from participating in the consent solicitation and exchange offer
approximately equal to substantially all of the Cash Payment. If your tax basis
in the Existing Notes is below the face value of the New Notes (e.g., if you
purchased your Existing Notes at a discount) your taxable gain should
approximately be increased by the amount, if any, by which the face value of the
New Notes exceeds your tax basis in the Existing Notes. Assuming that you hold
your Existing Notes as a capital asset, gain or loss generally recognized on the
exchange of the Existing Notes would be capital gain or loss, except to the
extent attributable to accrued but unpaid interest (including the contemplated
payment of all accrued but unpaid interest on the Existing Notes through the
date of the exchange) and accrued market discount that has not previously been
included in your gross income (which amount would be treated as ordinary
income), and should be long-term capital gain or loss if the Existing Notes had
been held for more than one year at the time of the exchange. The deduction of
capital losses is subject to certain limitations under the Code. The holding
period of the New Notes should commence on the date of the exchange. The tax
basis of the New Notes should be their Issue Price, which, though anticipated to
be based on their face value, may be based instead on the fair market value of
the New Notes or the Existing Notes if either the New Notes or the Existing
Notes are Publicly Traded.
Accrual of Interest On the New Notes
The New Notes should, for U.S. federal income tax purposes, be issued
with original issue discount ("OID") because interest on the New Notes is not
paid until they mature in 2008. In addition, the New Notes should have
additional OID if and to the extent that the face value of the New Notes exceeds
their Issue Price (which, based on the applicable federal rate as of June 2004,
is anticipated). Under the OID accrual rules, the following occurs:
o regardless of your method of accounting you would currently
include, as ordinary income each year, the interest that accrues
on the New Notes using the constant-yield-to-maturity method of
accrual;
o the actual cash payments of interest you receive on the New Notes
previously included in income as OID would not be reported
separately as taxable income;
o any amount of OID included in your gross income with respect to
the New Notes would increase your tax basis in such New Notes; and
o the amount of distributions in respect to such accrued OID would
reduce your tax basis in such New Notes.
139
Sale, Exchange or Redemption of the New Notes
Generally, the sale or exchange of the New Notes or the redemption of
the New Notes for cash will result in taxable gain or loss to you (for the tax
treatment of the payment of the New Notes with shares of Atlantic Holdings
Common Stock or the conversion of the New Notes into shares of Atlantic Holdings
Common Stock, see the section entitled "-- Treatment of U.S. Holders Exchanging
the Existing Notes for the New Notes -- Payment of the New Notes with Shares of
Atlantic Holdings Common Stock or Conversion of the New Notes into Shares of
Atlantic Holdings Common Stock" as set forth on page 138). The amount of gain or
loss on a taxable sale, exchange or redemption should equal the amount, if any,
by which the amount of cash plus the fair market value of any other property
received by you exceeds your adjusted tax basis in your New Notes. Your adjusted
tax basis in your New Notes generally should equal the Issue Price of the New
Notes, increased by any unpaid interest income previously accrued by you with
respect to your New Notes. Assuming that you hold your New Notes as a capital
asset, gain recognized upon a sale, exchange or redemption of the New Notes
generally should be treated as capital gain or loss (which will be long-term
capital gain or loss if the New Notes are held for more than one year). The
deductibility of net capital losses is subject to limitations. To the extent
that interest has been accrued but not included in your income, gain recognized
upon a sale, exchange or redemption of the New Notes generally should be treated
as ordinary interest income.
Payment of the New Notes with shares of Atlantic Holdings Common Stock
or conversion of the New Notes into shares of Atlantic Holdings Common Stock
The payment of the New Notes with Atlantic Holdings Common Stock or the
conversion of the New Notes into Atlantic Holdings Common Stock should both be
treated, for U.S. federal income tax purposes, as a conversion of the New Notes
into Atlantic Holdings Common Stock. As such, either the payment of the New
Notes with Atlantic Holdings Common Stock or the conversion of the New Notes
into Atlantic Holdings Common Stock should be a tax-free transaction in which no
gain or loss is realized by you. Your tax basis in the Atlantic Holdings Common
Stock received upon such a payment or conversion of the New Notes should equal
your adjusted tax basis in your New Notes, reduced by the amount of the Atlantic
Holdings Common Stock attributable to accrued and unpaid OID. Your holding
period of the Atlantic Holdings Common Stock received should include the period
during which you held your New Notes.
Sale, exchange or redemption of Atlantic Holdings Common Stock received
as payment for the New Notes
Generally, the sale or exchange of the Atlantic Holdings Common Stock
received as payment for or in conversion of the New Notes, or the redemption of
such Atlantic Holdings Common Stock for cash, should result in taxable gain or
loss to you. The amount of gain or loss on a taxable sale, exchange or
redemption should equal the amount, if any, by which the amount of cash plus the
fair market value of any other property you receive exceeds your adjusted tax
basis of such Atlantic Holdings Common Stock. As described above, the adjusted
tax basis of such Atlantic Holdings Common Stock generally should equal your tax
basis in the New Notes. Gain recognized upon a sale, exchange or redemption of
such Atlantic Holdings Common Stock generally should be treated as capital gain
or loss (which will be long-term capital gain or loss if your holding period for
such Atlantic Holdings Common Stock, which includes your holding period for the
New Notes, is more than one year). The deductibility of net capital losses is
subject to limitations.
TREATMENT OF U.S. HOLDERS RETAINING THE EXISTING NOTES
If you do not elect to exchange your Existing Notes for the New Notes
pursuant to the exchange offer, the proposed modifications of the Existing Notes
(see "PROPOSED AMENDMENTS" as set forth on page 80) should constitute a
"significant modification" of the Existing Notes, for U.S. federal income tax
purposes. As such, even if you do not exchange your Existing Notes for the New
Notes, for U.S. federal tax purposes, you should be deemed to have exchanged
your Existing Notes for the Existing Notes, as amended.
The Deemed Exchange
The deemed exchange of the Existing Notes for the Existing Notes, as
amended, should be a fully taxable transaction unless it qualifies as a tax-free
recapitalization under the Code. The exchange will qualify as a tax-free
recapitalization only if both the Existing Notes and the Existing Notes, as
amended, are considered "securities" for U.S. federal income tax purposes. The
Company believes it is unlikely that a debt instrument with approximately a
140
five-year maturity, as in the case of the Existing Notes, and a debt instrument
with approximately a two-year maturity, as in the case of the Existing Notes, as
amended, will both be considered to be securities for U.S. federal income tax
purposes.
As we do not believe that both the Existing Notes and the Existing
Notes, as amended, will qualify as securities, the deemed exchange should be a
taxable transaction. Specifically, if you are deemed to have exchanged your
Existing Notes for the Existing Notes, as amended (i.e., if you do not tender
your Existing Notes in the exchange offer), you should recognize gain or loss
equal to the amount, if any, by which the Issue Price of the Existing Notes, as
amended, exceeds your adjusted tax basis in your Existing Notes. As discussed
above, the Issue Price of the Existing Notes, as amended, may be based on either
the face value of the Existing Notes, as amended, or the fair market value of
the Existing Notes, as amended, or the Existing Notes, depending on whether the
Existing Notes, as amended, or the Existing Notes are Publicly Traded. GB
Holdings anticipates taking the position that neither the Existing Notes, as
amended, nor the Existing Notes will be Publicly Traded if no active market is
made in the Existing Notes, as amended, or the Existing Notes. No assurance can
be given, however, that the IRS will agree with this position. In the event that
neither the Existing Notes, as amended, nor the Existing Notes are Publicly
Traded, the Issue Price of the Existing Notes, as amended, should equal their
face value and you should recognize taxable gain if your tax basis in the
Existing Notes is below the face value of the Existing Notes, as amended (e.g.,
if you purchased your Existing Notes at a discount), even though you do not
participate in the consent solicitation and exchange offer. Assuming that you
hold your Existing Notes as a capital asset, gain or loss generally recognized
on the deemed exchange of the Existing Notes should have the same tax character
as gain or loss recognized on the exchange of the Existing Notes for the New
Notes as described in the section entitled "-- Treatment of U.S. Holders
Exchanging the Existing Notes for the New Notes -- Exchange Offer" above. The
holding period of the Existing Notes, as amended, should commence on the date of
the deemed exchange. The tax basis of the Existing Notes, as amended, should be
their Issue Price, which, though anticipated to be based on their face value,
may be based instead on the fair market value of the Existing Notes, as amended,
or the Existing Notes if either the Existing Notes, as amended, or the Existing
Notes are Publicly Traded.
In the event that both the Existing Notes and the Existing Notes, as
amended, are securities for U.S. federal income tax purposes, then the exchange
offer should qualify as a tax-free recapitalization. If the exchange qualifies
as a tax-free recapitalization, no gain or loss would be recognized by you
except to the extent that the Existing Notes, as amended, are attributable to
accrued but unpaid interest (which would be treated as ordinary income). Your
initial tax basis in the Existing Notes, as amended, would equal the tax basis
you had in your Existing Notes. Your holding period for your Existing Notes, as
amended, would include the period during which you held your Existing Notes.
Payment and Accrual of Interest On the Existing Notes, as Amended
Interest paid on the Existing Notes, as amended, will generally be
taxable as ordinary income at the time it is paid or accrued based on your
method of accounting for U.S. federal income tax purpose. In addition, the
Existing Notes, as amended, could have OID if and to the extent that the face
value of the Existing Notes, as amended, exceeds their Issue Price (which, as
discussed above, is not anticipated). As such, you may have to include, as
ordinary income each year, the OID that accrues on the Existing Notes, as
amended, in the same manner as described in the section entitled "-- Treatment
of U.S. Holders Exchanging Existing Notes for New Notes -- Accrual of Interest
on the New Notes" above.
Sale, Exchange, or Redemption of the Existing Notes, as Amended
Generally, the sale or exchange of the Existing Notes, as amended, or
the redemption of the Existing Notes, as amended, for cash, should result in
taxable gain or loss to you in the same manner as the sale, exchange or
redemption of the New Notes as described in the section entitled "-- Treatment
of U.S. Holders Exchanging the Existing Notes for the New Notes -- Sale,
Exchange, or Redemption of the New Notes" above.
NON-U.S. HOLDERS
The following section discusses the U.S. federal income tax
consequences of the exchange offer and the ownership and disposition of the New
Notes or the ownership and disposition of the Existing Notes, as amended, to
non-U.S. holders (as defined above).
141
TREATMENT OF NON-U.S. HOLDERS EXCHANGING THE EXISTING NOTES FOR THE NEW NOTES
Exchange Offer
Payments of interest (including accrued and unpaid original issue
discount) made on the New Notes, any gain recognized on the sale, exchange or
redemption of the New Notes, and any gain recognized on the exchange of the
Existing Notes for the New Notes should be exempt from U.S. income or
withholding tax, provided that: (i) you (x) do not own, actually or
constructively, 10% or more of the total combined voting power of all classes of
the stock of Atlantic Holdings entitled to vote, (y) are not a controlled
foreign corporation related, directly or indirectly, to the Atlantic Holdings
through stock ownership, or (z) are not a bank receiving certain types of
interest; (ii) the statement requirement set forth in Section 871(h) or Section
881(c) of the Code has been fulfilled with respect to the beneficial owner, as
discussed below; and (iii) such payments or gain are not effectively connected
with your conduct of a trade or business in the U.S. Amounts received from the
sale, exchange or redemption of the New Notes, or amounts received from the
sale, exchange or redemption of the Atlantic Holdings Common Stock received in a
payment or conversion of the New Notes should be exempt from U.S. income or
withholding tax provided that (i) such amounts received are not effectively
connected with your conduct of a trade or business in the U.S. and (ii) Atlantic
Holdings is not, and has not been, a U.S. real property holding corporation
("USRPHC"). Atlantic Holdings believes that it is a USRPHC. As such, amounts
received from the sale, exchange or redemption of the New Notes, or amounts
received from the sale, exchange or redemption of the Atlantic Holdings Common
Stock received in a payment or conversion of the New Notes, should be treated,
for U.S. federal income tax purposes, as gain from the sale of a U.S. real
property interest and subject to 10% gross withholding. Gain from the sale,
exchange or redemption of the New Notes, or gain from the sale, exchange, or
redemption of the Atlantic Holdings Common Stock received in a payment or
conversion of the New Notes should be subject to U.S. net income tax (for which
the 10% gross withholding can be credited against any U.S. income tax owed).
The statement requirement referred to above will be fulfilled if you
certify on the IRS Form W-8BEN, under penalties of perjury, that you are not a
U.S. person and provide your name and address or otherwise satisfy applicable
documentation.
Payment of the New Notes with Shares of Atlantic Holdings Common Stock or
Conversion of the New Notes Into Shares of Atlantic Holdings Common Stock.
The payment of the New Notes with Atlantic Holdings Common Stock or the
conversion of the New Notes into Atlantic Holdings Common Stock should both be
treated, for U.S. federal income tax purposes, as a conversion of the New Notes
into Atlantic Holdings Common Stock. As such, either the payment of the New
Notes with Atlantic Holdings Common Stock or the conversion of the New Notes
into Atlantic Holdings Common Stock should be a tax-free transaction in which no
gain or loss is realized by you. Your tax basis in the Atlantic Holdings Common
Stock received upon such a payment or conversion of the New Notes should equal
your adjusted tax basis in your New Notes reduced by the amount of the Atlantic
Holdings Common Stock attributable to accrued and unpaid OID. Your holding
period of the Atlantic Holdings Common Stock received should include the period
during which you held your New Notes.
TREATMENT OF NON-U.S. HOLDERS RETAINING THE EXISTING NOTES
For non-U.S. Existing Note holders who do not elect to exchange their
Existing Notes for the New Notes pursuant to the exchange offer, the proposed
modifications of the Existing Notes (see "PROPOSED AMENDMENTS" as set forth on
page 80) should constitute a "significant modification" of the Existing Notes,
for U.S. federal income tax purposes. As such, even if you do not exchange your
Existing Notes for the New Notes, for U.S. federal tax purposes, you will be
deemed to have exchanged your Existing Notes for the Existing Notes, as amended.
The Deemed Exchange
Payments of interest (including accrued and unpaid original issue
discount) made on the Existing Notes, as amended, any gain recognized on the
sale, exchange or redemption of the Existing Notes, as amended, and any gain
recognized on the deemed exchange of the Existing Notes for the Existing Notes,
as amended, will be exempt from U.S. income or withholding tax, in the same
manner and under the same conditions as for the New
142
Notes described in the section entitled "-- Treatment of Non-U.S. Holders
Exchanging the Existing Notes for the New Notes -- Exchange Offer" above (except
that any references to Atlantic Holdings in that section now refer to GB
Holdings and issues related to USRPHC status should be ignored).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Proceeds from the exchange offer, payments of principal and interest
(including interest accrued under the OID rules discussed above and a payment in
Atlantic Holdings Common Stock pursuant to a conversion of the New Notes) on the
New Notes or Existing Notes, as amended, and the proceeds of dispositions of the
New Notes or Existing Notes, as amended, may be subject to information reporting
and U.S. federal backup withholding tax if the U.S. holder thereof fails to
supply an accurate taxpayer identification number or otherwise fails to comply
with applicable U.S. information or reporting certification requirements. A
non-U.S. holder may be subject to U.S. backup withholding tax on the exchange
offer or payments on the New Notes or Existing Notes, as amended, unless the
non-U.S. holder complies with the certification procedures to establish that
such holder is not a U.S. person. Any amounts so withheld will be allowed as a
credit against the holder's U.S. federal income tax liability and may entitle a
holder to a refund, provided the required information is timely furnished to the
IRS.
The proper tax treatment of a holder of a New Note or of an Existing
Note, as amended, is uncertain. Holders of Existing Notes are urged to consult
their own tax advisors regarding the U.S. federal, state, local and foreign tax
consequences of the offer and an investment in the New Notes or retention of the
Existing Notes, as amended.
LEGAL MATTERS
Katten Muchin Zavis Rosenman, counsel to the Special Committee,
Atlantic Holdings, GB Holdings and their subsidiaries in connection with the
Transaction, will pass on the validity of the New Notes and the Atlantic
Holdings Common Stock to be issued in connection with the Transaction upon the
payment or conversion of the New Notes and the exercise of the Warrants.
EXPERTS
The consolidated financial statements and the related financial
statement schedule of GB Holdings as of December 31, 2003 and 2002 and for the
years then ended, have been included herein in reliance upon the report of KPMG
LLP, an independent registered public accounting firm, included herein, and upon
the authority of said firm as experts in accounting and auditing. The audit
report covering the December 31, 2002, consolidated financial statements refers
to GB Holdings' adoption of Emerging Issues Task force 01-09, "Accounting for
consideration given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)," as of January 1, 2002.
WHERE YOU CAN FIND MORE INFORMATION
Requests for documents relating to GB Holdings, Inc. c/o Sands Hotel &
Casino, Indiana Avenue & Brighton Park, Atlantic City, New Jersey 08401.
Attention: Public Relations, telephone: 609-441-4000.
GB Holdings files, and after the Transaction will file, reports, proxy
statements and other information with the SEC. Copies of our reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at:
Judiciary Plaza
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
Reports, proxy statements and other information concerning GB Holdings,
and, after completion of the Transaction, Atlantic Holdings, may be inspected
at: The American Stock Exchange, 86 Trinity Place, New York, NY 10006,
212-306-1000.
143
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Room of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at l-800-SEC-0330. The SEC
maintains a web site that contains reports, proxy statements and other
information regarding GB Holdings and, after completion of the Transaction,
Atlantic Holdings. The address of the SEC's web site is http://www.sec.gov.
Atlantic Holdings filed a proxy solicitation/prospectus statement on
Form S-4 under the Securities Act with the SEC with respect to the offer and
sale of shares of Atlantic Holdings Common Stock, Warrants and Atlantic Holdings
Common Stock issuable upon exercise of the Warrants in connection with the
Transaction. This document constitutes our consent solicitation and exchange
offer in connection with the exchange offer that is part of the Transaction.
If you have any questions about the Transaction, please call GB
Holdings Public Relations at 609-441-4000.
This document does not constitute an offer to sell, or a solicitation
of an offer to purchase, the securities offered by this document, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom or
from whom it is unlawful to make such offer, solicitation of an offer or proxy
solicitation in such jurisdiction. Neither the delivery of this document nor any
distribution of securities pursuant to this document shall, under any
circumstances, create any implication that there has been no change in the
information set forth in this document or in our affairs since the date of this
document. The information contained in this document with respect to GB Holdings
was provided by GB Holdings.
144
INDEX TO FINANCIAL STATEMENTS
PAGE
GB HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm................................................................. F-1
Report of Independent Public Accountants................................................................................ F-2
Consolidated Balance Sheets of GB Holdings, Inc. and Subsidiaries as of December 31, 2003 and 2002....................... F-3
Consolidated Statements of Operations of GB Holdings, Inc. and Subsidiaries for the Years Ended December 31, 2003, 2002
and 2001............................................................................................................... F-5
Consolidated Statement of Changes in Shareholder's Equity (Deficit) of GB Holdings, Inc. and Subsidiaries for the Years
Ended December 31, 2003, 2002 and 2001................................................................................. F-6
Consolidated Statements of Cash Flows of GB Holdings, Inc. and Subsidiaries for the Years Ended December 31, 2003, 2002
and 2001............................................................................................................... F-7
Notes to Consolidated Financial Statements of GB Holdings, Inc. and Subsidiaries......................................... F-8
Schedule II, Valuation and Qualifying Accounts of GB Holdings, Inc. and Subsidiaries for the Years Ended December 31,
2003, 2002 and 2001.................................................................................................... F-22
Unaudited Consolidated Balance Sheets of GB Holdings, Inc. and Subsidiaries as of March 31, 2004 and December 31, 2003... F-23
Unaudited Consolidated Statements of Operations of GB Holdings, Inc. and Subsidiaries as of the three months ended
March 31, 2004 and March 31, 2003...................................................................................... F-25
Unaudited Consolidated Statements of Cash Flows of GB Holdings, Inc. and Subsidiaries as of the three months ended
March 31, 2004 and March 31, 2003...................................................................................... F-26
Notes to Unaudited Consolidated Financial Statements of GB Holdings, Inc. and Subsidiaries............................... F-27
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
Reports of Independent Registered Public Accounting Firm................................................................. F-29
Consolidated Balance Sheets of Atlantic Coast Entertainment Holdings, Inc. as of December 31, 2003....................... F-30
Unaudited Consolidated Balance Sheets of Atlantic Coast Entertainment Holdings, Inc. as of March 31, 2004................ F-32
GB HOLDINGS, INC. AND SUBSIDIARIES
GB Holdings, Inc. and Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements....................... P-1
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
Atlantic Coast Entertainment Holdings, Inc. Pro Forma Condensed Consolidated Financial Statements........................ P-15
F-i
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of GB Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of GB Holdings,
Inc. and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 2003. In connection
with our audits of the 2003 and 2002 consolidated financial statements, we also
have audited the 2003 and 2002 consolidated financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedule based on our audits.
The 2001 consolidated financial statements of GB Holdings, Inc. and subsidiaries
as listed in the accompanying index were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on those
consolidated financial statements, before the revision related to the adoption
of Emerging Issues Task Force 01-09 "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)" ("EITF
01-09"), described in Note 2 to the consolidated financial statements, in their
report dated March 8, 2002.
We conducted our audits in accordance with the standards of the Public Company
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 provides a
reasonable basis for our opinion.
In our opinion, the 2003 and 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of GB Holdings, Inc. and subsidiaries as of December 31, 2003 and 2002,
and the results of their operations and their cash flows for each of the years
in the two-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related 2003 and 2002 consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the company
adopted EITF 01-09, as of January 1, 2002.
As discussed above, the 2001 consolidated financial statements of GB Holdings,
Inc. and subsidiaries as listed in the accompanying index were audited by other
auditors who have ceased operations. As described in Note 2, these consolidated
financial statements have been revised to include application of EITF 01-09,
which was adopted by the company as of January 1, 2002. We audited the
reclassifications described in Note 2 that were applied to revise the 2001
consolidated statement of operations. In our opinion, such reclassifications and
disclosures required by EITF 01-09 for 2001 as discussed in Note 2 are
appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 consolidated financial
statements of GB Holdings, Inc. and subsidiaries other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 consolidated financial statements taken as a whole.
/s/ KPMG LLP
Short Hills, New Jersey
February 27, 2004
F-1
INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR ANDERSEN
LLP ("ANDERSEN"). THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN NOR HAS ANDERSEN
CONSENTED TO ITS INCLUSION IN THIS ANNUAL REPORT ON FORM 10-K. THE ANDERSEN
REPORT REFERS TO THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001 and 2000
AND THE CONSOLIDATED STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY/DEFICIT AND CASH
FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (PRE-REORGANIZATION) WHICH
ARE NO LONGER INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders of GB Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of GB Holdings,
Inc. and subsidiaries (the Company, a Delaware corporation) as of December 31,
2001 and 2000, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the period ended December 31,
2001 (post-reorganization), the periods from October 1, 2000 through December
31, 2000 (post-reorganization), January 1, 2000 through September 30, 2000
(pre-reorganization) and the period ended December 31, 1999
(pre-reorganization). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GB Holdings, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the period ended December 31, 2001
(post-reorganization), the periods from October 1, 2000 through December 31,
2000 (post-reorganization), January 1, 2000 through September 30, 2000
(pre-reorganization), and the period ended December 31, 1999
(pre-reorganization) in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 8, 2002
F-2
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents ............................................................ $ 33,454,000 $ 50,645,000
Accounts receivable, net of allowances of $5,918,000 and $11,301,000, respectively ... 5,247,000 4,976,000
Inventories .......................................................................... 2,222,000 1,857,000
Income tax deposits .................................................................. 1,365,000 1,359,000
Prepaid expenses and other current assets ............................................ 3,343,000 3,622,000
------------- -------------
Total current assets ............................................................... 45,631,000 62,459,000
------------- -------------
Property and Equipment:
Land ................................................................................. 54,344,000 54,344,000
Buildings and improvements ........................................................... 88,249,000 87,102,000
Equipment ............................................................................ 64,722,000 50,659,000
Construction in progress ............................................................. 2,111,000 3,612,000
------------- -------------
209,426,000 195,717,000
Less - accumulated depreciation and amortization ..................................... (40,013,000) (26,095,000)
------------- -------------
Property and equipment, net .......................................................... 169,413,000 169,622,000
------------- -------------
Other Assets:
Obligatory investments, net of allowances of $11,340,000 and $10,028,000, respectively 10,705,000 10,069,000
Other assets ......................................................................... 1,814,000 2,562,000
------------- -------------
Total other assets ................................................................. 12,519,000 12,631,000
------------- -------------
$ 227,563,000 $ 244,712,000
============= =============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
F-3
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2003 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................................... $ 6,815,000 $ 5,598,000
Accrued liabilities -
Salaries and wages ........................................................... 3,570,000 3,717,000
Interest ..................................................................... 3,092,000 3,092,000
Gaming obligations ........................................................... 2,744,000 3,752,000
Insurance .................................................................... 2,505,000 1,805,000
Other ........................................................................ 3,473,000 3,955,000
------------- -------------
Total current liabilities .................................................... 22,199,000 21,919,000
------------- -------------
Long-Term Debt, net of current maturities ......................................... 110,000,000 110,000,000
------------- -------------
Other Noncurrent Liabilities ...................................................... 3,729,000 3,445,000
------------- -------------
Commitments and Contingencies
Shareholder's Equity:
Preferred stock, $.01 par value per share; 5,000,000 shares authorized; 0 shares
outstanding .................................................................. -- --
Common Stock, $.01 par value per share; 20,000,000 shares authorized;10,000,000
shares issued and outstanding ................................................ 100,000 100,000
Additional paid-in capital ..................................................... 124,900,000 124,900,000
Accumulated deficit ............................................................ (33,365,000) (15,652,000)
------------- -------------
Total shareholder's equity ................................................... 91,635,000 109,348,000
------------- -------------
$ 227,563,000 $ 244,712,000
============= =============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
F-4
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
------------- ------------- -------------
Revenues:
Casino .......................................................... $ 183,036,000 $ 206,417,000 $ 232,369,000
Rooms ........................................................... 10,983,000 11,140,000 11,570,000
Food and beverage ............................................... 21,946,000 23,305,000 29,408,000
Other ........................................................... 3,925,000 3,739,000 4,683,000
------------- ------------- -------------
219,890,000 244,601,000 278,030,000
Less - promotional allowances ...................................... (49,632,000) (51,128,000) (62,281,000)
------------- ------------- -------------
Net revenues .................................................... 170,258,000 193,473,000 215,749,000
------------- ------------- -------------
Expenses:
Casino .......................................................... 131,117,000 143,189,000 168,676,000
Rooms ........................................................... 2,354,000 2,985,000 3,391,000
Food and beverage ............................................... 9,461,000 10,915,000 9,814,000
Other ........................................................... 3,117,000 2,625,000 3,374,000
General and administrative ...................................... 11,582,000 12,799,000 11,512,000
Depreciation and amortization, including provision for obligatory
investments ................................................... 16,244,000 15,457,000 12,133,000
Loss on impairment of fixed assets .............................. -- 1,282,000 --
(Gain) loss on disposal of assets ............................... (105,000) 185,000 20,000
------------- ------------- -------------
Total expenses ..................................................... 173,770,000 189,437,000 208,920,000
------------- ------------- -------------
Income (loss) from operations ...................................... (3,512,200) 4,036,000 6,829,000
------------- ------------- -------------
Non-operating income (expense):
Interest income ................................................. 627,000 1,067,000 2,671,000
Interest expense ................................................ (12,027,000) (11,640,000) (11,279,000)
Debt restructuring costs ........................................ (1,843,000) -- --
------------- ------------- -------------
Total non-operating expense, net ................................ (13,243,000) (10,573,000) (8,608,000)
------------- ------------- -------------
Loss before income taxes ........................................... (16,755,000) (6,537,000) (1,779,000)
Income tax provision ............................................ (958,000) (784,000) (55,000)
------------- ------------- -------------
Net loss ........................................................... $ (17,713,000) $ (7,321,000) $ (1,834,000)
============= ============= =============
Basic/diluted loss per common share ................................ $ (1.77) $ (0.73) $ (0.18)
============= ============= =============
Weighted average common shares outstanding ......................... 10,000,000 10,000,000 10,000,000
============= ============= =============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
F-5
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
COMMON STOCK ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- --------- -------------- ------------- -------------
BALANCE, JANUARY 1, 2001...................... 10,000,000 $100,000 124,900,000 $ (6,497,000) $118,503,000
Net Loss................................... -- -- -- (1,834,000) (1,834,000)
=========== ========= ============== ============= =============
BALANCE, SEPTEMBER 31, 2001................... 10,000,000 $100,000 124,900,000 $ (8,331,000) $116,669,000
Net Loss................................... -- (7,321,000) (7,321,000)
=========== ========= ============== ============= =============
BALANCE, DECEMBER 31, 2002.................... 10,000,000 $100,000 124,900,000 (15,652,000) $109,348,000
Net Loss................................... -- (17,713,000) (17,713,000)
=========== ========= ============== ============= =============
BALANCE, DECEMBER 31, 2003.................... 10,000,000 $100,000 $124,900,000 $(33,365,000) $ 91,635,000
=========== ========= ============== ============= =============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
F-6
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
------------ ------------ ------------
OPERATING ACTIVITIES:
Net loss ......................................................... $(17,713,000) $ (7,321,000) $ (1,834,000)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization including provision for obligatory
investments ................................................. 16,244,000 15,457,000 12,133,000
Loss on impairment of fixed assets ............................. -- 1,282,000 --
(Gain) Loss on disposal of assets .............................. (105,000) 185,000 20,000
Provision for doubtful accounts, net ........................... 1,040,000 1,586,000 4,991,000
Deferred Income Tax benefit .................................... -- -- 292,000
(Increase) decrease in income tax deposits ..................... (6,000) (600,000) 400,000
Decrease (increase) in accounts receivable ..................... (1,312,000) 2,349,000 (2,930,000)
Decrease in accounts payable and accrued liabilities ........... (684,000) (3,124,000) (5,605,000)
Increase in other current assets ............................... (92,000) (426,000) 861,000
Net change in other noncurrent assets and liabilities .......... 358,000 285,000 (2,580,000)
------------ ------------ ------------
Net cash (used in) provided by operating activities ......... (2,270,000) 9,673,000 5,748,000
============ ============ ============
INVESTING ACTIVITIES:
Purchase of property and equipment ............................... (12,825,000) (14,058,000) (23,095,000)
Proceeds from disposition of assets .............................. 110,000 320,000 4,000
Proceeds from sale of obligatory investments ..................... 130,000 208,000 114,000
Purchase of obligatory investments ............................... (2,336,000) (2,496,000) (2,838,000)
------------ ------------ ------------
Net cash used in investing activities ............................ (14,921,000) (16,026,000) (25,815,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayments of long-term debt ..................................... -- (371,000) (467,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities .............. -- (371,000) (467,000)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents ............. (17,191,000) (6,724,000) (20,534,000)
Cash and cash equivalents at beginning of period ................. 50,645,000 57,369,000 77,903,000
------------ ------------ ------------
Cash and cash equivalents at end of period ....................... $ 33,454,000 $ 50,645,000 $ 57,369,000
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid .................................................... $ 12,100,000 $ 12,128,000 $ 12,156,000
============ ============ ============
Interest Capitalized ............................................. $ 300,000 $ 766,000 $ 1,207,000
============ ============ ============
Income Taxes paid ................................................ $ 899,000 $ 1,764,000 $ 205,000
============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements.
F-7
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly
owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998.
PCC, a Delaware corporation, was incorporated in September 1993 and was wholly
owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned
subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after December
31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc.
("PBV"), a newly formed entity controlled by certain stockholders of GBCC. As a
result of a certain confirmed plan of reorganization of PCC and others in
October 1999, the remaining 79% stock interest of PCC in Holdings was
transferred to Greate Bay Holdings, LLC ("GBLLC"), whose sole member as a result
of the same reorganization was PPI. In February 1994, Holdings acquired Greate
Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital
contribution by its then parent. GBHC's principal business activity is its
ownership of The Sands Hotel and Casino located in Atlantic City, New Jersey
(the "Sands"). GB Property Funding Corp. ("GB Property"), a Delaware corporation
and a wholly owned subsidiary of Holdings, was incorporated in September 1993 as
a special purpose subsidiary of Holdings for the purpose of borrowing funds for
the benefit of GBHC. Atlantic Coast Entertainment Holdings, Inc. ("Atlantic
Holdings") is a Delaware corporation and a wholly-owned subsidiary of GBHC.
Atlantic Holdings was formed in November 2003 for the purpose of the
contemplated exchange of $110 million 11% Notes due 2005 for $110 million 3%
Notes due 2008 to be issued by Atlantic Holdings. ACE Gaming LLC, ("ACE
Gaming"), a New Jersey limited liability company and a wholly-owned subsidiary
of Atlantic Holdings was formed in November 2003. Atlantic Holdings and its
subsidiary, ACE Gaming, had no operating activities in 2003. Holdings has no
operating activities and its only source of income is interest on cash
equivalent investments. Holdings only significant assets are its investment in
GBHC and its cash and cash equivalents of $16.6 million and $31.8 million as of
December 31, 2003 and 2002, respectively.
On July 14, 2003, a Form 8-K was filed with the SEC reporting that a
committee of the independent directors of the Company approved a proposed
restructuring of the Existing Notes, together with various other corporate
changes to be accomplished in connection with the proposed restructuring. In
connection with the foregoing, on November 13, 2003, Atlantic Holdings filed
with the SEC, a Registration Statement on Form S-4 (which contains a preliminary
prospectus), under the Securities Act of 1933, as amended (the "Securities
Act"), to transfer substantially all of the assets and liabilities of Holdings,
GBHC, and GB Property, to Atlantic Holdings, in exchange for Atlantic Holdings
issuance of 3% Notes due 2008 in exchange for the Existing Notes and the
cancellation of such Notes) and the registration of certain securities to be
issued to the stockholders of the Company; and, also on such date, Atlantic
Holdings and ACE Gaming filed with the SEC, a Registration Statement on Form S-4
under the Securities Act, with respect to a consent solicitation and exchange
offer with respect to the Existing Notes. Neither of such Registration
Statements have been declared effective and each was amended by filing Amendment
No. 1 to Form S-4/A on February 13, 2004. The Company and Atlantic Holdings also
filed with the SEC a schedule 13e-3, under the Securities and Exchange Act of
1934, with respect to such transactions, which was also amended by the filing of
a Schedule 13e-3/A on February 13, 2004.
The accompanying consolidated financial statements include the accounts and
operations of Holdings and its subsidiaries (Holdings, GBHC (and its
subsidiaries, Atlantic Holdings and ACE Gaming), and GB Property, collectively,
the "Company"). All significant intercompany balances and transactions have been
eliminated. Throughout this document, references to Notes are referring to the
Notes to Consolidated Financial Statements contained herein.
The Sands is located in Atlantic City, New Jersey on approximately 6.1
acres of land one-half block from the Boardwalk at Brighton Park between Indiana
Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently
consists of a casino and simulcasting facility with approximately 78,000 square
feet of gaming space containing approximately 2,202 slot machines and
approximately 73 table games; a hotel with 637 rooms (including 57 suites); five
restaurants; two cocktail lounges; two private lounges for invited guests; an
800-seat cabaret theater; retail space; an adjacent nine-story office building
with approximately 77,000 square feet of office space for its executive,
financial and administrative personnel; the "People Mover", an elevated,
enclosed, one-way moving sidewalk connecting The Sands to the Boardwalk using
air rights granted by an easement from the City of Atlantic City and a garage
and surface parking for approximately 1,750 vehicles.
F-8
On January 5, 1998, the Company filed petitions for relief under Chapter 11
of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court").
On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of
Unsecured Creditors and High River Limited Partnership and its affiliates (the
"Plan") for the Company. High River Limited Partnership ("High River") is an
entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino
Control Commission (the "Commission") approved the Plan. On September 29, 2000,
the Plan became effective (the "Effective Date") (see Note 2). All material
conditions precedent to the Plan becoming effective were satisfied on or before
September 29, 2000. Accordingly, the accompanying consolidated financial
statements have been prepared in accordance with Statement of Position No. 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"). In addition, as a result of the Confirmation Order and the
occurrence of the Effective Date, and in accordance with SOP 90-7, the Company
has adopted "fresh start reporting" in the preparation of the accompanying
consolidated financial statements. The Company's emergence from Chapter 11
resulted in a new reporting entity with no retained earnings or accumulated
deficit as of September 30, 2000.
A significant amount of The Sands' revenues are derived from patrons living
in northern New Jersey, southeastern Pennsylvania and metropolitan New York
City. Competition in the Atlantic City gaming market is intense and management
believes that this competition will continue or intensify in the future
especially with the opening of a new casino during 2003 and the expected
expansion of the market's rooms inventory at pre-existing competitors in 2004.
On the Effective Date, GB Property's existing debt securities, consisting
of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and
all of Holdings' issued and outstanding shares of common stock owned by PBV and
GBLLC (the "Old Common Stock"), were cancelled. As of the Effective Date, an
aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common
Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage
Notes due 2005 were issued by GB Property (the "Existing Notes"). Holders of the
Old Notes received a distribution of their pro rata shares of (i) the Existing
Notes and (ii) 5,375,000 shares of the New Common Stock (the "Stock
Distribution"). In addition, $65,000,000 in cash was obtained from affiliates of
the majority shareholder.
Despite annual net losses and the 2003 negative net cash from operations,
Management believes that cash reserves, expected net cash flow from 2004
operations and additional financing will be adequate to meet the 2004 funding
requirements for operations, capital expenditures and refinancing debt. Based
upon expected cash flow generated from operations management determined that it
would be prudent for the Company to obtain a line of credit to provide
additional cash availability, to meet the Company working capital needs, in the
event that anticipated cash flow is less than expected or expenses exceed those
anticipated. At the request of the Company, Ealing Corp., a Nevada Corporation
and an affiliate of Mr. Icahn, agreed to provide a revolving credit facility,
secured by a first lien on all of the assets of the Company, under which the
Company may borrow up to an aggregate amount of $10 million for general working
capital purposes. Ealing's obligation to provide the financing pursuant to the
commitment letter is subject to the negotiation and execution of a definitive
loan and security agreements and related documents as well as certain customary
conditions. However, there can be no assurance that the loan agreement with
Ealing will be consummated, that if the loan agreement is not consummated, the
Company will be able to obtain financing from another lender on terms as or more
favorable than the terms of the commitment letter, or whether the Company will
need to borrow for working capital.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are discussed below. The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the balance sheets, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
CASINO REVENUES, PROMOTIONAL ALLOWANCES AND DEPARTMENTAL EXPENSES -
The Sands recognizes the net win from gaming activities (the difference
between gaming wins and losses) as casino revenues. Casino revenues are net of
accruals for anticipated payouts of progressive and certain other slot machine
jackpots. Such anticipated jackpots and payouts are included in gaming
liabilities on the accompanying consolidated balance sheets.
In 2001, the Emerging Issues Task Force (the "EITF") reached a consensus on
Issue No. 01-09: "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)" ("EITF 01-09"). For a sales
incentive offered voluntarily by a vendor to its patrons, EITF 01-09 requires
the vendor to recognize the cost of the sales incentive at the later of the date
at which the related revenue is recorded by the vendor, or the date at which the
sales incentive is offered. Application of EITF 01-09 is required in annual or
interim financial statements for periods beginning after December 15, 2002. EITF
01-09 requires, among other things, that cash or other consideration provided to
customers as part of a transaction is presumed to be a reduction in revenue
unless the vendor is able to establish both that it received or will receive a
separate identifiable benefit and the fair value of the benefit can be
reasonably estimated. The Company offers cash inducements to encourage
visitation and play at the casino and, as the Company was unable to meet the
criteria as discussed in EITF 01-09, these costs have been classified as
promotional allowances on the accompanying consolidated statements of
operations.
With the adoption of EITF 01-09, the 2001 statement of operations has been
reclassified to conform to the new presentation. This resulted in a $20.1
million increase in promotional allowance and a corresponding reduction in
casino expense for the year-end December 31, 2001. Application of the
requirements of EITF 01-09 did not have an impact on previously reported
operating income or net loss and had no impact on the previously reported
consolidated financial statements, which were adjusted to these standards at
December 31, 2002 for the prior period ended December 31, 2001.
The estimated value of rooms, food and beverage and other items that were
provided to customers without charge has been included in revenues and a
corresponding amount has been deducted as promotional allowances. The costs of
such complimentaries have been included in casino expenses on the accompanying
consolidated statements of operations. Costs of complimentaries allocated from
the rooms, food and beverage and other operating departments to the casino
department were as follows:
Year Ended Year Ended Year Ended
December 31, 2003 December 31, 2002 December 31, 2001
-------------------- -------------------- --------------------
Rooms............................................................ $ 7,253,000 $ 8,194,000 $ 8,139,000
Food and Beverage................................................ 18,270,000 19,846,000 26,409,000
Other............................................................ 2,611,000 2,223,000 4,614,000
------------- ------------- -------------
$28,134,000 $30,263,000 $39,162,000
============= ============= =============
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents are generally comprised of cash and investments
with original maturities of three months or less, such as commercial paper,
certificates of deposit and fixed repurchase agreements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
In its normal course of business The Sands incurs receivables arising from
credit provided to casino customers, hotel customers and accrued interest
receivable. The allowance for doubtful accounts adjusts these gross receivables
to Management's estimate of their net realizable value. The provision for
doubtful accounts charged to expense is determined by Management based on a
periodic review of the receivable portfolio. This provision is based on
estimates, and actual losses may vary from these estimates. The allowance for
doubtful accounts is maintained at a level that Management considers adequate to
provide for possible future losses. Provisions for doubtful accounts amounting
to $1,040,000, $1,586,000 and $4,991,000 for the years ended December 31, 2003,
2002 and 2001, respectively, were recorded in Casino Expenses on the
accompanying consolidated statements of operations.
F-10
INVENTORIES -
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market.
PROPERTY AND EQUIPMENT -
As of the Effective Date, property and equipment were restated pursuant to
SOP 90-7 (see Note 2) and are being depreciated utilizing the straight line
method over their remaining estimated useful lives.
Property and equipment purchased after the Effective Date have been
recorded at cost and are being depreciated utilizing the straight-line method
over their estimated useful lives as follows:
Buildings and improvements 25-40 years
Operating equipment 3-7 years
Interest costs related to property and equipment acquisitions are
capitalized during the acquisition period and are being amortized over the
useful lives of the related assets.
DEFERRED FINANCING COSTS -
The costs of issuing long-term debt, including all related underwriting,
legal, directors and accounting fees, were capitalized and are being amortized
over the term of the related debt issue. Deferred financing costs of $180,000
were incurred in connection with GB Property's offering of $110,000,000 11%
Notes due 2005 (the "Existing Notes"). During 2002, additional costs associated
with a Consent Solicitation by GB Property to modify the original indenture for
the Existing Notes were capitalized and are also being amortized over the
remaining term of the Existing Notes. Total Consent Solicitation costs,
including expenses, amounted to $2,083,000 in 2001 (see Note 4). For the years
ended December 31, 2003, 2002 and 2001 amortization of deferred financing costs
were $555,000, $555,000 and $174,000, respectively.
LONG-LIVED ASSETS -
In 2002, the Company adopted FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), which excludes
from the definition of long-lived assets goodwill and other intangibles that are
not amortized in accordance with FAS No. 142. FAS No. 144 requires that
long-lived assets to be disposed of by sale be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. FAS No. 144 also expands the reporting
of discontinued operations to include components of an entity that have been or
will be disposed of rather than limiting such discontinuance to a segment of a
business. The adoption of FAS No. 144 did not have an impact on the Company's
consolidated financial statements.
The Company periodically reviews long-lived assets, for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairments are recognized when the expected future
undiscounted cash flows derived from such assets are less than their carrying
value. For such cases, losses are recognized for the difference between the fair
value and the carrying amount. Assets to be disposed of by sale or abandonment,
and where management has the current ability to remove such assets from
operations, are recorded at the lower of carrying amount or fair value less cost
of disposition. Depreciation for these assets is suspended during the disposal
period, which is generally less than one year. Assumptions and estimates used in
the determination of impairment losses, such as future cash flows and
disposition costs, may affect the carrying value of long-lived assets and
possible impairment expense in the Company's consolidated financial statements.
Management does not believe that any material impairment currently exists
related to its long-lived assets.
ACCRUED INSURANCE -
GBHC is self insured for a portion of its general liability, workers
compensation, certain health care and other liability exposures. A third party
insures losses over prescribed levels. Accrued insurance includes estimates of
such accrued liabilities based on an evaluation of the merits of individual
claims and historical claims experience. Accordingly, GBHC's ultimate liability
may differ from the amounts accrued.
F-11
INCOME TAXES -
Since 1999, Holdings' provision for federal income taxes is calculated and
paid on a consolidated basis with GB Property and GBHC.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted rates
expected to apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in the tax rates is recognized in income in the period
of the enactment date.
LOSS PER SHARE -
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128),
requires, among other things, the disclosure of basic and diluted earnings per
share for public companies. Since the capital structure of Holdings is simple,
in that no potentially dilutive securities were outstanding during the periods
presented, basic loss per share is equal to diluted loss per share. Basic loss
per share is computed by dividing net loss by the weighted average number of
common shares outstanding.
NEW ACCOUNTING PRONOUNCEMENTS -
On January 1, 2003, the Company adopted FAS No. 143, "Asset Retirement
obligations" ("FAS No. 143"), which provides the accounting requirements for
retirement obligations associated with tangible long-lived assets. This
statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. The adoption of FAS
No. 143 did not have any impact on the Company's consolidated financial
statements.
On January 1, 2003, the Company adopted FAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure" ("FAS No. 148"), which
provides alternative methods of transition for companies that choose to switch
to the fair value method of accounting for stock options. FAS No. 148 also makes
changes in the disclosure requirements for stock-based compensation, regardless
of which method of accounting is chosen. The adoption of FAS No. 148 did not
have any impact on the Company's consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year consolidated financial
statement presentations.
(3) LONG-TERM DEBT -
Long-term debt is comprised of the following:
December 31, 2003 December 31, 2002
-------------------- --------------------
11% Notes, due September 29, 2005 (a)....................... $110,000,000 $10,000,000
(a) As a result of the Confirmation Order and the occurrence of the Effective
Date and under the terms of the Plan, the Old Notes were cancelled and
replaced with Existing Notes. Interest on the Existing Notes is payable on
March 29 and September 29, beginning March 29, 2002. The outstanding
principal is due on September 29, 2005. The Existing Notes are
unconditionally guaranteed, on a joint and several basis, by both Holdings
and GBHC, and are secured by substantially all of the assets, as of the
Effective Date, other than cash and gaming receivables of Holdings and
GBHC.
The original indenture for the Existing Notes contained various provisions,
which, among other things, restricted the ability of Holdings, and GBHC to
incur certain senior secured indebtedness beyond certain limitations, and
contained certain other limitations on the ability to merge, consolidate,
or sell substantially all of their assets, to make certain restricted
payments, to incur certain additional senior liens, and to enter into
certain sale-leaseback transactions.
F-12
In a Consent Solicitation Statement and Consent Form dated September 14,
2001, GB Property sought the consent of holders of the Existing Notes to
make certain changes to the original indenture (the "Modifications"). The
Modifications included, but were not limited to, a deletion of, or changes
to, certain provisions the result of which would be (i) to permit Holdings
and its subsidiaries to incur any additional indebtedness without
restriction, to issue preferred stock without restriction, to make
distributions in respect of preferred stock and to prepay indebtedness
without restriction, to incur liens without restriction and to enter into
sale-leaseback transactions without restriction, (ii) to add additional
exclusions to the definition of "asset sales" to exclude from the
restrictions on "asset sales" sale-leaseback transactions, conveyances or
contributions to any entity in which Holdings or its subsidiaries has or
obtains equity or debt interests, and transactions (including the granting
of liens) made in accordance with another provision of the Modifications
relating to collateral release and subordination or any documents entered
into in connection with an "approved project" (a new definition included as
part of the Modifications which includes, if approved by the Board of
Directors of Holdings, incurrence of indebtedness or the transfer of assets
to any person if Holdings or any of its subsidiaries has or obtain debt or
equity interests in the transferee or any similar, related or associated
event, transaction or activity) in which a release or subordination of
collateral has occurred including, without limitation, any sale or other
disposition resulting from any default or foreclosure, (iii) to exclude
from the operation of covenants related to certain losses to collateral,
any assets and any proceeds thereof, which have been subject to the release
or subordination provisions of the Modifications, (iv) to permit the sale
or other conveyances of Casino Reinvestment Development Authority
investments in accordance with the terms of a permitted security interest
whether or not such sale was made at fair value, (v) to exclude from the
operation of covenants related to the deposit into a collateral account of
certain proceeds of "asset sales" or losses to collateral any assets and
any proceeds thereof, which have been subject to the release or
subordination provisions of the Modifications, (vi) to add new provisions
authorizing the release or subordination of the collateral securing the
Existing Notes in connection with, in anticipation of, as a result of, or
in relation to, an "approved project", and (vii) various provisions
conforming the text of the original indenture to the intent of the
preceding summary of the Modifications.
Holders representing approximately 98% in principal amount of the Existing
Notes provided consents to the Modifications. Under the terms of the
original indenture, the consent of holders representing a majority in
principal amount of Existing Notes was a necessary condition to the
Modifications. Accordingly, GB Property, as issuer, and Holdings and GBHC,
as guarantors, and Wells Fargo Bank Minnesota, National Association, as
Trustee, entered into an Amended and Restated Indenture dated as of October
12, 2001, containing the Modifications to the original indenture described
in the Consent Solicitation Statement (the "Amended and Restated
Indenture"). In accordance with the terms of the Consent Solicitation
Statement, holders of Existing Notes, who consented to the Modifications
and who did not revoke their consents ("Consenting Noteholders"), were
entitled to $17.50 per $1,000 in principal amount of Existing Notes,
subject to certain conditions including entry into the Amended and Restated
Indenture. Upon entry into the Amended and Restated Indenture on October
12, 2001, the Company transferred approximately $1.9 million to the Trustee
for distribution to Consenting Noteholders.
As of December 31, 2003 the only scheduled payment of long-term debt is the
$110 million for Existing Notes, due September 29, 2005.
At December 31, 2003 and 2002, accrued interest on the Existing Notes was
$3,092,000 and $3,092,000, respectively.
F-13
(4) INCOME TAXES
The components of the (provision) benefit for income taxes as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
------------ ------------ -----------
Federal income tax (provision) benefit
Current ........................... $ -- $ -- $(292,000)
Deferred .......................... -- -- 292,000
State income tax (provision) benefit
Current ........................... (958,000) (784,000) (55,000)
Deferred .......................... -- -- --
--------- --------- ---------
$(958,000) $(784,000) $ (55,000)
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes. The major components of
deferred tax liabilities and assets as of December 31, 2003 and 2002 were as
follows:
2003 2002
------------ ------------
Deferred tax assets:
Bad debt reserve .................................... $ 2,418,000 $ 5,137,000
Deferred financing costs ............................ 234,000 1,053,000
Group insurance ..................................... 747,000 936,000
Accrued vacation .................................... 613,000 732,000
Action cash awards accrual .......................... 123,000 499,000
Jackpot accrual ..................................... 298,000 337,000
Medical reserve ..................................... 408,000 109,000
Debt restructuring costs ............................ 754,000 --
CRDA ................................................ 5,724,000 5,512,000
Federal and state net operating loss carryforward ... 17,004,000 8,163,000
Grantors trust income ............................... 3,616,000 3,570,000
Credit and capital loss carryforwards ............... 3,385,000 2,421,000
Other ............................................... 297,000 330,000
------------ ------------
Total deferred tax assets ......................... 35,621,000 28,799,000
Less valuation allowance .......................... (17,685,000) (10,257,000)
------------ ------------
Total deferred tax assets after valuation allowance 17,936,000 18,542,000
------------ ------------
Deferred tax liabilities:
Noncurrent
Depreciation of plant and equipment ............... (17,812,000) (18,466,000)
Chips and tokens .................................. (124,000) (76,000)
------------ ------------
Total deferred tax liabilities ................. (17,936,000) (18,542,000)
------------ ------------
Net deferred tax assets (liabilities) ........ $ -- $ --
============ ============
Federal net operating loss carryforwards totaled approximately $39 million
as of December 31, 2003 and will begin expiring in the year 2022 and forward.
New Jersey net operating loss carryforwards totaled approximately $58 million as
of December 31, 2003. The enactment of the Business Tax Reform Act ("BTR") on
July 2, 2002 deferred New Jersey net operating losses ("State NOL's") set to
expire in 2002 and 2003, for a two year period. As a result, about $6 million of
state net operating loss carryforwards set to expire in 2003 are extended to
2005. The Company also has general business credit carryforwards of
approximately $1.4 million which expire in
F-14
2004 through 2022. Additionally, as of December 2003, the Company has a federal
alternative minimum tax (AMT) credit carryforward of about $72,000 and a New
Jersey alternative minimum assessment (AMA) credit carryforward of approximately
$1.5 million, both of which can be carried forward indefinitely.
Financial Accounting Standards No. 109 ("FAS 109") requires that the tax
benefit of NOL's and deferred tax assets resulting from temporary differences be
recorded as an asset and, to the extent that management can not assess that the
utilization of all or a portion of such NOL's and deferred tax assets is more
likely than not, requires the recording of a valuation allowance. Management
believes that it is more likely than not that the tax benefits of certain of the
deductible temporary differences will be realized based on the future reversal
of existing temporary differences. As such, a valuation allowance has not been
provided for these deferred tax benefits Management has determined that the
realization of certain of the Company's deferred tax benefits is not more likely
than not and, as such, has provided a valuation allowance in the amount of $17.7
million and $10.3 million for 2003 and 2002, respectively.
The provision for income taxes differs from the amount computed at the
federal statutory rate as a result of the following:
Years Ended December 31,
----------------------------------
2003 2002
---------------- ---------------
Federal statutory rate (35.0)% (35.0)%
State taxes net of federal benefit (2.2)% (1.6)%
Permanent differences 0.2 % 0.9 %
Tax credits (5.2)% (13.2)%
Deferred tax valuation allowance 47.9 % 57.8 %
Other 0.0 % 3.1 %
---------------- ---------------
5.7 % 12.0 %
================ ===============
Holdings also had a change of ownership as defined under Internal Revenue
Code Section 382 upon the Effective Date. Management currently estimates there
will be no significant limitations on the ability of the Company to use its tax
credit carryforwards on a post confirmation basis as a result of this change of
ownership. On July 3, 2002, the State of New Jersey passed the New Jersey
Business Tax Reform Act, which, among other things, suspended the use of the New
Jersey net operating loss carryforwards for two years and introduced a new
alternative minimum assessment under the New Jersey corporate business tax based
on gross receipts or gross profits. For the years ended December 31, 2003 and
2002, there was a charge to income tax provision of $778,000 and $774,000,
respectively, related to the impact of the New Jersey Business Tax Reform Act.
On July 1, 2003, the State of New Jersey amended the New Jersey Casino Control
Act (the "NJCCA") to impose various tax increases on Atlantic City casinos,
including The Sands. Among other things, the amendments to the NJCCA include the
following new tax provision: the greater of a $350,000 minimum tax or a 7.5% tax
on adjusted net income of licensed casinos (the "Casino Net Income Tax) in State
fiscal years 2004 through 2006, with the proceeds deposited to the Casino
Revenue Fund. For the year ended December 31, 2003, $175,000 was charged to the
income tax provision related to the minimum Casino Net Income Tax, which is
payable in quarterly installments of $87,500 each.
(5) Transactions with related parties
GBHC's rights to the trade name "The Sands" (the "Trade Name") were derived
from a license agreement between Greate Bay Casino Corporation and an
unaffiliated third party. Amounts payable by GBHC for these rights were equal to
the amounts paid to the unaffiliated third party. On September 29, 2000, High
River Limited Partnership assigned GBHC the rights under a certain agreement
with the owner of the Trade Name to use the Trade Name as of September 29, 2000
through May 19, 2086, subject to termination rights for a fee after a certain
minimum term. High River is an entity controlled by Carl C. Icahn. High River
received no payments for its assignment of these rights. Payment is made
directly to the owner of the Trade Name. For the years ended December 31, 2003,
2002 and 2001, the license fee amounted to $263,000, $272,000 and $268,000,
respectively.
The Stratosphere Casino Hotel & Tower (the "Stratosphere"), an entity
controlled by Carl C. Icahn, allocates a portion of certain executive salaries,
including the salary of Richard P. Brown, CEO of Holdings, as well as other
charges for tax preparation and travel to GBHC. Payments for such charges
incurred from the Stratosphere
F-15
for the year ended December 31, 2003 amounted to $191,000, including $106,000
for Mr. Brown's salary. There were no similar charges for the year ended
December 31, 2002.
On February 28, 2003, Operating entered into a two year agreement with XO
New Jersey, Inc. a long-distance phone carrier controlled by Carl C. Icahn. The
agreement can be extended beyond the minimum two year term on a month-to-month
basis. Payments for such charges incurred for the year ended December 31, 2003
amounted to $127,000.
During the years ended December 31, 2003 and 2002, GBHC borrowed $15.4
million and $6.5 million, respectively, from Holdings. This borrowing is
eliminated in the consolidation of, and has no impact on, the accompanying
consolidated financial statements.
On October 12, 2001, as a result of, and pursuant to the terms of, a
consent solicitation dated September 20, 2001 to holders of Existing Notes,
holders that consented were paid $17.50 for each $1,000 of principal amount of
notes held, the affiliates of Mr. Icahn were paid $1,118,677 because they
consented to certain amendments to the Indenture, dated as of September 29,
2000, among GB Property, as issuer. Holdings and Greate Bay Hotel, as
guarantors, and Wells Fargo Bank Minnesota, National Association, as Trustee.
(6) New Jersey Regulations and Obligatory Investments
The Sands conducts gaming operations in Atlantic City, New Jersey and
operates a hotel and several restaurants, as well as related support facilities.
The operation of an Atlantic City casino/hotel is subject to significant
regulatory control. Under the NJCCA, GBHC was required to obtain and is required
to periodically renew its operating license. A casino license is not
transferable and, after the initial licensing and two one-year renewal periods,
is issued for a term of up to four years. The plenary license issued to The
Sands was renewed by the Commission in September, 2000 and extended through
September 2004. The Commission may reopen licensing hearings at any time. If it
were determined that gaming laws were violated by a licensee, the gaming license
could be conditioned, suspended or revoked. In addition, the licensee and other
persons involved could be subject to substantial fines.
In order to renew GBHC's casino license, the Commission must determine that
GBHC and Holdings are financially stable. In order to be found "financially
stable" under the NJCCA, GBHC and Holdings must demonstrate, among other things,
their ability to pay, exchange, or refinance debts that mature or otherwise
become due and payable during the license term, or to otherwise manage such
debts. Because the Existing Notes will become due during the period following
the renewal of the license in 2004, the Commission will require GBHC and
Holdings to indicate the efforts they will pursue or are pursuing to refinance
the Existing Notes prior to maturity and during the new license term. Currently,
the Commission is and will continue to monitor the efforts of GBHC and Holdings
to manage and refinance the Existing Notes. There has been no precedent of
non-renewal of a casino license in this situation.
The NJCCA requires casino licensees to pay an investment alternative tax of
2.5% of Gross Revenue (the "2.5% Tax") or, in lieu thereof, to make quarterly
deposits of 1.25% of quarterly Gross Revenue with the CRDA (the "Deposits"). The
Deposits are then used to purchase bonds at below-market interest rates from the
CRDA or to make qualified investments approved by the CRDA. The CRDA administers
the statutorily mandated investments made by casino licensees and is required to
expend the monies received by it for eligible projects as defined in the NJCCA.
The Sands has elected to make the Deposits with the CRDA rather than pay the
2.5% Tax.
As of December 31, 2003 and 2002, The Sands had purchased bonds totaling
$6,875,000 and $6,946,000, respectively. In addition, The Sands had remaining
funds on deposit and held in escrow by the CRDA at December 31, 2003 and 2002,
of $15,198,000 and $13,151,000, respectively. The bonds purchased and the
amounts on deposit and held in escrow are collectively referred to as
"obligatory investments" on the accompanying consolidated financial statements.
Obligatory investments at December 31, 2003 and 2002, are net of
accumulated valuation allowances of $11,340,000 and $10,028,000, respectively,
based upon the estimated realizable values of the investments. Provisions for
valuation allowances for the years ended December 31, 2003, 2002 and 2001
amounted to $1,434,000, $1,521,000 and $1,341,000, respectively.
F-16
The Sands has, from time to time, contributed certain amounts held in
escrow by the CRDA to fund CRDA sponsored projects. During 2003, The Sands
donated $695,000 of its escrowed funds to CRDA sponsored projects. No specific
refund or future credit has been associated with the 2003 contributions. During
2002, The Sands contributed $925,000 of its escrowed funds to CRDA sponsored
projects and received $116,000 in a cash refund. In 2001, The Sands contributed
$322,000 of its escrowed funds to CRDA sponsored projects and received $80,000
in a cash refund and $84,000 in waivers of certain future Deposit obligations.
Prior to this, the CRDA had granted The Sands both cash refunds and waivers of
certain of its future Deposit obligations in consideration of similar
contributions. Other assets aggregating $621,000 and $811,000, respectively,
have been recognized on the accompanying consolidated balance sheets at December
31, 2003 and 2002, and are being amortized over a period of ten years commencing
with the completion of the projects. Amortization of other assets totaled
$205,000, $199,000 and $202,000 for the years ended December 31, 2003, 2002 and
2001, respectively, and are included in depreciation and amortization, including
provision for obligatory investments on the accompanying statements of
operations.
The Sands has agreed to contribute certain of its future investment
obligations to the CRDA in connection with the renovation related to the
Atlantic City Boardwalk Convention Center. The projected total contribution will
amount to $6.9 million, which will be paid through 2011 based on an estimate of
certain of The Sands' future CRDA deposit obligations. As of December 31, 2003,
The Sands had satisfied $2.1 million of this obligation.
(7) Commitments and Contingencies
Legal Proceedings
Tax appeals on behalf of GBHC and the City of Atlantic City challenging the
amount of GBHC's real property assessments for tax years 1996 through 2003 are
pending before the NJ Tax Court.
In 2001, GBHC discovered certain failures relating to currency transaction
reporting which resulted in the failure of GBHC to file legally required
currency transaction reports. Following this discovery, GBHC self-reported the
situation to the applicable regulatory agencies. GBHC conducted an internal
examination of the matter and the New Jersey Division of Gaming Enforcement
conducted a separate review. There has not been an impact on GBHC's financial
reporting because of these failures, GBHC has revised internal control processes
and taken other measures to address the situation. In May 2003, GBHC was advised
by the Department of the Treasury that it will not pursue a civil penalty.
By letter dated January 23, 2004, Sheffield Enterprises, Inc. asserted
potential claims against The Sands under the Lanham Act for permitting a show
entitled The Main Event, to run at the Sands during 2001. Sheffield also asserts
certain copyright infringement claims growing out of the Main Event
performances. It has not yet been determined whether or not the claims made by
Sheffield would, if adversely determined, materially impact the financial
position or results of operations of the Company.
On February 26, 2003, The Sands received a letter from counsel for Mr.
Frederick H. Kraus, Executive Vice President, General Counsel and Secretary,
indicating that he had been retained to represent Mr. Kraus "in regards to a
constructive discharge, breach of contract, severance pay" and other claims.
This matter has been amicably resolved.
GBHC is a party in various legal proceedings with respect to the conduct of
casino and hotel operations and has received employment related claims. Although
a possible range of losses cannot be estimated, in the opinion of management,
based upon the advice of counsel, GBHC does not expect settlement or resolution
of these proceedings or claims to have a material adverse impact upon their
consolidated financial position or results of operations, but the outcome of
litigation and the resolution of claims is subject to uncertainties and no
assurances can be given. The consolidated financial statements do not include
any adjustments that might result from these uncertainties.
From time to time, GBHC and certain of its officers, directors, agents and
employees, are subject to various legal and administrative proceedings
incidental to the business of GBHC, GBHC does not believe any proceedings
currently pending are material to the conduct of the business of GBHC.
F-17
Labor Relations
The Sands has collective bargaining agreements with three unions that
represent approximately 818 employees, most of whom are represented by the
Hotel, Restaurant Employees and Bartenders International Union, AFL-CIO, Local
54. The collective bargaining agreement with Local 54 expires in September 2004.
The collective bargaining agreements with the Carpenters, Local 623 and
Entertainment Workers, Local 68 expire in April and July 2005, respectively.
Management considers its labor relations to be good.
(8) Acquisition of Claridge Administration Building
In April 2000, GBHC entered into an agreement with the entities controlling
the Claridge Hotel and Casino (the "Claridge") to acquire the Claridge
Administration Building. The purchase price was $3.5 million, consisting of $1.5
million in cash at closing and $2.0 million consideration tendered through the
elimination for 40 months of a $50,000 monthly fee paid by the Claridge to GBHC,
under an agreement between the Claridge and GBHC governing the development and
operation of the "People Mover" leading from the boardwalk to The Sands and the
Claridge. The present value of the $2.0 million consideration has been recorded
in other accrued and other noncurrent liabilities sections of the balance sheet.
GBHC reduces and adjusts the respective liabilities as it records the People
Mover license fee in other income and interest expense at an imputed rate of
10%. In July 2003, the remaining obligation related to the Claridge
Administration Building acquisition was satisfied in full. The following month
the Claridge resumed payment of the monthly fee at the reduced amount of $20,000
per month.
(9) Employee Retirement Savings Plan
GBHC administers and participates in The Sands Retirement Plan, a qualified
defined contribution plan for the benefit of all of GBHC's employees, who
satisfy certain eligibility requirements.
The Sands Retirement Plan is qualified under the requirements of Section
401(k) of the Internal Revenue Code allowing participating employees to benefit
from the tax deferral opportunities provided therein. All employees of GBHC, who
have completed one year of service, as defined, and who have attained the age of
21, are eligible to participate in the Savings Plan.
The Sands Retirement Plan provides for a matching contribution by GBHC
based upon certain criteria, including levels of participation by GBHC's
employees. GBHC incurred matching contributions totaling $406,000, $575,000, and
$700,000, for the years ended December 31, 2003, 2002 and 2001, respectively.
GBHC also contributes to multi-employer pension, health and welfare plans
for its union employees. For the years ended December 31, 2003 and 2002, GBHC
contributed $5,411,000 and $5,750,000, respectively.
(10) Disclosures about Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments is required
under FAS No 107, "Disclosure About Fair Value of Financial Instruments." The
fair value estimates are made at discrete points in time based on relevant
market information and information about the financial instruments. These
estimates may be subjective in nature and involve uncertainties and significant
judgment and therefore cannot be determined with precision.
Cash and cash equivalents are valued at the carrying amount. Such amount
approximates the fair value of cash equivalents because of the short maturity of
these instruments.
Obligatory investments are valued at a carrying amount which includes an
allowance reflecting the below market interest rate associated with such
investments.
Existing Notes are valued at the market closing price on December 31, 2003
and 2002, respectively.
The estimated carrying amounts and fair values of Holdings' financial
instruments at December 31, 2003 and 2002 are as follows:
F-18
December 31, 2003 December 31, 2002
------------------------- ----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ------------ ------------ ------------
Financial Assets:
Cash and cash equivalents $ 33,454,000 $ 33,454,000 $ 50,645,000 $ 50,645,000
Obligatory investments, net 10,705,000 10,705,000 10,069,000 10,069,000
Financial Liabilities:
Interest payable 3,092,000 3,092,000 3,092,000 3,092,000
Existing Notes 110,000,000 91,300,000 110,000,000 96,400,000
(11) Operating Leases
The Company leases certain equipment and property. Total lease expense was
$2.1 million and $2.5 million for the years ended December 31, 2003 and 2002,
respectively. The following table sets forth the future minimum rental
commitments for operating leases:
2004 $ 1,986,000
2005 1,967,000
2006 1,998,000
2007 1,998,000
2008 1,998,000
Thereafter 8,431,000
----------------
Total $ 18,378,000
================
(12) Debt Restructuring Costs
Management anticipates that the exchange of Existing Notes for $110 million
in 3% notes due 2008 will be accounted for as a modification of debt, as opposed
to an extinguishment of debt, in accordance with Emerging Issues Task Force
Issue No. 96-19, "Debtors Accounting for a Modification or Exchange of Debt
Instruments" ("EITF 96-19"). EITF 96-19 provides the quantitative method of
evaluating the exchange of debt as either a modification or an extinguishment of
debt, as well as the accounting treatment of related costs based on the results
of that evaluation. Guidance contained in EITF 96-19 indicates that costs
incurred with third-parties directly related to the modification of debt should
be expensed as incurred. Costs associated with the debt restructuring amounted
to $1.8 million during the year ended December 31, 2003. Further costs are
anticipated in 2004 related to the modification of debt.
(13) Subsequent Events
On January 13, 2004, the Securities and Exchange Commission granted GB
Holdings application to delist the Existing Notes from trading on the American
Stock Exchange. On January 14, 2004, the American Stock Exchange halted trading
on the Existing Notes and on February 2, 2004 trading resumed.
In January 2004, at the request of GB Holdings, Ealing Corp., a Nevada
corporation and an affiliate of Mr. Icahn, provided a commitment letter to GB
Holdings, dated January 30, 2004, in which Ealing agreed to provide a revolving
credit facility under which GB Holdings and its subsidiaries may borrow up to an
aggregate amount of $10 million to be used for general working capital purposes.
Under the terms of the commitment letter, the revolving credit facility will
expire on June 30, 2005, borrowings will bear interest at a rate of 10% per
annum, and obligations under the revolving credit facility will be secured by a
first lien on all of the assets of GB Holdings and its subsidiaries which will
be senior to either the liens securing the Existing Notes or the New Notes,
depending on when the loan is funded. Ealing's obligations to provide the
financing pursuant to the commitment letter is subject to the execution of a
definitive loan agreement and related documents and certain customary
conditions. However, there can be no assurance that the loan agreement with
Ealing will be consummated, that if the loan agreement with Ealing is not
consummated, the Company will be able to obtain financing from another lender on
terms as or more favorable than the terms of the commitment letter, or whether
the Company will need to borrow funds for working capital.
F-19
(14) Selected Quarterly Financial Data (Unaudited)
Quarter
------------------------------------------------------------------------
First Second Third Fourth
----------------- ---------------- ----------------- ----------------
Year Ended December 31, 2003
Net revenues $ 39,801,000 $ 46,030,000 $ 46,041,000 $ 38,386,000
================= ================ ================= ================
Income (loss) from operations $ (1,436,000) $ 2,468,000 $ (317,000) $ (4,227,000)
================= ================ ================= ================
Net loss $ (4,401,000) $ (507,000) $ (3,456,000) $ (9,349,000)
================= ================ ================= ================
Net loss per share $ (0.44) $ (0.05) $ (0.35) $ (0.93)
================= ================ ================= ================
Year Ended December 31, 2002
Net revenues $ 53,244,000 $ 49,582,000 $ 49,797,000 $ 40,850,000
================= ================ ================= ================
Income from operations $ 5,958,000 $ 867,000 $ 1,938,000 $ 4,727,000
================= ================ ================= ================
Net income (loss) $ 2,258,000 $ (1,218,000) $ (906,000) $ (7,455,000)
================= ================ ================= ================
Net income (loss) per share $ 0.23 $ (0.12) $ (0.09) $ (0.75)
================= ================ ================= ================
INDEX TO FINANCIAL STATEMENT SCHEDULE
GB HOLDINGS, INC. AND SUBSIDIARIES
-- Report of Independent Public Accountants
-- Schedule II; Valuation and Qualifying Accounts
F-20
INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR ANDERSEN
LLP ("ANDERSEN"). THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN NOR HAS ANDERSEN
CONSENTED TO ITS INCLUSION IN THIS ANNUAL REPORT ON FORM 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of GB Holdings, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of GB Holdings, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
March 8, 2002. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index to
financial statement schedule is the responsibility of GB Holdings' management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 8, 2002
F-21
SCHEDULE II
GB HOLDINGS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Additions
-----------------------------------------------------------------------
Amounts
Balance of Charged to Balance At
Beginning of Costs and End of
Period Expenses Deductions Period
---------------- --------------- ---------------- ----------------
Year Ended December 31, 2003:
Allowance for doubtful accounts receivable $ 11,301,000 $ 1,040,000 $ (6,423,000)(1) $ 5,918,000
Allowance for obligatory investments 10,028,000 1,434,000 (122,000)(2) 11,340,000
---------------- --------------- ---------------- ----------------
$ 21,329,000 $ 2,474,000 $ (6,545,000) $ 17,258,000
================ =============== ================ ================
Year Ended December 31, 2002:
Allowance for doubtful accounts receivable $ 14,406,000 $ 1,586,000 $ (4,691,000)(1) $ 11,301,000
Allowance for obligatory investments 9,290,000 1,521,000 (783,000)(2) 10,028,000
---------------- --------------- ---------------- ----------------
$ 23,696,000 $ 3,107,000 $ (5,474,000) $ 21,329,000
================ =============== ================ ================
Year Ended December 31, 2001:
Allowance for doubtful accounts receivable $ 11,408,000 $ 4,991,000 $ (1,993,000)(1) $ 14,406,000
Allowance for obligatory investments 8,418,000 1,341,000 (469,000)(2) 9,290,000
---------------- --------------- ---------------- ----------------
$ 19,826,000 $ 6,332,000 $ (2,462,000) $ 23,696,000
================ =============== ================ ================
- --------------
(1) Represents net write-offs of uncollectible accounts.
(2) Represents write-offs of obligatory investments in connection with the
contribution of certain obligatory investments to CRDA approved projects.
F-22
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March 31, December 31,
2004 2003
------------- ------------
Current Assets:
Cash and cash equivalents $ 28,061,000 $ 33,454,000
Accounts receivable, net of allowances
of $5,220,000 and $5,918,000, respectively 5,172,000 5,247,000
Inventories 2,114,000 2,222,000
Income tax deposits 1,364,000 1,365,000
Prepaid expenses and other current assets 2,639,000 3,343,000
------------ ------------
Total current assets 39,350,000 45,631,000
------------ ------------
Property and Equipment:
Land 54,344,000 54,344,000
Buildings and improvements 88,262,000 88,249,000
Equipment 65,798,000 64,722,000
Construction in progress 3,141,000 2,111,000
------------ ------------
211,545,000 209,426,000
Less - accumulated depreciation and
amortization (43,528,000) (40,013,000)
------------ ------------
Property and equipment, net 168,017,000 169,413,000
------------ ------------
Other Assets:
Obligatory investments, net of allowances of
$11,702,000 and $11,340,000, respectively 10,875,000 10,705,000
Other assets 1,623,000 1,814,000
------------ ------------
Total other assets 12,498,000 12,519,000
------------ ------------
$219,865,000 $227,563,000
============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
F-23
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
March 31, December 31,
2004 2003
------------ ------------
Current Liabilities
Accounts payable $ 4,300,000 $ 6,815,000
Accrued liabilities -
Salaries and wages 4,027,000 3,570,000
Interest 67,000 3,092,000
Gaming obligations 2,885,000 2,744,000
Insurance 3,136,000 2,505,000
Other 3,156,000 3,473,000
------------ ------------
Total current liabilities 17,571,000 22,199,000
------------ ------------
Long-Term Debt, net of current maturities 110,000,000 110,000,000
------------ ------------
Other Noncurrent Liabilities 3,799,000 3,729,000
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value per share;
5,000,000 shares authorized; 0 shares outstanding -- --
Common Stock, $.01 par value per share;
20,000,000 shares authorized;
10,000,000 shares issued and outstanding 100,000 100,000
Additional paid-in capital 124,900,000 124,900,000
Accumulated deficit (36,505,000) (33,365,000)
-------------- ------------
Total shareholders' equity 88,495,000 91,635,000
-------------- ------------
$ 219,865,000 $227,563,000
============== ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
F-24
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2004 2003
------------- --------------
Revenues:
Casino $ 44,500,000 $ 43,639,000
Rooms 2,285,000 2,459,000
Food and beverage 4,988,000 4,664,000
Other 930,000 883,000
------------ -------------
52,703,000 51,645,000
Less - promotional allowances (11,254,000) (11,844,000)
------------- -------------
Net revenues 41,449,000 39,801,000
------------- -------------
Expenses:
Casino 30,331,000 31,886,000
Rooms 608,000 434,000
Food and beverage 2,090,000 2,056,000
Other 697,000 604,000
General and administrative 2,873,000 2,522,000
Depreciation and amortization,
including provision for obligatory investments 4,073,000 3,731,000
Loss on disposal of assets - 4,000
------------ -------------
Total expenses 40,672,000 41,237,000
------------ -------------
Income (loss) from operations 777,000 (1,436,000)
------------ -------------
Non-operating income (expense):
Interest income 111,000 189,000
Interest expense (3,051,000) (2,995,000)
Debt restructuring costs (710,000) -
------------ -------------
Total non-operating expense, net (3,650,000) (2,806,000)
------------ -------------
Loss before income taxes (2,873,000) (4,242,000)
Income tax provision (267,000) (159,000)
------------ -------------
Net loss $ (3,140,000) $ (4,401,000)
============ =============
Basic/diluted loss per common share $ (0.31) $ (0.44)
============ =============
Basic/diluted weighted average common shares outstanding 10,000,000 10,000,000
============ =============
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
F-25
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------------------
2004 2003
------------- -------------
OPERATING ACTIVITIES:
Net loss $ (3,140,000) $ (4,401,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,073,000 3,731,000
Loss on disposal of assets -- 4,000
Provision for doubtful accounts 146,000 331,000
Increase in accounts receivable (71,000) (70,000)
Decrease in accounts payable
and accrued liabilities (4,679,000) (2,534,000)
Decrease in other current assets 813,000 1,282,000
Net change in other noncurrent assets and liabilities 91,000 92,000
------------ -------------
Net cash used in operating activities (2,767,000) (1,565,000)
------------ -------------
INVESTING ACTIVITIES:
Purchase of property and equipment (2,118,000) (1,903,000)
Proceeds from disposition of assets 9,000 2,000
Purchase of obligatory investments (517,000) (568,000)
------------ -------------
Net cash used in investing activities (2,626,000) (2,469,000)
------------ -------------
FINANCING ACTIVITIES:
Repayments of long-term debt -- --
------------ -------------
Net cash used in financing activities -- --
------------ -------------
Net decrease in cash and cash equivalents (5,393,000) (4,034,000)
Cash and cash equivalents at beginning of period 33,454,000 50,645,000
------------ -------------
Cash and cash equivalents at end of period $ 28,061,000 $ 46,611,000
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 6,050,000 $ 6,050,000
============ =============
Interest capitalized $ 28,000 $ 91,000
============ =============
Income taxes paid $ 88,000 $ 31,000
============ =============
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
F-26
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of GB
Holdings, Inc. and subsidiaries ("Holdings" or the "Company"). All significant
intercompany transactions and balances have been eliminated in consolidation. In
management's opinion, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the condensed consolidated
financial position as of March 31, 2004 and the condensed consolidated results
of operations for the three months ended March 31, 2004 and 2003 have been made.
The results set forth in the condensed consolidated statement of operations for
the three months ended March 31, 2004 are not necessarily indicative of the
results to be expected for the full year.
The condensed consolidated financial statements were prepared following the
requirements of the Securities and Exchange Commission (SEC) for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by GAAP (accounting principles generally
accepted in the United States of America) can be condensed or omitted.
The Company is responsible for the unaudited financial statements included
in this document. As these are condensed financial statements, they should be
read in conjunction with the consolidated financial statements and notes
included in the Company's latest Form 10-K/A.
(2) INCOME TAXES
The components of the provision for income taxes are as follows:
Three Months Ending March 31,
-------------------------------
2004 2003
-------------- ------------
Federal income tax provision:
Current $ -- $ --
Deferred -- --
State income tax provision:
Current (267,000) (159,000)
Deferred -- --
-------------- ------------
$ (267,000) $ (159,000)
============== ============
Federal and State income tax provisions are based upon the results of
operations for the current period and the estimated adjustments for income tax
purposes of certain nondeductible expenses.
Due to recurring losses, the Company has not recorded Federal income tax
benefits or provisions for the three months ended March 31, 2004.
For the three months ended March 31, 2004 and 2003, there was a charge to
income tax provision of $179,000 and $159,000, respectively, related to the
impact of the New Jersey Business Tax Reform Act. On July 1, 2003, the State of
New Jersey amended the new Jersey Casino Control Act (the "NJCCA") to impose
various tax increases on Atlantic City casinos, including The Sands. Among other
things, the amendments to the NJCCA include the following new tax provision: the
greater of a $350,000 minimum tax or a 7.5% tax on adjusted net income of
licensed casinos (the "Casino Net Income Tax) in State fiscal years 2004 through
2006 with the proceeds deposited to the Casino Revenue Fund. For the three
months ended March 31, 2004, $87,500 was charged to the income tax provision
related to the minimum Casino Net Income Tax, which is payable in quarterly
installments of $87,500 each.
(3) TRANSACTIONS WITH RELATED PARTIES
Greate Bay Hotel and Casino, Inc.'s ("GBHC") rights to the trade name
"Sands" (the "Trade Name") were derived from a license agreement with an
unaffiliated third party. Amounts payable by GBHC for these rights were equal to
the amounts paid to the unaffiliated third party. GBHC was assigned by High
River Limited Partnership ("High River") the rights under a certain agreement
with the owner of the Trade Name to use the Trade Name as of
F-27
September 29, 2000 through May 19, 2086 subject to termination rights for a fee
after a certain minimum term. High River is an entity controlled by Carl C.
Icahn. High River received no payments for its assignment of these rights.
Payment is made directly to the owner of the Trade Name. Such charges amounted
to $53,000 and $59,000, respectively, for the three months ended March 31, 2004
and 2003.
The Stratosphere Casino Hotel & Tower (the "Stratosphere"), an entity
controlled by Carl C. Icahn, allocates a portion of certain executive salaries,
including the salary of Richard P. Brown, CEO of Holdings, as well as other
charges for tax preparation and travel to GBHC. Payments for such charges
incurred from the Stratosphere for the three months ended March 31, 2004 and
2003 amounted to $106,000 and $42,000, respectively.
On February 28, 2003, GBHC entered into a two year agreement with XO New
Jersey, Inc. a long-distance phone carrier controlled by Carl C. Icahn. The
agreement can be extended beyond the minimum two year term on a month-to-month
basis. Payments for such charges incurred for the three months ended March 31,
2004 amounted to $41,000. No payments were made during the three months ended
March 31, 2003 related to this agreement.
(4) LEGAL PROCEEDINGS
Tax appeals on behalf of GBHC and the City of Atlantic City challenging the
amount of GBHC's real property assessments for tax years 1996 through 2003 are
pending before the NJ Tax Court.
By letter dated January 23, 2004, Sheffield Enterprises, Inc. asserted
potential claims against The Sands under the Lanham Act for permitting a show
entitled The Main Event, to run at The Sands during 2001. Sheffield also asserts
certain copyright infringement claims growing out of the Main Event
performances. It has not yet been determined whether or not the claims made by
Sheffield would, if adversely determined, materially impact the financial
position or results of operations of the Company.
GBHC is a party in various legal proceedings with respect to the conduct of
casino and hotel operations and has receiving employed related claims. Although
a possible range of losses cannot be estimated, in the opinion or management,
based upon the advice of counsel, GBHC does not expect settlement or resolution
of these proceedings or claims to have a material adverse impact upon their
consolidated financial position or results of operations, but the outcome of
litigation and the resolution of claims is subject to uncertainties and no
assurances can be given. The consolidated financial statements do not include
any adjustments that might result from these uncertainties.
(5) LOSS PER SHARE
Statement of Financial Accounting Standards No. 128: "Earnings Per Share",
requires, among other things, the disclosure of basic and diluted earnings per
share for public companies. Since the capital structure of the Company is
simple, in that no potentially dilutive securities were outstanding during the
periods presented, basic and diluted loss per share are the same. Basic loss per
share is computed by dividing net loss by the weighted average number of common
shares outstanding.
(6) SUBSEQUENT EVENTS
On April 12, 2004, the Securities and Exchange Commission granted GB
Holdings application to delist the Existing Notes from trading on the American
Stock Exchange. On April 19, 2004, the American Stock Exchange delisted the
Existing Notes.
Recently, the casino industry, the CRDA and the New Jersey Sports and
Exposition Authority have agreed to a plan regarding New Jersey video lottery
terminals ("VLTs"). Although not final, under the plan, casinos will pay a total
of $96 million over a period of four years, of which $10 million will fund,
through project grants, North Jersey CRDA projects and $86 million will be paid
to the New Jersey Sports and Exposition Authority who will then subsidize
certain New Jersey horse tracks to increase purses and attract higher-quality
races that would allow them to compete with horse tracks in neighboring states.
In return, the race tracks and New Jersey have committed to postpone any
attempts to install VLTs for at least four years. $52 million of the $86 million
would be donated by the CRDA from the casinos' North Jersey obligations and $34
million would be paid by the casinos directly. It is currently estimated that
The Sands current CRDA deposits for North Jersey projects are sufficient to fund
The Sands proportionate obligations with respect to the $10 million and $52
million commitments. The Sands proportionate obligation with respect to the $34
million commitment is estimated to be approximately $1.4 million payable over a
four year period. The Sands proportionate obligation with respect to the
combined $10 million and $52 million commitment is estimated to be approximately
$2.6 million payable over a four year period.
F-28
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Atlantic Coast Entertainment Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Atlantic Coast
Entertainment Holdings, Inc. and subsidiary as of December 31, 2003. This
consolidated balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated balance sheet
based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Atlantic Coast
Entertainment Holdings, Inc. and subsidiary as of December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
/S/ KPMG LLP
- --------------------------------------
Short Hills, New Jersey
February 27, 2004
F-29
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31,
2003
------------
ASSETS
Current asset:
Cash $ 1,000
-----------
$ 1,000
-----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Shareholder's equity (Note 1)
Preferred stock, $.01 par value per share
5,000,000 shares authorized, 0 outstanding --
Common stock, $.01 par value per share,
20,000,000 shares authorized, 1 share --
outstanding
Additional paid-in capital 1,000
-----------
$ 1,000
The accompanying note to the consolidated balance sheet is an integral part of
the consolidated financial statement.
F-30
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
NOTE TO CONSOLIDATED BALANCE SHEET
NOTE 1: Description of Business and Basis of Presentation
Atlantic Coast Entertainment Holdings, Inc. ("Atlantic Holdings" or
the "Company") is a Delaware corporation and a newly formed, wholly-owned
subsidiary of Greate Bay Hotel and Casino, Inc. which is a wholly-owned
subsidiary of GB Holdings, Inc. ACE Gaming LLC, a New Jersey limited liability
company and a wholly owned subsidiary of Atlantic Holdings was formed in
November, 2003. Atlantic Holdings and ACE Gaming LLC were formed for the purpose
of the contemplated exchange of $110 million 11% Notes due 2005 (of GB
Property Funding Corp., a wholly owned subsidiary of GB Holdings Inc.) for
$110 million 3% Notes due 2008 to be issued by Atlantic Holdings. The
contemplated exchange includes the transfer of substantially all of the assets
of GB Holdings, Inc. to Atlantic Holdings. The 3% Notes due 2008 to be issued
by Atlantic Holdings will be wholly and unconditionally guaranteed on a joint
and several basis by ACE Gaming LLC, Atlantic Holdings and its subsidiary.
ACE Gaming LLC had no operating activities in 2003.
The exchange is to be accounted for as a debt modification and the
New Notes will be recorded at face value.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the balance
sheet. All intercompany accounts have been eliminated.
F-31
AT ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
2004 2003
-------------- ---------------
ASSETS
Current asset:
Cash...................................................................... $ 1,000 $ 1,000
-------------- ------------------
$ 1,000 1,000
============== ==================
LIABILITIES AND SHAREHOLDER'S EQUITY
Shareholder's equity (Note 1)
Preferred stock, $.01 par value per share 5,000,000 shares
authorized, 0 outstanding............................................... -- --
Common stock, $.01 par value per share, 20,000,000 shares
authorized, 1 share outstanding......................................... -- --
Additional paid-in capital................................................ 1,000 1,000
-------------- ------------------
$ 1,000 $ 1,000
============== ==================
The accompanying note to the unaudited consolidated balance sheet is an
integral part of the consolidated financial statement.
F-32
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
NOTE TO UNAUDITED CONSOLIDATED BALANCE SHEET
(Unaudited)
NOTE 1: Description of Business and Basis of Presentation
Atlantic Coast Entertainment Holdings, Inc. ("Atlantic Holdings" or the
"Company") is a Delaware corporation and a newly formed, wholly-owned subsidiary
of Greate Bay Hotel and Casino, Inc. which is a wholly-owned subsidiary of GB
Holdings, Inc. ACE Gaming LLC, a New Jersey limited liability company and a
wholly owned subsidiary of Atlantic Holdings was formed in November 2003.
Atlantic Holdings and ACE Gaming LLC were formed for the purpose of the
contemplated exchange of $110 million 11% Notes due 2005 (of GB Property Funding
Corp., a wholly owned subsidiary of GB Holdings Inc.) for $110 million 3% Notes
due 2008 to be issued by Atlantic Holdings. The contemplated exchange includes
the transfer of substantially all of the assets of GB Holdings, Inc. to Atlantic
Holdings. The 3% Notes due 2008 to be issued by Atlantic Holdings will be wholly
and unconditionally guaranteed on a joint and several basis by ACE Gaming LLC.
Atlantic Holdings and its subsidiary, ACE Gaming LLC had no operating activities
in 2004.
The exchange is to be accounted for as a debt modification and the New
Notes will be recorded at face value.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the balance sheet.
All intercompany accounts have been eliminated.
F-33
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Capitalized terms used herein shall have the meaning set forth in the body of
the registration statement to which these statements are attached.
The following unaudited pro forma condensed consolidated balance
sheets and related notes of GB Holdings, Inc. and Subsidiaries have been
prepared as if the Transaction occurred on March 31, 2004 and the following
unaudited pro forma condensed consolidated statements of operations and related
notes reflect adjustments to GB Holdings, Inc. and Subsidiaries for the year
ended December 31, 2003 as if the Transaction occurred on January 1, 2003 and
give effect to the following:
(i) GB Holdings will transfer all of its assets (other than the stock of
GB Property and Greate Bay Hotel) and liabilities (other than its
obligations under the Existing Notes) to Greate Bay Hotel;
(ii) Greate Bay Hotel will transfer all of the assets which it received
from GB Holdings and substantially all of its assets (other than the
stock of Atlantic Holdings) and certain of its liabilities to
Atlantic Holdings (which will agree to issue New Notes in exchange
for Existing Notes and cancel such Notes); Atlantic Holdings will
subsequently transfer to ACE Gaming all of the assets and liabilities
(excluding the cash Atlantic Holdings pays to the holders of Existing
Notes that exchange) that it received from Greate Bay Hotel;
(iii) Effect of Atlantic Holdings offer to the holders of the outstanding
Existing Notes the opportunity to tender for exchange such Existing
Notes for (a) $100 in cash for every $1,000 in principal amount of
the Existing Notes exchanged in such Transaction assuming a 100%, 80%
and 58% exchange, (b) on a dollar for dollar basis, the New Notes,
and (c) a cash payment of accrued, but unpaid interest on the
Existing Notes;
(iv) Through a series of mergers, GB Property, Greate Bay Hotel, and GB
Holdings will merge and GB Holdings will be the surviving entity so
that the Existing Notes exchanged for the New Notes will be
cancelled; GB Holdings will own the Atlantic Holdings Securities
transferred by Atlantic Holdings; and Atlantic Holdings will be a
wholly-owned subsidiary of GB Holdings (immediately prior to the
completion of the Transaction);
(v) Assuming a 100% exchange, Atlantic Holdings will distribute 2,750,000
shares of its common stock to GB Holdings and GB Holdings will
distribute such stock to its stockholders, or assuming an 80% or 58%
exchange, Atlantic Holdings will distribute warrants to purchase
2,750,000 shares of Atlantic Holdings common stock, at an exercise
price of $.01 per share to GB Holdings and GB Holdings will
distribute such warrants to its stockholders. It is also assumed that
in a 100% exchange that GB Holdings will be dissolved.
The following unaudited pro forma condensed financial statements
assume that all Existing Notes held by affiliates of Carl C. Icahn (58% of the
Existing Notes) will be exchanged in their entirety and do not assume the impact
of converting the New Notes to common stock of Atlantic Coast Entertainment
Holdings, Inc. The transfer of net assets has been accounted for as an exchange
of net assets between entities under common control, whereby the entity
receiving the net assets shall initially recognize the assets and liabilities
transferred at their historical carrying amount in the accounts of the
transferring entity at the date of transfer (March 31, 2004 in the following
unaudited pro forma balance sheets). No gain or loss is recorded relating to the
transfer. The distribution of Atlantic Holdings common stock, assuming a 100%
exchange, to the shareholders of GB Holdings has also been accounted for as a
transfer of entities under common control as the stockholders of GB Holdings are
not receiving additional ownership rights.
P-1
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
ASSUMING 100% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------ -------------- -------------
Revenues:
Casino............................................................ $ 183,036 $ (183,036)(A) $ --
Rooms............................................................. 10,983 (10,983)(A) --
Food and beverage................................................. 21,946 (21,946)(A) --
Other............................................................. 3,925 (3,925)(A) --
------------ -------------- -------------
219,890 (219,890) --
Less - promotional allowances..................................... (49,632) 49,632 (A) --
------------ -------------- -------------
Net revenues.................................................... 170,258 (170,258) --
------------ -------------- -------------
Expenses:
Casino............................................................ 131,117 (131,117)(A) --
Rooms............................................................. 2,354 (2,354)(A) --
Food and beverage................................................. 9,461 (9,461)(A) --
Other............................................................. 3,117 (3,117)(A) --
General and administrative........................................ 11,582 (11,582)(A) --
Depreciation and amortization, including provision for obligatory
investments..................................................... 16,244 (16,244)(A) --
Gain on disposal of assets........................................ (105) 105 (A) --
------------ -------------- -------------
Total expenses.................................................. 173,770 (173,770) --
------------ -------------- -------------
Income (loss) from operations........................................ (3,512) 3,512 --
------------ -------------- -------------
Non-operating income (expense):
Interest income................................................... 627 (627)(A) --
Interest expense.................................................. (12,027) 12,027 (A) --
Debt restructuring costs.......................................... (1,843) 1,843 --
------------ -------------- -------------
Total non-operating expense, net.................................. (13,243) 13,243 --
------------ -------------- -------------
Income (loss) before income taxes.................................... (16,755) 16,755 --
Income tax provision.............................................. (958) (384)(J) (1,342)
------------ -------------- -------------
Net income (loss).................................................... $ (17,713) $ 16,371 $ (1,342)
============ ============== =============
Basic/diluted income (loss) per common share......................... $ (1.77) $ (0.13)
============ =============
Weighted average common shares outstanding........................... 10,000,000 10,000,000 (K)
============ =============
Ratio of earnings to fixed charges N/A
-------------
P-2
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
ASSUMING 80% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------- --------------- --------------
Revenues:
Casino.......................................................... $ 183,036 $ -- $ 183,036
Rooms........................................................... 10,983 -- 10,983
Food and beverage............................................... 21,946 -- 21,946
Other........................................................... 3,925 -- 3,925
------------- --------------- --------------
219,890 -- 219,890
Less - promotional allowances................................... (49,632) -- (49,632)
------------- --------------- --------------
Net revenues.................................................... 170,258 -- 170,258
------------- --------------- --------------
Expenses:
Casino.......................................................... 131,117 -- 131,117
Rooms........................................................... 2,354 -- 2,354
Food and beverage............................................... 9,461 -- 9,461
Other........................................................... 3,117 -- 3,117
General and administrative...................................... 11,582 -- 11,582
Depreciation and amortization, including provision for
obligatory investments........................................ 16,244 -- 16,012
Adjust deferred financing fees - Existing Notes................. (232)(C)
Gain on disposal of assets...................................... (105) -- (105)
------------- --------------- --------------
Total expenses................................................ 173,770 (232) 173,538
------------- --------------- --------------
Income (loss) from operations...................................... (3,512) 232 (3,280)
------------- --------------- --------------
Non-operating income (expense):
Interest income................................................. 627 -- 505
Adjust for lower invested balances............................ (122)(D)
Interest expense................................................ (12,027) 12,027 (E) (6,465)
Interest expense - Existing Notes............................. (2,420)(F)
Interest expense - New Notes.................................. (2,640)(G)
Amortize consent fee - New Notes.............................. (1,530)(H)
Adjust capitalized interest .................................. 125 (I)
Debt restructuring costs........................................ (1,843) (1,237)(B) (3,080)
------------- --------------- --------------
Total non-operating income (expense), net....................... (13,243) 4,203 (9,040)
------------- --------------- --------------
Income (loss) before income taxes.................................. (16,755) 4,435 (12,320)
Income tax provision............................................ (958) -- (J) (958)
------------- --------------- --------------
Net income (loss).................................................. (17,713) 4,435 (13,278)
============= =============== ==============
Basic/diluted loss per common share................................ $ (1.77) $ (1.33)
============= ==============
Weighted average common shares outstanding......................... 10,000,000 10,000,000(K)
============= ==============
Ratio of earnings to fixed charges................................. -- --
------------- --------------
P-3
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
ASSUMING 58% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------ -------------- ---------------
Revenues:
Casino.......................................................... $ 183,036 $ -- $ 183,036
Rooms........................................................... 10,983 -- 10,983
Food and beverage............................................... 21,946 -- 21,946
Other........................................................... 3,925 -- 3,925
------------ -------------- ---------------
219,890 -- 219,890
Less - promotional allowances................................... (49,632) -- (49,632)
------------ -------------- ---------------
Net revenues.................................................. 170,258 -- 170,258
------------ -------------- ---------------
Expenses:
Casino.......................................................... 131,117 -- 131,117
Rooms........................................................... 2,354 -- 2,354
Food and beverage............................................... 9,461 -- 9,461
Other........................................................... 3,117 -- 3,117
General and administrative...................................... 11,582 -- 11,582
Depreciation and amortization, including provision for
obligatory investments........................................ 16,244 -- 16,076
Adjust deferred financing fees - Existing Notes............... (168)(C)
Gain on disposal of assets...................................... (105) -- (105)
------------ -------------- ---------------
Total expenses................................................ 173,770 (168) 173,602
------------ -------------- ---------------
Income (loss) from operations...................................... (3,512) 168 (3,344)
------------ -------------- ---------------
Non-operating income (expense):
Interest income................................................. 627 -- 533
Adjust for lower invested balances............................ (94)(D)
Interest expense................................................ (12,027) 12,027 (E) (7,933)
Interest expense - Existing Notes............................. (5,082)(F)
Interest expense - New Notes.................................. (1,914)(G)
Amortize consent fee - New Notes.............................. (1,110)(H)
Adjust capitalized interest................................... 173 (I)
Debt restructuring costs........................................ (1,843) (1,237)(B) (3,080)
------------ -------------- ---------------
Total non-operating income (expense), net ...................... (13,243) 2,758 (10,480)
------------ -------------- ---------------
Income (loss) before income taxes.................................. (16,755) 2,926 (13,824)
Income tax provision............................................ (958) -- (J) (958)
------------ -------------- ---------------
Net income (loss).................................................. $ (17,713) $ 2,926 $ (14,782)
============ ============== ===============
Basic/ diluted loss per common share............................... $ (1.77) $ (1.48)
============ ===============
Weighted average common shares outstanding......................... 10,000,000 10,000,000(K)
===============
Ratio of earnings to fixed charges................................. -- --
------------ ---------------
P-4
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003
ASSUMING 100%, 80% AND 58% NOTE EXCHANGE
PRO FORMA ADJUSTMENTS
Statement of Operations Adjustments:
(A) Represents the removal of the amounts presented in the statement of
operations of GB Holdings, Inc. and Subsidiaries for the three months ended
December 31, 2003 as the result of the operations to be recorded by
Atlantic Coast Entertainment Holdings, Inc. and Subsidiary.
(B) Represents the estimated transaction fees associated with the issuance of
the New Notes.
(C) Represents reduction in amortization expense of deferred financing fees of
Existing Notes due to the extension of the amortization period associated
with the term of the New Notes, which mature in 2008.
(D) Represents a decrease in interest income as a result of lower cash balances
due to the payments of consent fee, estimated transaction fees and
accelerated interest payments, exceeding the net of the benefit of
discontinued interest payments on Existing Notes. It is assumed that the
benefit of discontinued interest payments would not reduce interest bearing
cash equivalents and payments of consent fee, estimated transaction fees
and accelerated interest payments would reduce interest bearing cash
equivalents.
(E) Represents the reversal of historical interest expense.
(F) Represents interest expense on Existing Notes at the interest rate of 11%,
alternatively at $22 million and $46.2 million in aggregate principal for
an 80% and 58% exchange scenario, respectively.
(G) Represents interest expense on New Notes at the interest rate of 3%,
alternatively at $88 million and $63.8 million in the aggregate principal
for an 80% and 58% exchange scenario, respectively.
(H) Represents amortization expense using the interest method of the consent
fee paid (10% of the face value of the Existing Notes exchanged) upon
exchange of the Existing Notes for New Notes.
(I) Represents the capitalized interest using the lower effective interest rate
as a result of the issuance of the New Notes. Assumes the same level of
capital investment and construction periods but a lower effective rate of
interest.
(J) Represents the impact on the income tax provision as a result of the
Transaction and the aforementioned Pro Forma adjustments based on a Federal
tax rate of 35% and a state tax rate of 9%. The income tax provision
includes applicable tax expense from the New Jersey alternative minimum
assessment (AMA) enacted as part of the Business Tax Reform Act on July 2,
2002. The 100% assumption includes a tax provision at the parent level as a
result of debt discharge income that would be recognized without the
otherwise benefit of federal consolidated group tax attributes. When
assuming less than 100% of the exchange takes place federal consolidated
rules apply to permit the utilization of tax attributes of consolidated
group members to offset some or all of the debt discharge income.
(K) Assumes 10 million shares are issued and outstanding as of this date.
P-5
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 100% EXCHANGE
($ in thousands except per share data)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
--------------- -------------- -------------
Revenues:
Casino ...................................................... $ 44,500 $ (44,500)(A) $ --
Rooms ....................................................... 2,285 (2,285)(A) --
Food and beverage ........................................... 4,988 (4,988)(A) --
Other ....................................................... 930 (930)(A) --
--------------- --------------- --------------
52,703 (52,703) --
Less - promotional allowances ............................... (11,254) 11,254(A) --
--------------- --------------- --------------
Net revenues .............................................. 41,449 (41,449) --
--------------- --------------- --------------
Expenses:
Casino ...................................................... 30,331 (30,331)(A) --
Rooms ....................................................... 608 (608)(A) --
Food and beverage............................................ 2,090 (2,090)(A) --
Other ....................................................... 697 (697)(A) --
General and administrative .................................. 2,873 (2,873)(A) --
Depreciation and amortization, including provision for
obligatory investments .................................... 4,073 (4,073)(A) --
--------------- --------------- --------------
Total expenses............................................. 40,672 (40,672) --
--------------- --------------- --------------
Income (loss) from operations .................................. 777 (777) --
--------------- --------------- --------------
Non-operating income (expense):
Interest income ............................................. 111 (111)(A) --
Interest expense ............................................ (3,051) 3,051 (A) --
Debt restructuring costs .................................... (710) 710(A) --
--------------- --------------- --------------
Total non-operating income (expense), net ................... (3,650) 3,650 --
--------------- --------------- --------------
Income (loss) before income taxes .............................. (2,873) 2,873 --
Income tax provision ........................................ (267) 267 (A) --
--------------- --------------- --------------
Net income (loss) .............................................. $ (3,140) $ 3,140 $ --
=============== =============== ==============
Basic/diluted loss per common share ............................ $ (0.31) $ --
=============== ==============
Weighted average common shares outstanding ..................... 10,000,000 10,000,000 (A)
=============== ==============
Ratio of earnings to fixed charges ............................. -- --
--------------- --------------
P-6
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
($ IN THOUSANDS)
ASSUMING 100% EXCHANGE
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------ -------------- --------------
ASSETS:
Current Assets:
Cash and cash equivalents.......................................... $ 28,061 $ (28,061)(B) $ --
Accounts receivable, net of allowance of $5,220 5,172 (5,172)(B) --
Inventories........................................................ 2,114 (2,114)(B) --
Income tax deposits................................................ 1,364 (1,364)(B) --
Prepaid expenses and other current assets.......................... 2,639 (2,639)(B) --
------------ -------------- --------------
Total current assets............................................. 39,350 (39,350) --
------------ -------------- --------------
Property and Equipment:
Land............................................................... 54,344 (54,344)(B) --
Buildings and improvements......................................... 88,262 (88,262)(B) --
Equipment.......................................................... 65,798 (65,798)(B) --
Construction in progress........................................... 3,141 (3,141)(B) --
------------ -------------- --------------
211,545 (211,545) --
Less - accumulated depreciation and amortization...................... (43,528) 43,528 (B) --
------------ -------------- --------------
Property and equipment, net........................................... 168,017 (168,017) --
------------ -------------- --------------
Other Assets:
Obligatory investments, net of allowances of $11,702............... 10,875 (10,875)(B) --
Other assets....................................................... 1,623 (1,623)(B) --
------------ -------------- --------------
Total other assets............................................... 12,498 (12,498) --
------------ -------------- --------------
$ 219,865 $ (219,865) $ --
============ ============== ==============
LIABILITIES:
Current Liabilities
Accounts payable................................................... $ 4,300 $ (4,300)(B) $ --
Accrued liabilities -
Salaries and wages............................................... 4,027 (4,027)(B) --
Interest-Existing Notes.......................................... 67 (67)(B) --
Gaming obligations............................................... 2,885 (2,885)(B) --
Self-insurance................................................... 3,136 (3,136)(B) --
Other............................................................ 3,156 (3,156)(B) --
------------ -------------- --------------
Total current liabilities........................................ 17,571 (17,571) --
------------ -------------- --------------
Long-Term Debt - Existing Notes....................................... 110,000 (110,000)(B) --
------------ -------------- --------------
Other Noncurrent Liabilities.......................................... 3,799 (3,799)(B) --
------------ -------------- --------------
Commitments and Contingencies......................................... -- -- --
Shareholders' Equity:
Preferred stock, $.01 par value per share; 5,000,000 shares
authorized; 0 shares outstanding ................................ -- -- --
Common Stock, $.01 par value per share; 20,000,000 shares
authorized; 10,000,000 shares issued and outstanding............. 100 (100)(B) --
Additional paid-in capital......................................... 124,900 (124,900)(B) --
Accumulated deficit................................................ (36,505) 36,505 (B) --
------------ -------------- --------------
Total shareholders' equity....................................... 88,495 (88,495) --
------------ -------------- --------------
$ 219,865 $ (219,865) $ --
============ ============== ==============
P-7
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 100% NOTE EXCHANGE
PRO FORMA ADJUSTMENTS
Statement of Operations Adjustments:
(A) Represents the removal of the amounts presented in the statement of
operations of GB Holdings, Inc. and Subsidiaries for the three months ended
March 31, 2004 as the result of the operations to be recorded by Atlantic
Coast Entertainment Holdings, Inc. and Subsidiary. Subsequent to the
distribution of 2,750,000 shares of common stock of Atlantic Coast
Entertainment Holdings, Inc. to the shareholders of GB Holdings, Inc.
retains no ownership interest in Atlantic Coast Entertainment Holdings,
Inc. and therefore does not include the operations of Atlantic Coast
Entertainment Holdings, Inc. in its condensed consolidated pro forma
financial statements.
Balance Sheet Adjustments
(B) Represents the removal of the assets and liabilities presented in the
balance sheet of GB Holdings, Inc. and Subsidiaries as of March 31, 2004 as
the result of the transfer of all assets and liabilities of Atlantic Coast
Entertainment Holdings, Inc. and Subsidiary. Subsequent to the distribution
of 2,750,000 shares of common stock of Atlantic Coast Entertainment
Holdings, Inc. to the shareholders of GB Holdings, Inc., GB Holdings, Inc.
retains no ownership interest in Atlantic Coast Entertainment Holdings,
Inc. and therefore does not include the operations of Atlantic Coast
Entertainment Holdings, Inc. in its condensed consolidated pro forma
financial statements. It is also assumed that GB Holdings, Inc. will be
dissolved.
P-8
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 80% EXCHANGE
($ in thousands except per share data)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
-------------- ---------------- -------------
Revenues:
Casino ...................................................... $ 44,500 $ -- $ 44,500
Rooms ....................................................... 2,285 -- 2,285
Food and beverage ........................................... 4,988 -- 4,988
Other ....................................................... 930 -- 930
-------------- ---------------- -------------
52,703 -- 52,703
Less - promotional allowances ............................... (11,254) -- (11,254)
-------------- ---------------- -------------
Net revenues .............................................. 41,449 -- 41,449
-------------- ---------------- -------------
Expenses: --
Casino ...................................................... 30,331 -- 30,331
Rooms ....................................................... 608 -- 608
Food and beverage............................................ 2,090 -- 2,090
Other ....................................................... 697 -- 697
General and administrative .................................. 2,873 -- 2,873
Depreciation and amortization, including provision for
obligatory investments .................................... 4,073 -- 4,015
Adjust deferred financing fees - Existing Notes (58) (B)
-------------- ---------------- -------------
Total expenses............................................. 40,672 (58) 40,614
-------------- ---------------- -------------
Income from operations ......................................... 777 58 835
-------------- ---------------- -------------
Non-operating income (expense):
Interest income ............................................. 111 -- 113
Adjust for lower invested balances 2 (C)
Interest expense ............................................ (3,051) 3,051 (D) (1,636)
Interest expense - Existing Notes (605) (E)
Interest expense - New Notes (660) (F)
Amortize consent fee - New Notes (383) (G)
Adjust capitalized interest 12 (H)
Debt restructuring costs .................................... (710) 710 (A) --
-------------- ---------------- -------------
Total non-operating income (expense), net ................... (3,650) 2,127 (1,523)
-------------- ---------------- -------------
Income (loss) before income taxes .............................. (2,873) 2,185 (688)
Income tax provision ........................................ (267) -- (267)
-------------- ---------------- -------------
Net income (loss) .............................................. $ (3,140) $ 2,185 $ (955)
============== ================ =============
Basic/diluted loss per common share ............................ $ (0.31) $ (0.10)
============== =============
Weighted average common shares outstanding ..................... 10,000,000 10,000,000 (I)
============== =============
Ratio of earnings to fixed charges ............................. -- --
-------------- -------------
P-9
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
($ IN THOUSANDS)
ASSUMING 80% EXCHANGE
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------- -------------- --------------
ASSETS:
Current Assets:
Cash and cash equivalents.......................................... $ 28,061 $ $ 18,680
Adjust for decreased cash balances (9,381)(J)
Accounts receivable, net of allowance of $5,220.................... 5,172 5,172
Inventories........................................................ 2,114 2,114
Income tax deposits................................................ 1,364 1,364
Prepaid expenses and other current assets.......................... 2,639 4,595
Add consent fee - New Notes 1,956 (K)
------------- -------------- --------------
Total current assets............................................. 39,350 (7,425) 31,925
------------- -------------- --------------
Property and Equipment:
Land............................................................... 54,344 -- 54,344
Buildings and improvements......................................... 88,262 -- 88,262
Equipment.......................................................... 65,798 -- 65,798
Construction in progress........................................... 3,141 -- 3,141
------------- -------------- --------------
211,545 -- 211,545
Less - accumulated depreciation and amortization...................... (43,528) -- (43,528)
------------- -------------- --------------
Property and equipment, net........................................... 168,017 -- 168,017
------------- -------------- --------------
Other Assets:
Obligatory investments, net of allowances of $11,702............... 10,875 -- 10,875
Other assets....................................................... 1,623 -- 8,467
Add consent fee - New Notes 6,844 (K)
------------- -------------- --------------
Total other assets............................................... 12,498 6,844 19,342
------------- -------------- --------------
$ 219,865 $ (581) $ 219,284
============= ============== ==============
LIABILITIES:
Current Liabilities
Accounts payable................................................... $ 4,300 $ -- $ 4,300
Accrued liabilities -
Salaries and wages............................................... 4,027 -- 4,027
Interest-Existing Notes.......................................... 67 (54)(L) 13
Gaming obligations............................................... 2,885 -- 2,885
Self-insurance................................................... 3,136 -- 3,136
Other............................................................ 3,156 -- 3,156
------------- -------------- --------------
Total current liabilities........................................ 17,571 (54) 17,517
------------- -------------- --------------
Long-Term Debt:.......................................................
Existing Notes 110,000 (88,000)(M) 22,000
New Notes - 88,000(M) 88,000
------------- -------------- --------------
Total Long-Term Debt 110,000 -- 110,000
------------- -------------- --------------
Other Noncurrent Liabilities.......................................... 3,799 -- 3,799
------------- -------------- --------------
Warrants in Atlantic Holdings -- 33,000 (N) 33,000
------------- -------------- --------------
Commitments and Contingencies......................................... -- -- --
Shareholders' Equity:
Preferred stock, $.01 par value per share; 5,000,000 shares
authorized; 0 shares outstanding ................................ -- -- --
Common Stock, $.01 par value per share; 20,000,000 shares
authorized; 10,000,000 shares issued and outstanding............. 100 -- 100
Additional paid-in capital......................................... 124,900 (33,000) (N) 91,900
Accumulated deficit................................................ (36,505) (527) (O) (37,032)
------------- -------------- --------------
Total shareholders' equity....................................... 88,495 (33,527) 54,968
------------- -------------- --------------
$ 219,865 $ (581) $ 219,284
============= ============== ==============
P-10
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 58% EXCHANGE
($ in thousands except per share data)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
--------------- ---------------- --------------
Revenues:
Casino ...................................................... $ 44,500 $ -- $ 44,500
Rooms ....................................................... 2,285 -- 2,285
Food and beverage ........................................... 4,988 -- 4,988
Other ....................................................... 930 -- 930
--------------- ---------------- --------------
52,703 -- 52,703
Less - promotional allowances ............................... (11,254) -- (11,254)
--------------- ---------------- --------------
Net revenues .............................................. 41,449 -- 41,449
--------------- ---------------- --------------
Expenses: --
Casino ...................................................... 30,331 -- 30,331
Rooms ....................................................... 608 -- 608
Food and beverage............................................ 2,090 -- 2,090
Other ....................................................... 697 -- 697
General and administrative .................................. 2,873 -- 2,873
Depreciation and amortization, including provision for
obligatory investments .................................... 4,073 -- 4,031
Adjust deferred financing fees - Existing Notes -- (42) (B)
--------------- ---------------- --------------
Total expenses............................................. 40,672 (42) 40,630
--------------- ---------------- --------------
Income from operations ......................................... 777 42 819
--------------- ---------------- --------------
Non-operating income (expense):
Interest income ............................................. 111 -- 112
Adjust for lower invested balances 1 (C)
Interest expense ............................................ (3,051) 3,051 (D) (2,011)
Interest expense - Existing Notes (1,271) (E)
Interest expense - New Notes (479) (F)
Amortize consent fee - New Notes (277) (G)
Adjust capitalized interest 16 (H)
Debt restructuring costs .................................... (710) 710 (A) --
--------------- ---------------- --------------
Total non-operating income (expense), net ................... (3,650) 1,751 (1,899)
--------------- ---------------- --------------
Income (loss) before income taxes .............................. (2,873) 1,793 (1,080)
Income tax provision ........................................ (267) -- (267)
--------------- ---------------- --------------
Net income (loss) .............................................. $ (3,140) $ 1,793 $ (1,347)
=============== ================ ==============
Basic/diluted income (loss) per common share ................... $ (0.31) $ (0.13)
=============== ==============
Weighted average common shares outstanding ..................... 10,000,000 10,000,000 (I)
=============== ==============
Ratio of earnings to fixed charges ............................. -- --
--------------- --------------
P-11
GB HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
($ IN THOUSANDS)
ASSUMING 58% EXCHANGE
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------- ------------- --------------
ASSETS:
Current Assets:
Cash and cash equivalents.......................................... $ 28,061 $ $ 21,115
Adjust for decreased cash balances (6,946) (J)
Accounts receivable, net of allowance of $5,220.................... 5,172 5,172
Inventories........................................................ 2,114 2,114
Income tax deposits................................................ 1,364 1,364
Prepaid expenses and other current assets.......................... 2,639 4,057
Add consent fee - New Notes 1,418 (K)
------------- ------------- --------------
Total current assets............................................. 39,350 (5,528) 33,822
------------- ------------- --------------
Property and Equipment:
Land............................................................... 54,344 -- 54,344
Buildings and improvements......................................... 88,262 -- 88,262
Equipment.......................................................... 65,798 -- 65,798
Construction in progress........................................... 3,141 -- 3,141
------------- ------------- --------------
211,545 -- 211,545
Less - accumulated depreciation and amortization...................... (43,528) -- (43,528)
------------- ------------- --------------
Property and equipment, net........................................... 168,017 -- 168,017
------------- ------------- --------------
Other Assets:
Obligatory investments, net of allowances of $11,702............... 10,875 -- 10,875
Other assets....................................................... 1,623 -- 6,585
Add consent fee - New Notes 4,962 (K)
------------- ------------- --------------
Total other assets............................................... 12,498 4,962 17,460
------------- ------------- --------------
$ 219,865 $ (566) $ 219,299
============= ============= ==============
LIABILITIES:
Current Liabilities
Accounts payable................................................... $ 4,300 $ -- $ 4,300
Accrued liabilities -
Salaries and wages............................................... 4,027 -- 4,027
Interest-Existing Notes.......................................... 67 (39) (L) 28
Gaming obligations............................................... 2,885 -- 2,885
Self-insurance................................................... 3,136 -- 3,136
Other............................................................ 3,156 -- 3,156
------------- ------------- --------------
Total current liabilities........................................ 17,571 (39) 17,532
------------- ------------- --------------
Long-Term Debt:.......................................................
Existing Notes 110,000 (63,800)(M) 46,200
New Notes -- 63,800(M) 63,800
------------- ------------- --------------
Total Long-Term Debt 110,000 -- 110,000
------------- ------------- --------------
Other Noncurrent Liabilities.......................................... 3,799 -- 3,799
------------- ------------- --------------
Warrants in Atlantic Holdings -- 33,700 (N) 33,700
------------- ------------- --------------
Commitments and Contingencies......................................... -- -- --
Shareholders' Equity:
Preferred stock, $.01 par value per share; 5,000,000 shares
authorized; 0 shares outstanding ................................ -- -- --
Common Stock, $.01 par value per share; 20,000,000 shares
authorized; 10,000,000 shares issued and outstanding............. 100 -- 100
Additional paid-in capital......................................... 124,900 (33,700) (N) 91,200
Accumulated deficit................................................ (36,505) (527) (O) (37,032)
------------- ------------- --------------
Total shareholders' equity....................................... 88,495 (34,227) 54,268
------------- ------------- --------------
$ 219,865 $ (566) $ 219,299
============= ============= ==============
P-12
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 80% AND 58% NOTE EXCHANGE
PRO FORMA ADJUSTMENTS
Statement of Operations Adjustments:
(A) Represents the elimination of transaction fees associated with the issuance
of the New Notes as it is assumed the transaction occurred on January 1,
2003.
(B) Represents reduction in amortization expense of deferred financing fees of
Existing Notes due to the extension of the amortization period associated
with the term of the New Notes, which mature in 2008.
(C) Represents an increase in interest income as a result of higher cash
balances due to the elimination of interest payments on the existing notes
offset by the impact of the consent fee and estimated transaction fees.
(D) Represents the reversal of historical interest expense.
(E) Represents interest expense on Existing Notes at the interest rate of 11%,
alternatively at $22 million and $46.2 million in aggregate principal for
an 80% and 58% exchange scenario, respectively.
(F) Represents interest expense on New Notes at the interest rate of 3%,
alternatively at $88 million and $63.8 million in the aggregate principal
for an 80% and 58% exchange scenario, respectively.
(G) Represents amortization expense using the interest method of the consent
fee paid (10% of the face value of the Existing Notes exchanged) upon
exchange of the Existing Notes for New Notes.
(H) Represents the capitalized interest using the lower effective interest rate
as a result of the issuance of the New Notes. Assumes the same level of
capital investment and construction periods but a lower effective rate of
interest.
(I) Assumes 10 million shares are issued and outstanding as of this date.
P-13
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
ASSUMING 80% AND 58% EXCHANGE
PRO FORMA ADJUSTMENTS
Balance Sheet Adjustments:
(J) Represents the net decrease in Cash and Cash Equivalents as of March 31,
2004. Amount is equal to the cumulative amount of cash payments for the
following items by exchange scenario:
80% 58%
exchanged exchanged
---------------- ---------------
Consent fees.................................... $ 8,800,000 $ 6,380,000
Estimated financing fees........................ 527,000 527,000
Accrued interest - Existing Notes............... 54,000 39,000
---------------- ---------------
$ 9,381,000 $ 6,946,000
================ ===============
(K) Represents consent fee (10% of the face value of Existing Notes exchanged)
paid upon exchange of Existing Notes for New Notes.
(L) Represents the payment of interest associated with the Existing Notes upon
exchange.
(M) Represents impact of the exchange of Existing Notes for New Notes on
long-term debt in accordance with the assumption of an 80% exchange or 58%
exchange.
(N) Represents the value of the warrants to purchase Atlantic Coast
Entertainment Holdings, Inc. common stock (as determined by third party
valuation), ultimately dividended to the shareholders of GB Holdings, Inc.,
in a less than 100% exchange scenario.
(O) Represents the net pro forma adjustment to retained earnings.
P-14
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Capitalized terms used herein shall have the meaning set forth in the body
of the registration statement to which these statements are attached.
The following unaudited pro forma condensed consolidated balance sheets and
related notes of Atlantic Coast Entertainment Holdings, Inc. and Subsidiary have
been prepared as if the Transaction occurred on December 31, 2003 and the
following unaudited pro forma condensed consolidated statements of operations
and related notes reflect adjustments to Atlantic Coast Entertainment Holdings,
Inc. and Subsidiary for the year ended December 31, 2003 as if the Transaction
occurred on January 1, 2003 and give effect to the following:
(i) GB Holdings will transfer all of its assets (other than the stock
of GB Property and Greate Bay Hotel) and liabilities (other than
its obligations under the Existing Notes) to Greate Bay Hotel;
(ii) Greate Bay Hotel will transfer all of the assets which it
received from GB Holdings and substantially all of its assets
(other than the stock of Atlantic Holdings) and certain of its
liabilities to Atlantic Holdings (which will agree to issue New
Notes in exchange for Existing Notes and cancel such Notes);
Atlantic Holdings will subsequently transfer to ACE Gaming all of
the assets and liabilities (excluding the cash Atlantic Holdings
pays to the holders of Existing Notes that exchange) that it
received from Greate Bay Hotel;
(iii) Effect of Atlantic Holdings offer to the holders of the
outstanding Existing Notes the opportunity to tender for exchange
such Existing Notes for (a) $100 in cash for every $1,000 in
principal amount of the Existing Notes exchanged in such
Transaction assuming a 100%, 80% and 58% exchange, (b) on a
dollar for dollar basis, the New Notes, and (c) a cash payment of
accrued, but unpaid interest on the Existing Notes;
(iv) Through a series of mergers, GB Property, Greate Bay Hotel, and
GB Holdings will merge and GB Holdings will be the surviving
entity so that the Existing Notes exchanged for the New Notes
will be cancelled; GB Holdings will own the Atlantic Holdings
Securities transferred by Atlantic Holdings; and Atlantic
Holdings will be a wholly-owned subsidiary of GB Holdings
(immediately prior to the completion of the Transaction);
(v) Assuming a 100% exchange, Atlantic Holdings will distribute
2,750,000 shares of its common stock to GB Holdings and GB
Holdings will distribute such stock to its stockholders, or
assuming an 80% or 58% exchange, Atlantic Holdings will
distribute warrants to purchase 2,750,000 shares of Atlantic
Holdings common stock, at an exercise price of $.01 per share to
GB Holdings and GB Holdings will distribute such warrants to its
stockholders. It is also assumed that in a 100% exchange that GB
Holdings will be dissolved.
The following unaudited pro forma condensed financial statements assume
that all Existing Notes held by affiliates of Carl C. Icahn (58% of the Existing
Notes) will be exchanged in their entirety and do not assume the impact of
converting the New Notes to common stock of Atlantic Coast Entertainment
Holdings, Inc. The transfer of net assets has been accounted for as an exchange
of net assets between entities under common control, whereby the entity
receiving the net assets shall initially recognize the assets and liabilities
transferred at their historical carrying amount in the accounts of the
transferring entity at the date of transfer (December 31, 2003 in the following
unaudited pro forma balance sheets). No gain or loss is recorded relating to the
transfer. The distribution of Atlantic Holdings common stock assuming, a 100%
exchange, to the shareholders of GB Holdings has also been accounted for as a
transfer of entities under common control as the stockholders of GB Holdings are
not receiving additional ownership rights.
P-15
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
ASSUMING 100% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
IMPACT OF PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------- -------------- ------------ -------------
Revenues:
Casino........................................... $ -- $ 183,036 (A) $ -- $ 183,036
Rooms............................................ -- 10,983 (A) -- 10,983
Food and beverage................................ -- 21,946 (A) -- 21,946
Other............................................ -- 3,925 (A) -- 3,925
------------- -------------- ------------ -------------
-- 219,890 -- 219,890
Less - promotional allowances.................... -- (49,632)(A) -- (49,632)
------------- -------------- ------------ -------------
Net revenues................................... -- 170,258 -- 170,258
------------- -------------- ------------ -------------
Expenses:
Casino........................................... -- 131,117 (A) -- 131,117
Rooms............................................ -- 2,354 (A) -- 2,354
Food and beverage................................ -- 9,461 (A) -- 9,461
Other............................................ -- 3,117 (A) -- 3,117
General and administrative....................... -- 11,582 (A) -- 11,582
Depreciation and amortization, including
provision for obligatory investments........... -- 16,244 (A) -- 15,955
Adjust deferred financing fees - Existing Notes (289)(C)
Gain on disposal of fixed assets................. -- (105)(A) -- (105)
------------- -------------- ------------ -------------
Total expenses................................. -- 173,770 (289) 173,481
------------- -------------- ------------ -------------
Income (loss) from operations....................... -- (3,512) 289 (3,223)
------------- -------------- ------------ -------------
Non-operating income (expense):
Interest income.................................. -- 627 (A) -- 488
Adjust for lower invested balances............. (139)(D)
Interest expense - New Notes..................... -- -- (3,300)(E) (5,131)
Amortize valuation allowance - New Notes....... (1,913)(F)
Adjust capitalized interest.................... . 82 (G)
Debt restructuring costs......................... -- (1,843)(A) (1,237)(B) (3,080)
------------- -------------- ------------ -------------
Total non-operating expense, net................. -- (1,216) (6,507) (7,723)
------------- -------------- ------------ -------------
Loss before income taxes............................ -- (4,728) (6,218) (10,946)
Income tax provision............................. -- (958)(H) -- (958)
------------- -------------- ------------ -------------
Net loss............................................ $ -- $ (5,686) $ (6,218) $ (11,904)
============= ============== ============ =============
Basic loss per common share......................... $ -- $ (4.33)(I)
============= =============
Diluted loss per common share....................... $ -- $ (4.33)(I)
============= =============
Weighted average common shares outstanding.......... -- 2,750,000 (I)
============= =============
Weighted average fully diluted common shares
outstanding...................................... -- 2,750,000 (I)
============= =============
Ratio of Earnings to Fixed Charges.................. -- --
------------ -------------
P-16
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
ASSUMING 80% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
IMPACT OF PRO FORMA ADJUSTMENTS
-------------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
-------------- --------------- ------------- ---------------
Revenues:
Casino....................................... $ -- $ 183,036 (A) $ -- $ 183,036
Rooms........................................ -- 10,983 (A) -- 10,983
Food and beverage............................ -- 21,946 (A) -- 21,946
Other........................................ -- 3,925 (A) -- 3,925
-------------- --------------- ------------- ---------------
-- 219,890 -- 219,890
Less - promotional allowances................ -- (49,632)(A) -- (49,632)
-------------- --------------- ------------- ---------------
Net revenues............................... -- 170,258 -- 170,258
-------------- --------------- ------------- ---------------
Expenses:
Casino....................................... -- 131,117 (A) -- 131,117
Rooms........................................ -- 2,354 (A) -- 2,354
Food and beverage............................ -- 9,461 (A) -- 9,461
Other........................................ -- 3,117 (A) -- 3,117
General and administrative................... -- 11,582 (A) -- 11,582
Depreciation and amortization, including
provision for obligatory investments....... -- 16,244 (A) -- 15,902
Adjust deferred financing fees - Existing
Notes................................... (342)(C)
Gain on disposal of assets................... -- (105)(A) -- (105)
-------------- --------------- ------------- ---------------
Total expenses (income).................... -- 173,770 (342) 173,428
-------------- --------------- ------------- ---------------
Income (loss) from operations................... -- (3,512) 342 (3,170)
-------------- --------------- ------------- ---------------
Non-operating income (expense):
Interest income.............................. -- 627 (A) 505
Adjust for lower invested balances......... (122)(D)
Interest expense - New Notes................. -- -- (2,640)(E) (4,088)
Amortize consent fees - New Notes.......... (1,530)(F)
Adjust capitalized interest................ 82 (G)
Debt restructuring costs..................... -- (1,843)(A) (1,237)(B) (3,080)
-------------- --------------- ------------- ---------------
Total non-operating expense, net............. -- (1,216) (5,447) (6,663)
-------------- --------------- ------------- ---------------
Loss before income taxes........................ -- (4,728) (5,105) (9,833)
Income tax provision......................... -- (958)(H) -- (958)
-------------- --------------- ------------- ---------------
Net loss........................................ $ -- $ (5,686) $ (5,105) $ (10,791)
============== =============== ============= ===============
Basic loss per common share..................... $ -- $ (7.44)(I)
============== ===============
Diluted loss per common share................... $ -- $ (7.44)(I)
============== ===============
Weighted average common shares outstanding...... -- 1,450,000 (I)
============== ===============
Weighted average fully diluted common shares
outstanding.................................. -- 1,450,000 (I)
============== ===============
Ratio of earnings to fixed charges.............. -- --
-------------- ---------------
P-17
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
ASSUMING 58% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
IMPACT OF PRO FORMA ADJUSTMENTS
---------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------- -------------- ------------ --------------
Revenues:
Casino......................................... $ -- $ 183,036 (A) $ -- $ 183,036
Rooms.......................................... -- 10,983 (A) -- 10,983
Food and beverage.............................. -- 21,946 (A) -- 21,946
Other.......................................... -- 3,925 (A) -- 3,925
------------- -------------- ------------ --------------
-- 219,890 -- 219,890
Less - promotional allowances.................. -- (49,632)(A) -- (49,632)
------------- -------------- ------------ --------------
Net revenues................................. -- 170,258 -- 170,258
------------- -------------- ------------ --------------
Expenses:
Casino......................................... -- 131,117 (A) -- 131,117
Rooms.......................................... -- 2,354 (A) -- 2,354
Food and beverage.............................. -- 9,461 (A) -- 9,461
Other.......................................... -- 3,117 (A) -- 3,117
General and administrative..................... -- 11,582 (A) -- 11,582
Depreciation and amortization, including
provision for obligatory investments......... -- 16,244 (A) -- 15,843
Adjust deferred financing fees - Existing
Notes..................................... (401)(C)
Gain on disposal of assets..................... -- (105)(A) -- (105)
------------- -------------- ------------ --------------
Total expenses (income)...................... -- 173,770 (401) 173,369
------------- -------------- ------------ --------------
Income (loss) from operations..................... -- (3,512) 401 (3,111)
------------- -------------- ------------ --------------
Non-operating income(expense):
Interest income................................ -- 627 (A) 533
Adjust for lower invested balances........... (94)(D)
Interest expense - New Notes................... -- -- (1,914)(E) (2,942)
Amortize consent fee - New Notes............. (1,110)(F)
Adjust capitalized interest.................. 82 (G)
Debt restructuring costs....................... -- (1,843)(A) (1,237)(B) (3,080)
------------- -------------- ------------ --------------
Total non-operating expense, net............... -- (1,216) (4,273) (5,489)
------------- -------------- ------------ --------------
Loss before income taxes.......................... -- (4,728) (3,872) (8,600)
Income tax provision........................... -- (958)(H) -- (958)
------------- -------------- ------------ --------------
Net loss.......................................... $ -- $ (5,686) $ (3,872) $ (9,558)
============= ============== ============ ==============
Basic loss per common share....................... $ -- $ (3.14)(I)
============= ==============
Diluted loss per common share..................... $ -- $ (3.14)(I)
============= ==============
Weighted average common shares outstanding........ -- 3,045,000 (I)
============= ==============
Weighted average fully diluted common shares
outstanding.................................... -- 3,045,000 (I)
============= ==============
Ratio of earnings to fixed charges................ -- --
------------- --------------
P-18
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003
AND AS OF DECEMBER 31, 2003
PRO FORMA ADJUSTMENTS
Statements of Operations Adjustments:
(A) Represents the inclusion of the amounts presented in the respective
statement of operations of GB Holdings and Subsidiaries for the year ended
December 31, 2003 (exclusive of any interest attributed to the Existing
Notes) as the result of operations are to be recorded by Atlantic Holdings
and Subsidiary.
(B) Represents the estimated transaction fees associated with the issuance of
the New Notes.
(C) Represents the removal of deferred financing costs related to the Existing
Notes contained in the amount of the "Depreciation and Amortization,
including Provision for obligatory investments" of GB Holdings and
Subsidiaries.
(D) Represents a decrease in interest income as a result of lower cash balances
due to the payments of consent fee, estimated transaction fees and
accelerated interest payments, net of the benefit of discontinued interest
payments on Existing Notes.
(E) Represent interest on the New Notes issued in exchange for Existing Notes
which is accrued at 3% annually with the resulting expense as follows by
period for each exchange scenario:
100% 80% 58%
exchanged exchanged exchanged
--------------- --------------- ---------------
Year ended 12/31/03.......... $ 3,300,000 $ 2,640,000 $ 1,914,000
(F) Represents amortization expense using the interest method of the consent
fee paid (10% of the face value of Existing Notes exchanged) upon exchange
of the Existing Notes for New Notes, which mature on September 29, 2008.
(G) Represent the capitalized interest using the lower effective interest rate
as a result of the issuance of the New Notes. Assumes the same level of
capital investment and construction periods but a lower effective rate of
interest.
(H) The income tax provision includes any applicable tax expense from the New
Jersey alternative minimum assessment (AMA) enacted as part of the Business
Tax Reform Act on July 2, 2002 and for periods ended after July 2003 a
minimum casino income tax provision.
(I) New Notes may be exchanged for shares of common stock of Atlantic Coast
Entertainment Holdings, Inc. under certain circumstances according to the
Stated Ratio, as defined. Atlantic Coast Entertainment Holdings, Inc. fully
diluted shares calculation by exchange scenario is as follows assuming a
Stated Ratio of 65.909 shares of common stock of Entertainment Holdings,
Inc. per $1,000 principal amount of New Notes:
In a less than 100% exchange scenario, warrants will be issued to the
shareholders of GB Holdings, Inc., allowing them to purchase up to
2,750,000 shares of common stock of Atlantic Coast Entertainment Holdings,
Inc.
P-19
100% 80% 58%
exchange exchange exchange
----------------- ----------------- ------------------
Convertible notes equivalent shares.......... 7,250,000 7,250,000 7,250,000
Exchange percentage.......................... 100% 80% 58%
----------------- ----------------- ------------------
Shares available to New Note holders......... 7,250,000 5,800,000 4,205,000
Shares available to Warrant holders.......... -- 2,750,000 2,750,000
Shares issued and outstanding................ 2,750,000 1,450,000 3,045,000
----------------- ----------------- ------------------
Total common stock equivalents............... 10,000,000 10,000,000 10,000,000
================= ================= ==================
In all pro forma statement of operations presented, Atlantic Coast
Entertainment Holdings, Inc. has a net loss. Therefore, the diluted
weighted average shares outstanding are the same as basic for all periods
presented. The effect of assuming the conversion of the New Notes would be
antidilutive. Since the Warrants are only exercisable under specific
conditions which are contingent upon future events, they will not be
included in determining the diluted weighted average shares outstanding
until the resolution of such contingencies.
The calculations of income loss per common share are presented below:
For the Year Ended December 31, 2003
100% 80% 58%
exchange exchange exchange
----------------- ------------------ ------------------
Numerator
Net loss.................................... $ (11,904,000) $ (10,791,000) $ (9,558,000)
Denominator
Weighted average number of common shares
outstanding - basic and dilutive.......... 2,750,000 1,450,000 3,045,000
----------------- ------------------ ------------------
Basic and dilutive loss per common share..... $ (4.33) $ (7.44) $ (3.14)
================= ================== ==================
P-20
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 100% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
IMPACT OF PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------ -------------- ------------ --------------
Revenues:
Casino........................................... $ -- $ 44,500 (A) $ -- $ 44,500
Rooms............................................ -- 2,285 (A) -- 2,285
Food and beverage................................ -- 4,988 (A) -- 4,988
Other............................................ -- 930 (A) -- 930
------------ -------------- ------------ --------------
-- 52,703 -- 52,703
Less - promotional allowances.................... -- (11,254)(A) -- (11,254)
------------ -------------- ------------ --------------
Net revenues................................... -- 41,449 -- 41,449
------------ -------------- ------------ --------------
Expenses:
Casino........................................... -- 30,331 (A) -- 30,331
Rooms............................................ -- 608 (A) -- 608
Food and beverage................................ -- 2,090 (A) -- 2,090
Other............................................ -- 697 (A) -- 697
General and administrative....................... -- 2,873 (A) -- 2,873
Depreciation and amortization, including
provision for obligatory investments........... -- 4,073 (A) -- 4,001
Adjust deferred financing fees - Existing Notes -- (72)(C) --
------------ -------------- ------------ --------------
Total expenses (income)................... -- 40,672 (72) 40,600
------------ -------------- ------------ --------------
Income from operations.............................. -- 777 72 849
------------ -------------- ------------ --------------
Non-operating income (expense):
Interest income.................................. -- 111 (A) -- 115
Adjust for higher invested balances............ 4 (D)
Interest expense - New Notes..................... -- -- (825)(E) (1,295)
Amortize valuation allowance - New Notes....... -- (478)(F)
Adjust capitalized interest.................... 8 (G)
Debt restructuring costs......................... -- (710)(A) 710(B) --
------------ -------------- ------------ --------------
Total non-operating expense, net................. -- (599) (581) (1,180)
------------ -------------- ------------ --------------
Income (loss) before income taxes................... -- 178 (509) (331)
Income tax provision............................. -- (267)(H) -- (267)
------------ -------------- ------------ --------------
Net loss............................................ $ -- $ (89) $ (509) $ (598)
============ ============== ============ ==============
Basic loss per common share......................... $ -- $ (0.22) (R)
============ ==============
Diluted loss per common share....................... $ -- $ (0.22) (R)
============ ==============
Weighted average common shares outstanding.......... -- 2,750,000 (R)
============ ==============
Weighted average fully diluted common shares
outstanding...................................... -- 2,750,000 (R)
============ ==============
Ratio of Earnings to Fixed Charges.................. -- --
------------ --------------
P-21
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
($ IN THOUSANDS)
ASSUMING 100% EXCHANGE
IMPACT OF PRO FORMA ADJUSTMENTS
---------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------ -------------- ------------- --------------
ASSETS:
Current Assets:
Cash and cash equivalents............................ $ 1 $ 28,061 (I) $ -- $ 16,468
Adjust for decreased cash balances ................ (11,594)(J)
Accounts receivable, net of allowance of $5,220...... 5,172 (I) -- 5,172
Inventories ......................................... -- 2,114 (I) -- 2,114
Income tax deposits ................................. -- 1,364 (I) -- 1,364
Prepaid expenses and other current assets............ -- 2,639 (I) -- 5,083
Add consent Fees - New Notes....................... -- -- 2,444 (K) --
------------ -------------- ------------- --------------
Total current assets............................... 1 39,350 (9,150) 30,201
------------ -------------- ------------- --------------
Property and Equipment:
Land................................................. -- 54,344 (I) -- 54,344
Buildings and improvements........................... -- 88,262 (I) -- 88,262
Equipment............................................ 65,798 (I) -- 65,798
Construction in progress............................. -- 3,141 (I) -- 3,141
------------ -------------- ------------- --------------
-- 211,545 -- 211,545
Less - accumulated depreciation and amortization..... -- (43,528)(I) -- (43,528)
------------ -------------- ------------- --------------
Property and equipment, net.......................... -- 168,017 -- 168,017
------------ -------------- ------------- --------------
Other Assets:...........................................
Obligatory investments, net of allowances of $11,702. -- 10,875 (I) -- 10,875
Other assets......................................... -- 1,623 (I) -- 10,179
Add consent Fees - New Notes....................... -- -- 8,556 (K) --
------------ -------------- ------------- --------------
Total other assets................................. -- 12,498 8,556 21,054
------------ -------------- ------------- --------------
$ 1 $ 219,865 $ (594) $ 219,272
============ ============== ============= ==============
LIABILITIES:
Current Liabilities
Accounts payable..................................... $ -- $ 4,300 (I) $ -- $ 4,300
Accrued liabilities..................................
Salaries and wages................................. -- 4,027 (I) -- 4,027
Interest........................................... -- 67 (I) (67)(O) --
Gaming obligations................................. -- 2,885 (I) -- 2,885
Insurance.......................................... -- 3,136 (I) -- 3,136
Other.............................................. -- 3,156 (I) -- 3,156
------------ -------------- ------------- --------------
Total current liabilities.......................... -- 17,571 (67) 17,504
------------ -------------- ------------- --------------
Long-Term Debt, net of current maturities............... -- -- 110,000 (L) 110,000
------------ -------------- ------------- --------------
Other Noncurrent Liabilities............................ 3,799 (I) -- 3,799
------------ -------------- ------------- --------------
Commitments and Contingencies -- -- -- --
Shareholders' Equity:
Preferred stock, $. 01 par value per share;5,000,000
shares authorized; 0 shares outstanding............ -- -- -- --
Common Stock, $. 01 par value per share;20,000,000
shares authorized; 2,750,000 shares issued and
outstanding ....................................... -- 28 (M) -- 28
Additional paid-in capital........................... 1 198,467 (N) (110,527)(N) 87,941
Accumulated deficit.................................. -- -- -- --
------------ -------------- ------------- --------------
Total shareholders' equity......................... 1 198,495 (110,527) 87,969
------------ -------------- ------------- --------------
$ 1 $ 219,865 $ (594) $ 219,272
============ ============== ============= ==============
P-22
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 80% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
IMPACT OF PRO FORMA ADJUSTMENTS
-------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------ ------------- ------------- -------------
Revenues:
Casino....................................... $ -- $ 44,500 (A) $ -- $ 44,500
Rooms........................................ -- 2,285 (A) -- 2,285
Food and beverage............................ -- 4,988 (A) -- 4,988
Other........................................ -- 930 (A) -- 930
------------ ------------- ------------- -------------
-- 52,703 -- 52,703
Less - promotional allowances................ -- (11,254)(A) -- (11,254)
------------ ------------- ------------- -------------
Net revenues............................... -- 41,449 -- 41,449
------------ ------------- ------------- -------------
Expenses:
Casino....................................... -- 30,331 (A) -- 30,331
Rooms........................................ -- 608 (A) -- 608
Food and beverage............................ -- 2,090 (A) -- 2,090
Other........................................ -- 697 (A) -- 697
General and administrative................... -- 2,873 (A) -- 2,873
Depreciation and amortization, including
provision for obligatory investments....... -- 4,073 (A) -- 3,987
Adjust deferred financing fees - Existing
Notes................................... (86)(C)
------------ ------------- ------------- -------------
Total expenses (income).................... -- 40,672 (86) 40,586
------------ ------------- ------------- -------------
Income from operations.......................... -- 777 86 863
------------ ------------- ------------- -------------
Non-operating income (expense):
Interest income.............................. -- 111 (A) -- 113
Adjust for higher invested balances........ 2 (D)
Interest expense - New Notes................. -- -- (660)(E) (1,035)
Amortize consent fees - New Notes.......... (383)(F)
Adjust capitalized interest................ 8 (G)
Debt restructuring -- (710)(A) 710 (B) --
------------ ------------- ------------- -------------
Total non-operating expense, net............. -- (599) (323) (922)
------------ ------------- ------------- -------------
Income (loss) before income taxes............... -- 178 (237) (59)
Income tax provision......................... -- (267)(H) -- (267)
------------ ------------- ------------- -------------
Net loss........................................ $ -- $ (89) $ (237) $ (326)
============ ============= ============= =============
Basic loss per common share..................... $ -- $ (.22) (R)
============ =============
Diluted loss per common share................... $ -- $ (.22) (R)
============ =============
Weighted average common shares outstanding...... -- 1,450,000 (R)
============ =============
Weighted average fully diluted common shares
outstanding.................................. -- 1,450,000 (R)
============ =============
Ratio of earnings to fixed charges.............. --
-------------
P-23
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
($IN THOUSANDS)
ASSUMING 80% EXCHANGE
IMPACT OF PRO FORMA ADJUSTMENTS
-------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------ ------------- ------------ --------------
ASSETS:
Current Assets:
Cash and cash equivalents............................ $ 1 $ 28,061 (I) $ -- $ 18,681
Adjust for decreased cash balances ................ (9,381)(J)
Accounts receivable, net of allowance of $5,220...... 5,172 (I) -- 5,172
Inventories ......................................... -- 2,114 (I) -- 2,114
Income tax deposits ................................. -- 1,364 (I) -- 1,364
Prepaid expenses and other current assets............ -- 2,639 (I) -- 4,595
Add consent Fees - New Notes....................... -- -- 1,956 (K)
------------ ------------- ------------ --------------
Total current assets............................... 1 39,350 (7,425) 31,926
------------ ------------- ------------ --------------
Property and Equipment:
Land................................................. -- 54,344 (I) -- 54,344
Buildings and improvements........................... -- 88,262 (I) -- 88,262
Equipment............................................ 65,798 (I) -- 65,798
Construction in progress............................. -- 3,141 (I) -- 3,141
------------ ------------- ------------ --------------
-- 211,545 -- 211,545
Less - accumulated depreciation and amortization..... -- (43,528)(I) -- (43,528)
------------ ------------- ------------ --------------
Property and equipment, net.......................... -- 168,017 -- 168,017
------------ ------------- ------------ --------------
Other Assets:...........................................
Obligatory investments, net of allowances of $11,702. -- 10,875 (I) -- 10,875
Other assets......................................... -- 1,623 (I) -- 8,273
Deduct deferred financing fees - Existing Notes -- -- (194)(Q) --
Add consent Fees - New Notes....................... -- -- 6,844 (K) --
------------ ------------- ------------ --------------
Total other assets................................. -- 12,498 6,650 19,148
------------ ------------- ------------ --------------
$ 1 $ 219,865 $ (775) $ 219,091
============ ============= ============ ==============
LIABILITIES:
Current Liabilities
Accounts payable..................................... $ -- $ 4,300 (I) $ -- $ 4,300
Accrued liabilities..................................
Salaries and wages................................. -- 4,027 (I) -- 4,027
Interest........................................... -- 67 (I) (54)(O) 13
Gaming obligations................................. -- 2,885 (I) -- 2,885
Insurance.......................................... -- 3,136 (I) -- 3,136
Other.............................................. -- 3,156 (I) -- 3,156
------------ ------------- ------------ --------------
Total current liabilities.......................... -- 17,571 (54) 17,517
------------ ------------- ------------ --------------
Long-Term Debt, net of current maturities............... -- -- 88,000 (L) 88,000
------------ ------------- ------------ --------------
Other Noncurrent Liabilities............................ 3,799 (I) -- 3,799
------------ ------------- ------------ --------------
Commitments and Contingencies -- -- -- --
Shareholders' Equity:
Preferred stock, $. 01 par value per share;5,000,000
shares authorized; 0 shares outstanding............ -- -- -- --
Common Stock, $. 01 par value per share;20,000,000
shares authorized; 1,450,000 shares issued and
outstanding ....................................... -- 15 (M) -- 15
Additional paid-in capital........................... 1 165,480 (N) (88,721)(N) 76,760
Warrants outstanding 33,000 (P) -- 33,000
Accumulated deficit.................................. -- -- -- --
------------ ------------- ------------ --------------
Total shareholders' equity......................... 1 198,495 (88,721) 109,775
------------ ------------- ------------ --------------
$ 1 $ 219,865 $ (775) $ 219,091
============ ============= ============ ==============
P-24
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
ASSUMING 58% EXCHANGE
($ IN THOUSANDS EXCEPT PER SHARE DATA)
IMPACT OF PRO FORMA ADJUSTMENTS
-----------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------- --------------- ------------- --------------
Revenues:
Casino....................................... $ -- $ 44,500 (A) $ -- $ 44,500
Rooms........................................ -- 2,285 (A) -- 2,285
Food and beverage............................ -- 4,988 (A) -- 4,988
Other........................................ -- 930 (A) -- 930
------------- --------------- ------------- --------------
-- 52,703 -- 52,703
Less - promotional allowances................ -- (11,254)(A) -- (11,254)
------------- --------------- ------------- --------------
Net revenues............................... -- 41,449 -- 41,449
------------- --------------- ------------- --------------
Expenses:
Casino....................................... -- 30,331 (A) -- 30,331
Rooms........................................ -- 608 (A) -- 608
Food and beverage............................ -- 2,090 (A) -- 2,090
Other........................................ -- 697 (A) -- 697
General and administrative................... -- 2,873 (A) -- 2,873
Depreciation and amortization, including
provision for obligatory investments....... -- 4,073 (A) -- 3,973
Adjust deferred financing fees - Existing
Notes................................... (100)(C)
------------- --------------- ------------- --------------
Total expenses (income).................... -- 40,672 (100) 40,572
------------- --------------- ------------- --------------
Income from operations.......................... -- 777 100 877
------------- --------------- ------------- --------------
Non-operating income (expense):
Interest income.............................. -- 111 (A) 112
Adjust for higher invested balances........ 1 (D)
Interest expense - New Notes................. -- -- (479)(E) (748)
Amortize consent fees - New Notes.......... (277)(F)
Adjust capitalized interest................ 8 (G)
Debt restructuring -- (710)(A) 710 (B) --
------------- --------------- ------------- --------------
Total non-operating expense, net............. -- (599) (37) (636)
------------- --------------- ------------- --------------
Income before income taxes...................... -- 178 63 241
Income tax provision......................... -- (267)(H) -- (267)
------------- --------------- ------------- --------------
Net income (loss)............................... $ -- $ (89) $ 63 $ (26)
============= =============== ============= ==============
Basic loss per common share..................... $ -- $ (0.01) (R)
============= ==============
Diluted loss per common share................... $ -- $ (0.01) (R)
============= ==============
Weighted average common shares outstanding...... -- 3,045,000 (R)
============= ==============
Weighted average fully diluted common shares
outstanding.................................. -- 3,045,000 (R)
============= ==============
Ratio of earnings to fixed charges.............. 1.24
--------------
P-25
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
($IN THOUSANDS)
ASSUMING 58% EXCHANGE
IMPACT OF PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
TRANSFER OF EXCHANGE PRO FORMA
HISTORICAL OPERATIONS OF DEBT AS ADJUSTED
------------ -------------- ------------ --------------
ASSETS:
Current Assets:
Cash and cash equivalents............................ $ 1 $ 28,061 (I) $ -- $ 21,116
Adjust for decreased cash balances ................ (6,946)(J)
Accounts receivable, net of allowance of $5,220...... 5,172 (I) -- 5,172
Inventories ......................................... -- 2,114 (I) -- 2,114
Income tax deposits ................................. -- 1,364 (I) -- 1,364
Prepaid expenses and other current assets............ -- 2,639 (I) -- 4,057
Add consent Fees - New Notes....................... -- -- 1,418 (K)
------------ -------------- ------------ --------------
Total current assets............................... 1 39,350 (5,528) 33,823
------------ -------------- ------------ --------------
Property and Equipment:
Land................................................. -- 54,344 (I) -- 54,344
Buildings and improvements........................... -- 88,262 (I) -- 88,262
Equipment............................................ 65,798 (I) -- 65,798
Construction in progress............................. -- 3,141 (I) -- 3,141
------------ -------------- ------------ --------------
-- 211,545 -- 211,545
Less - accumulated depreciation and amortization..... -- (43,528)(I) -- (43,528)
------------ -------------- ------------ --------------
Property and equipment, net.......................... -- 168,017 -- 168,017
------------ -------------- ------------ --------------
Other Assets:...........................................
Obligatory investments, net of allowances of $11,702. -- 10,875 (I) -- 10,875
Other assets......................................... -- 1,623 (I) -- 6,177
Deduct deferred financing fees - Existing Notes -- -- (408)(Q) --
Add consent Fees - New Notes....................... -- -- 4,962 (K) --
------------ -------------- ------------ --------------
Total other assets................................. -- 12,498 4,554 17,052
------------ -------------- ------------ --------------
$ 1 $ 219,865 $ (974) $ 218,892
============ ============== ============ ==============
LIABILITIES:
Current Liabilities
Accounts payable..................................... $ -- $ 4,300 (I) $ -- $ 4,300
Accrued liabilities..................................
Salaries and wages................................. -- 4,027 (I) -- 4,027
Interest........................................... -- 67 (I) (39)(O) 28
Gaming obligations................................. -- 2,885 (I) -- 2,885
Insurance.......................................... -- 3,136 (I) -- 3,136
Other.............................................. -- 3,156 (I) -- 3,156
------------ -------------- ------------ --------------
Total current liabilities.......................... -- 17,571 (39) 17,532
------------ -------------- ------------ --------------
Long-Term Debt, net of current maturities............... -- -- 63,800(L) 63,800
------------ -------------- ------------ --------------
Other Noncurrent Liabilities............................ 3,799 (I) -- 3,799
------------ -------------- ------------ --------------
Commitments and Contingencies -- -- -- --
Shareholders' Equity:
Preferred stock, $. 01 par value per share;
5,000,000 shares authorized; 0 shares outstanding.. -- -- -- --
Common Stock, $. 01 par value per share; 20,000,000
shares authorized; 1,450,000 shares issued and
outstanding ....................................... -- 30 (M) -- 30
Additional paid-in capital........................... 1 164,765 (N) (64,735)(N) 100,031
Warrants outstanding 33,700 (P) -- 33,700
Accumulated deficit.................................. -- -- -- --
------------ -------------- ------------ --------------
Total shareholders' equity......................... 1 198,495 (64,735) 133,761
------------ -------------- ------------ --------------
$ 1 $ 219,865 $ (974) $ 218,892
============ ============== ============ ==============
P-26
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2004
PRO FORMA ADJUSTMENTS
Statements of Operations Adjustments:
(A) Represents the inclusion of the amounts presented in the respective
statement of operations of GB Holdings and Subsidiaries for the three
months ended March 31, 2004 (exclusive of any interest attributed to
the Existing Notes) as the result of operations are to be recorded by
Atlantic Holdings and Subsidiary.
(B) Represents the elimination of transaction fees associated with the
issuance of the New Notes as it is assumed the transaction occurred on
January 1, 2003.
(C) Represents the removal of deferred financing costs related to the
Existing Notes contained in the amount of the "Depreciation and
Amortization, including Provision for obligatory investments" of GB
Holdings and Subsidiaries.
(D) Represents an increase in interest income as a result of higher cash
balances due to the elimination of interest payments on the existing
notes offset by the impact of the consent fee and estimated
transaction fees.
(E) Represent interest on the New Notes issued in exchange for Existing
Notes which is accrued at 3% annually with the resulting expense as
follows by period for each exchange scenario:
100% 80% 58%
exchanged exchanged exchanged
--------------- --------------- ---------------
Three months ended 3/31/04................ $ 825,000 $ 660,000 $ 479,000
(F) Represents amortization expense using the interest method of the
consent fee paid (10% of the face value of Existing Notes exchanged)
upon exchange of the Existing Notes for New Notes, which mature on
September 29, 2008.
(G) Represent the capitalized interest using the lower effective interest
rate as a result of the issuance of the New Notes. Assumes the same
level of capital investment and construction periods but a lower
effective rate of interest.
(H) The income tax provision includes any applicable tax expense from the
New Jersey alternative minimum assessment (AMA) enacted as part of the
Business Tax Reform Act on July 2, 2002 and for periods ended after
July 2003 a minimum casino income tax provision.
Balance Sheet Adjustments:
(I) Represents the inclusion of the assets and liabilities presented in
the balance sheet of GB Holdings, Inc. and Subsidiaries as of March
31, 2004 as the result of the transfer of all assets and liabilities
(excluding its obligations under the Existing Notes that are not
tendered for exchange) to Atlantic Coast Entertainment Holdings, Inc.
and Subsidiary.
(J) Represents the net decrease in cash as of March 31, 2004. Amount is
equal to the cumulative amount of estimated cash payments for the
following items by each exchange scenario:
100% 80% 58%
exchanged exchanged exchanged
---------------- ---------------- ---------------
Consent fees...................... $ 11,000,000 $ 8,800,000 6,380,000
Estimated financing fees.......... 527,000 527,000 527,000
Accrued interest.................. 67,000 54,000 39,000
---------------- ---------------- ---------------
$ 11,594,000 $ 9,381,000 $ 6,946,000
================ ================ ===============
(K) Represents consent fee paid upon exchange of Existing Notes for New
Notes.
P-27
(L) Represents the impact on long-term debt as a result of the issuance of
New Notes at a 100% exchange ($110 million), 80% exchange ($88
million) and 58% exchange ($63.8 million).
(M) Represents in a 100% exchange of the Existing Notes, the former
shareholders of GB Holdings, Inc. and Subsidiaries receive their
ownership in Atlantic Coast Entertainment Holdings, Inc. and
Subsidiary. In a less than 100% exchange, GB Holdings, Inc. and
Subsidiaries will own 100% of the outstanding shares of common stock
of Atlantic Coast Entertainment Holdings, Inc. and Subsidiary.
(N) Represents the paid in capital as a result of the transaction.
(O) Represents the payment of accrued interest on the Existing Notes upon
exchange. The remaining accrued interest after the exchange represents
Atlantic Coast Entertainment Holdings, Inc. contractual obligation to
provide GB Holdings, Inc. the funds necessary to continue to pay the
scheduled interest on the remaining portion of the Existing Notes in a
80% and 58% Exchange.
(P) Represents the value of the outstanding warrants to purchase Atlantic
Holdings common stock (as determined by third party valuation)
ultimately dividended to the shareholders of GB Holdings in a less
than 100% exchange scenario.
(Q) Represents the reduction of deferred financing fees associated with
Existing Notes included in other assets.
(R) New Notes may be exchanged for shares of common stock of Atlantic
Coast Entertainment Holdings, Inc. under certain circumstances
according to the Stated Ratio, as defined. Atlantic Coast
Entertainment Holdings, Inc. fully diluted shares calculation by
exchange scenario is as follows assuming a Stated Ratio of 65.909
shares of common stock of Entertainment Holdings, Inc. per $1,000
principal amount of New Notes:
In a less than 100% exchange scenario, warrants will be issued to the
shareholders of GB Holdings, Inc., allowing them to purchase up to
2,750,000 shares of common stock of Atlantic Coast Entertainment
Holdings, Inc.
100% 80% 58%
exchange exchange exchange
-------------- -------------- --------------
Convertible notes equivalent shares............... 7,250,000 7,250,000 7,250,000
Exchange percentage............................... 100% 80% 58%
-------------- -------------- --------------
Shares available to New Note holders.............. 7,250,000 5,800,000 4,205,000
Shares available to Warrant holders............... -- 2,750,000 2,750,000
Shares issued and outstanding..................... 2,750,000 1,450,000 3,045,000
-------------- -------------- --------------
Total common stock equivalents.................... 10,000,000 10,000,000 10,000,000
============== ============== ==============
In all pro forma statement of operations presented, Atlantic Coast
Entertainment Holdings, Inc. has a net loss. Therefore, the diluted
weighted average shares outstanding are the same as basic for all
periods presented. The effect of assuming the conversion of the New
Notes would be antidilutive. Since the Warrants are only exercisable
under specific conditions which are contingent upon future events,
they will not be included in determining the diluted weighted average
shares outstanding until the resolution of such contingencies.
The calculations of income loss per common share are presented below:
For the Three Months Ended March 31, 2004
100% 80% 58%
exchange exchange exchange
------------------ ------------------- ----------------
Numerator
Net loss................................................. $ (598,000 ) $ (326,000 ) $ (26,000 )
Denominator
Weighted average number of common shares outstanding
- basic and dilutive.................................. 2,750,000 1,450,000 3,045,000
================== =================== ================
Basic and dilutive loss per common share................. $ (0.22 ) $ (0.22 ) $ (0.01 )
================== =================== ================
P-28
ANNEX A
CERTIFICATE OF INCORPORATION
OF
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
The undersigned, being over the age of eighteen years, in order to
form a corporation pursuant to the provisions of the Delaware General
Corporation Law, does hereby certify as follows:
FIRST: The name of this corporation shall be: ATLANTIC COAST
ENTERTAINMENT HOLDINGS, INC. (the "Corporation").
SECOND: The address, including street, number, city, and county, of
the registered office of the Corporation in the State of Delaware is 2711
Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle; and
the name of the registered agent of the Corporation in the State of Delaware at
such address is Corporation Service Company.
THIRD: The purpose or purposes of the Corporation shall be to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware
FOURTH: The total number of shares which the Corporation shall have
authority to issue is 25,000,000, consisting of 20,000,000 shares of common
stock, all of a par value of one cent ($.01) each ("Common Stock"), and
5,000,000 shares of preferred stock, all of a par value of one cent ($.01) each
("Preferred Stock"). The voting powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, in respect of the classes of stock of the
Corporation are as follows:
(a) Preferred Stock,
(i) The Preferred Stock of the Corporation may be issued
from time to time in one or more series of any number of shares,
provided that the aggregate number of shares issued and not
canceled in any and all such series shall not exceed the total
number of shares of Preferred Stock hereinabove authorized.
(ii) Authority is hereby vested in the Board of Directors
from time to time to authorize the issuance of one or more series
of Preferred Stock and, in connection with the creation of such
series, to fix by resolution or resolutions providing for the
issuance of shares thereof the characteristics of each such
series including, without limitation, the following:
(1) the maximum number of shares to constitute such
series, which may subsequently be increased or decreased
(but not below the number of shares of that series then
outstanding) by resolution of the Board of Directors, the
distinctive designation thereof and the stated value thereof
if different than the par value thereof;
(2) whether the shares of such series shall have voting
powers, full or limited, or no voting powers, and if any,
the terms of such voting powers;
(3) the dividend rate, if any, on the shares of such
series, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other
class or classes or on any other series of capital stock and
whether such dividend shall be cumulative or noncumulative;
(4) whether the shares of such series shall be subject
to redemption by the Corporation, and, if made subject to
redemption, the times, prices and other terms, limitations,
restrictions or conditions of such redemption;
(5) the relative amounts, and the relative rights or
preference, if any, of payment in respect of shares of such
series, which the holders of shares of such series shall be
entitled to receive upon the liquidation, dissolution or
winding-up of the Corporation;
(6) whether or not the shares of such series shall be
subject to the operation of a retirement or sinking fund
and, if so, the extent to and manner in which any such
A-1
retirement or sinking fund shall be applied to the purchase
or redemption of the shares of such series for retirement or
to other corporate purposes and the terms and provisions
relative to the operation thereof;
(7) whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of any other
class, classes or series, or other securities, whether or
nor issued by the Corporation, and if so convertible or
exchangeable, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting
same;
(8) the limitations and restrictions, if any, to be
effective while any shares of such series are outstanding
upon the payment of dividends or the making of other
distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock (as
defined below) or any other class or classes of stock of the
Corporation ranking junior to the shares of such series
either as to dividends or upon liquidation, dissolution or
winding-up;
(9) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the
issuance of any additional stock (including additional
shares of such series or of any other series or of any other
class) ranking on a parity with or prior to the shares of
such series as to dividends or distributions of assets upon
liquidation, dissolution or winding-up; and
(10) any other preference and relative. participating,
optional or other special rights, and the qualifications,
limitations or restrictions thereof, as shall not be
inconsistent with law, this ARTICLE FOURTH or any resolution
of the Board of Directors pursuant hereto.
(b) Common Stock
(i) The Common Stock of the Corporation may be issued
from time to time in any number of shares, provided that the
aggregate number of shares issued and not canceled shall not
exceed the total number of shares of Common Stock
hereinabove authorized.
(ii) Unless expressly provided by the Board of
Directors of the Corporation in fixing the voting rights of
any series of Preferred Stock, the holders of the
outstanding shares of Common Stock shall exclusively possess
all voting power for the election of directors and for all
other purposes, each holder of record of shares of Common
Stock being entitled to one vote for each share of such
stock standing in his name on the books of the Corporation.
(iii) Subject to the prior rights of the holders of
Preferred Stock now or hereafter granted pursuant to this
ARTICLE FOURTH, the holders of Common Stock shall be
entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for that purpose,
dividends payable either in cash, stock or otherwise.
(iv) In the event of any liquidation, dissolution or
winding-up of the Corporation, either voluntary or
involuntary, after payment shall have been made in full to
the holders of Preferred Stock of any amounts to which they
may be entitled and subject to the rights of the holders of
Preferred Stock now or hereafter granted pursuant to this
ARTICLE FOURTH, the holders of Common Stock shall be
entitled, to the exclusion of the holders of Preferred Stock
of any and all series, to share, ratably accordingly to the
number of shares of Common Stock held by them, in all
remaining assets of the Corporation available for
distribution to its stockholders.
FIFTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws of the Corporation.
SIXTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages or any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for 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) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for
A-2
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this ARTICLE SIXTH shall apply to or have any effect
on the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
SEVENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented from time to time, indemnify any and all persons whom it shall
have power to indemnify under said Section from and against any and all of the
expenses, liabilities or other matters referred to or covered by said Section,
and the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person
EIGHTH: All securities (as defined by the New Jersey Casino Control
Act, N.J.S.A. 5:12-1 et seq. (the "Act")) of the Corporation are held subject to
the condition that, if a holder thereof is found to be disqualified by the New
Jersey Casino Control Commission pursuant to the provisions of the Act, such
holder shall (a) dispose of his or her interest in the Corporation; (b) not
receive any dividends or interest upon any such securities; (c) not exercise,
directly or through any trustee or nominee, any voting right conferred by such
securities; and (d) not receive any remuneration in any form from the casino
licensee for services rendered or otherwise. If any unsuitable or disqualified
holder fails to dispose of his securities within 180 days following such
disqualification, (i) such securities shall be subject to redemption by the
Corporation, by action of the Board of Directors, if in the judgment of the
Board of Directors such action should be taken, pursuant to Section 151 (b) of
the General Corporation Law of Delaware, to the extent necessary to prevent the
loss or secure the reinstatement of any government-issued license or franchise
held by the Corporation, which license or franchise is conditioned upon some or
all of the holders of the Corporation's securities possessing prescribed
qualifications and (ii) such unsuitable or disqualified holder shall indemnify
the Corporation for any and all direct or indirect costs, including attorneys'
fees, incurred by the Corporation as a result of such holder's continuing
ownership or failure to divest promptly. The redemption price for all securities
to be redeemed by the Corporation pursuant to this ARTICLE EIGHTH shall be the
par value per share thereof.
NINTH: The Corporation shall not create, designate, authorize or cause
to be issued any class or series of nonvoting stock.
TENTH: The corporation elects not to be governed by the "Takeover
Statute" (Section 203 of the General Corporation Law of the State of Delaware).
NINTH: The name and address of the incorporator is Bernadette Fallows
Davidson, Esq. 50 West State Street, Suite 1400, P.O. Box 1298, Trenton, New
Jersey 08607-1298.
IN WITNESS WHEREOF, the undersigned has set her hand this 30th day of
October, 2003.
/s/ Bernadette Fallows Davidson
-------------------------------
Bernadette Fallows Davidson
A-3
ANNEX B
BY-LAWS OF
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
ARTICLE 1
OFFICES
Section 1.1. Principal Office. The principal office of the Corporation
shall be c/o Sands Hotel & Casino, Indiana Avenue & Brighton Park, Atlantic
City, New Jersey 08401.
Section 1.2. Other Offices. The corporation may also have offices, and
keep the books and records of the corporation, at such other places, either
within or without the State of Delaware, as the board of directors may from time
to time determine or as the business of the corporation may require, except as
may otherwise be required by law.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meetings. All meetings of the stockholders shall
be held at the office of the corporation or at such other places as may be fixed
from time to time by the board of directors, either within or without the State
of Delaware, and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2.2. Annual Meetings. Annual meetings of stockholders shall be
held at the time and place to be selected by the board of directors. If the day
is a legal holiday, then the meeting shall be held on the next following
business day. At the meeting, the stockholders shall elect a board of directors
by written ballot and transact such other business as may properly be brought
before the meeting.
Section 2.3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 2.4. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.5. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board or the
president of the corporation and shall be called by the president or the
secretary at the request in writing of a majority of the board of directors, or
by the holders of ten percent (10%) or more of the outstanding shares of stock
of the corporation. Such request shall state the purpose or purposes of the
proposed meeting.
Section 2.6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting. Business transacted at any special
meeting of the stockholders shall be limited to the purposes stated in the
notice.
Section 2.7. Quorum. The, holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except, as may otherwise be provided by statute or by
the certificate of incorporation.
If a quorum is present at a meeting of stockholders, the stockholders
represented in person or by proxy at the meeting may conduct such business as
may be properly brought before the meeting until it is finally adjourned, and
the subsequent withdrawal from the meeting of any stockholder or the refusal of
any stockholder
B-1
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting, except as may otherwise be provided by law or the
certificate of incorporation.
If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the chairman of the meeting or the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, or if these
Bylaws otherwise require, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.8. Order of Business. At each meeting of the stockholders,
one of the following persons, in the order in which they are listed (and in the
absence of the first, the next, and so on), shall serve as chairman of the
meeting: chairman of the board, president, vice presidents (in the order of
their seniority if more than one) and secretary. The order of business at each
such meeting shall be as determined by the chairman of the meeting. Except as
may otherwise be provided by statute, the certificate of incorporation or these
Bylaws, the chairman of the meeting shall have, in his sole discretion, the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts and things as are necessary or desirable for the proper conduct
of the meeting, including, without limitation, the establishment of procedures
for the maintenance of order and safety, limitations on the time allotted to
questions or comments on the affairs of the corporation, restrictions on entry
to such meeting after the time prescribed for the commencement thereof, and the
opening and closing of the voting polls. Only stockholders of record will be
permitted to present motions from the floor at any meeting of stockholders.
Section 2.9. Majority Vote. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
statutes, the certificate of incorporation or these Bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 2.10. Method of Voting. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder (i) at the time fixed
pursuant to Section & 5 of these By Laws as the record date for the
determination of stockholders entitled to vote at such meeting, or (ii) if no
such record date shall have been fixed, then at the close of business on the
date next preceding the day on which notice thereof shall be given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, but no proxy shall be voted on or after three (3)
years from its date, unless the proxy provides for a longer period.
Section 2.11. Action of Stockholders by Written Consent Without
Meetings. Unless otherwise provided in the certificate of incorporation, any
action required or permitted to be taken by stockholders for or in connection
with any corporate action may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing setting forth the action
so taken shall be (a) signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted and (ii) delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business or an officer or
agent of the corporation having custody of the book in which proceedings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder who
signs the consent.
If action is taken by less than unanimous consent of stockholders and
in accordance with the foregoing, there shall be filed with the records of the
meetings of stockholders the writing or writings comprising such less than
unanimous consent. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous consent shall be given to those who have not
consented in writing, and a certificate signed and attested to by the secretary
that such notice was given shall be filed with the records of the-meetings of
the stockholders.
If action is taken by unanimous consent of stockholders, the writing
or writings comprising such unanimous consent shall be filed with the records of
the meetings of stockholders.
B-2
In the event that the action which is consented to is such as would
have required the filing of a certificate under any of the provisions of the
General Corporation Law of the State of Delaware (the "DGCL") as amended, if
such action had been voted upon by the stockholders at a meeting thereof, the
certificate filed under such provisions shall state (i) that written consent has
been given under Section 228 of the DGCL, as amended, in lieu of stating that
the stockholders have voted upon the corporate action in question, if such last
mentioned statement is so required, and (ii) that written notice has been given
as provided in such Section 228.
ARTICLE 3
DIRECTORS
Section 3.1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the board of
directors, which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by law or by the certificate of incorporation
of the corporation or by these Bylaws directed or required to be exercised or
done by the stockholders.
Section 3.2. Number of Directors. The number of directors constituting
the board shall be such number as shall be from time to time specified by
resolution of the board of directors; provided, however, that no director's term
shall be shortened by reason of a resolution reducing the number of directors;
and further provided that the number of directors constituting the initial board
of directors shall be 6 and shall remain such number unless and until changed by
resolution of the board of directors on or after the date hereof.
Section 3.3. Election Qualification and Term of Office of Directors.
Directors shall be elected at each annual meeting of stockholders at which a
quorum is present to hold office until the next annual meeting. The persons
receiving a plurality of the votes of the shares represented in person or by
proxy and entitled to vote on the election of directors shall be, elected
directors. Except as may otherwise be provided by law, the certificate of
incorporation or these Bylaws, directors need not be stockholders nor residents
of the State of Delaware. Except as may otherwise be provided by law, the
certificate of incorporation or these Bylaws, each director, including a
director elected to fill a vacancy, shall hold office until the next annual
meeting and until his successor is elected and qualified or until his earlier
death, disqualification, resignation or removal.
Section 3.4. First Meetings. The first meeting of each newly elected
board of directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.5. Regular Meetings. Regular meetings of the board of
directors may be held without notice (except as may otherwise be required by law
or these Bylaws) at such times and at such places as shall from time to time be
determined by the board.
Section 3.6. Special Meetings. Special meetings of the board of
directors may be called by the chairman of the board or the president, and shall
be called by the president or secretary on the written request of two (2)
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 3.7. Quorum; Majority Vote. At all meetings of the board, a
majority of the entire board of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 3.8. Action Without Meeting. Unless otherwise restricted by
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors may be taken
B-3
without a meeting, if all members of the board consent in writing to the
adoption of a resolution authorizing the action, and the writing or writings are
filed with the minutes of the proceedings of the board.
Section 3.9. Telephone and Similar Meetings. Unless otherwise
restricted by the certificate of incorporation or these Bylaws, members of the
board of directors may participate in any meeting of the board of directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting of
the board.
Section 3.10. Notice of Meetings. Unless otherwise required by law or
specified herein, notice of regular meetings of the board of directors or of any
adjourned meeting thereof need not be given. Notice of each special meeting of
the board (and of each regular meeting for which notice shall be required) shall
be sailed to each director, addressed to such director at such director's
residence or usual place of business, at least two (2) days before the day on
which the meeting is to be held or shall be sent to such director at such place
by telex, cable, facsimile or telegram or be given personally or by telephone,
not later than the day before the meeting is to be held, but notice need not be
given to any director who shall, either before or after the meeting, submit a
signed written waiver of such notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to such
director. Every such notice shall state the time and place but need not state
the purpose of the meeting.
Section 3.11. Rules and Regulations. The board of directors may adopt
such rules and regulations not inconsistent with the provisions of law, the
certificate of incorporation of the corporation or these Bylaws for the conduct
of its meetings and management of the affairs of the corporation, as the board
may deem proper.
Section 3.12. Resignations. Any director of the corporation may at any
time resign by' giving written notice to the board of directors, the chairman of
the board, the president or the secretary of the corporation. Such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.13. Removal of Directors. Unless otherwise restricted by
statute, by the certificate of incorporation or by these Bylaws, any director or
the entire board of directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors; provided, however, that when the holders of any class or series of
stock are entitled by the certificate of incorporation to elect one (1) or more
directors, then, in respect to the removal without cause of a director or
directors so elected, the required majority vote shall be of the holders of the
outstanding shares of such class or series and not of the Outstanding shares as
a whole.
Section 3.14. Vacancies. Except as may otherwise be provided by, law,
the certificate of incorporation or these By Laws, any vacancies on the board of
directors resulting from death, disqualification, resignation, removal or other
cause, and newly created directorships resulting from any increase in the number
of directors shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the board
of directors, or by a sole remaining director. Any director elected or chosen in
accordance with the preceding sentence of this Section 3.15 shall hold office
for the remainder of the term of the directorship to which he was appointed or
until his successor shall have been elected and qualified or until his earlier
death, disqualification, resignation or removal. Unless the certificate of
incorporation or these Bylaws provide otherwise, when one or more directors
shall resign from the board of directors, effective at future date, the majority
of directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective.
Section 3.15. Compensation of Directors. Unless otherwise restricted
by the certificate of incorporation of these Bylaws, the board of directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
B-4
ARTICLE 4
EXECUTIVE AND OTHER COMMITTEES
Section 4.1. Executive and Other Committees. The board of directors
may, by resolution adopted by a majority of the entire board, designate from
time to time one (1) or more of its members to constitute members or alternate
members of an executive committee or one or more other committees, which
committees shall have and may exercise, between meetings of the board, all the
powers and authority of the board in the management of the business and affairs
of the corporation, including, if any such committee is so empowered and
authorized ay resolution adopted by a majority of the entire board, the power
and authority to declare a dividend, to authorize the issuance of stock and to
adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL,
as amended, and may authorize the seal of the corporation to be affixed to all
papers which may require it, except that no such committee shall have such power
or authority with reference to:
(a) amending the certificate of incorporation of the corporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors pursuant to authority, if any, expressly vested in the board by the
provisions of the certificate of incorporation, (i) fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation, or (ii) fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series);
(b) adopting an agreement of merger or consolidation involving the
corporation;
(c) recommending to the stockholders the sale, lease or exchange of
all or substantially all of the property and assets of the corporation;
(d) recommending to the stockholders a dissolution of the corporation
or a revocation of a dissolution;
(e) adopting, amending or repealing any Bylaw;
(f) filling vacancies on the board;
(g) fixing the compensation of directors for serving on the board or
on any committee of the board, including the executive committee; or
(h) amending or repealing any resolution of the board which by its
terms may be amended or repealed only by the board.
Section 4.2. Procedure; Meetings; Quorum. Regular meetings of the
executive committee or any other committee of the board of directors, of which
no notice shall be necessary, may be held at such times and places as shall be
fixed by resolution adopted by a majority of the members thereof. Special
meetings of the executive committee or any other committee of the board shall be
called at the request of any member thereof. Notice of each special meeting of
the executive committee or any other committee of the board shall be sent by
mail, telex, cable, facsimile, telegram or telephone, or be delivered personally
to each member thereof not later than the day before the day on which the
meeting is to be held, but notice need not be given to any member who shall,
either before or after the meeting, submit a signed written waiver of such
notice or who shall attend such meeting without protesting, prior to or at its
commencement, the lack of such notice to such member. Any special meeting of the
executive committee or any other committee of the board shall be a legal meeting
without any notice thereof having been given, if all the members thereof shall
be present thereat. Notice of any adjourned meeting of any committee of the
board need not be given. The executive committee or any other committee of the
board may adopt such rules and regulations not inconsistent with the provisions
of law, the certificate of incorporation of the corporation or these Bylaws for
the conduct of its meetings as the executive committee or any other committee of
the board may deem proper. A majority of the executive committee or any Other
committee of the board shall constitute a quorum for the transaction of business
at any meeting, and the vote of a majority of the members thereof present at any
meeting at which a quorum is present shall be the act of such committee. In the
absence or disqualification of a member, the remaining members, whether or not a
quorum may fill a vacancy. The executive committee or any other committee
B-5
of the board of directors shall keep written minutes of its proceedings, a copy
of which is to be filed with the secretary of the corporation, and shall report
on such proceedings to the board.
Section 4.3. Compensation. Members of special or standing committees
may be allowed compensation if the board of directors shall so determine
pursuant to Section 3.16 of these Bylaws.
Section 4.4 Action by Consent; Participation by Telephone or Similar
Equipment. Unless the board of directors, the certificate of incorporation or
these Bylaws shall otherwise provide, any action required or permitted to be
taken by any committee may be taken without a meeting if all members of the
committee consent in writing to the adoption of a resolution authorizing the
action, and the writing or writings are filed with the minutes of the
proceedings of the committee. Unless the board of directors, the certificate of
incorporation or these Bylaws shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation by
such means shall constitute presence in person at a meeting of the committee.
Section 4.5. Changes in Committees; Resignations; Removals. The board
shall have powers, by the affirmative vote of a majority of the authorized
number of directors, at any time to change the members of, to fill vacancies in,
and to discharge any committee of the board. Any member of any such committee
may resign at any time by giving notice to the corporation, provided, however,
that notice to the board, the chairman of the board, the president, the chairman
of such committee or the secretary shall be deemed to constitute notice to the
corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, with or without cause,
by the affirmative vote of a majority of the authorized number of directors at
any meeting of the board called for that purpose.
ARTICLE 5
NOTICES
Section 5.1. Method. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telex, cable, facsimile or telegram.
Section 5.2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
Committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these Bylaws.
ARTICLE 6
OFFICERS
Section 6.1. Election; Qualification. The officers of the corporation
shall be chosen annually by the board of directors at its first regular meeting
held after the annual meeting of stockholders or as soon thereafter as
conveniently practicable and shall be a president, one or more vice presidents
and a secretary. The board of directors may also choose as officers a chairman
of the board, one or more vice chairmen of the board, a treasurer, one or more
assistant secretaries and assistant treasurers and such other officers and
agents as it shall deem necessary. Any number of offices may-be held by the same
person, unless the certificate of incorporation or these Bylaws otherwise
provide. The chairman of the board and any vice chairman of the board shall be
elected from among the directors.
B-6
With the foregoing exception, none of the other officers need be a director, and
none of the officers need be a stockholder of the corporation unless otherwise
required by the certificate of incorporation.
Section 6.2. Salary. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 6.3. Term; Removal. The officers of the corporation shall hold
office until their successors are chosen and qualify or until their death or the
effective date of their removal or resignation (or until he shall cease to be a
director in the case of the chairman of the board or any vice chairman of the
board). Any officer elected or appointed by the board of directors may be
removed, with or without cause, at any time by the affirmative vote of a
majority of the board of directors.
Section 6.4. Resignation. Subject at all times to the right of removal
as provided in Section 6.3 of this Article 6, any officer may resign at any time
by giving notice to the board of directors, the chairman of the board, the
president or the secretary of the corporation. Any such resignation shall take
effect at the date of receipt of such notice or at any later date specified
therein; provided that the president or, in the event of the resignation of the
president, the board of directors may designate an effective date for such
resignation which is earlier than the date specified in such notice but which is
not earlier than the date of receipt of such notice; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 6.5. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term by the board of directors and, in the case of any vacancy in an
office other than the office of chairman of the board or vice chairman of the
board (if any) or president, by the president.
Section 6.6. Chairman of the Board. The chairman of the board shall,
if there be such an officer, preside at meetings of the board of directors and
preside at meetings of the stockholders. The chairman of the board shall counsel
with and advise the president and perform such other duties as the president or
the board or the executive committee may from time to time determine. Except as
otherwise provided by resolution of the board, the chairman of the board shall
be ex-officio a member of all committees of the board. The chairman of the board
may sign and execute in the name of the corporation any and all deeds,
mortgages, bonds, contracts, agreements, certificates or other instruments or
documents authorized by the board or any committee thereof empowered to
authorize the same.
Section 6.7. Vice Chairman of the Board. In the absence of the
chairman of the board or, in the event of his inability or refusal to act, the
vice chairman (or in the event there be more than one vice chairman, the vice
chairmen in the order designated by the directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the chairman of the board, and when so acting shall have all the powers of and
be subject to all the restrictions upon the chairman of the board. The vice
chairman shall perform such other duties and have such other powers as the board
of directors may from time to time prescribe. Any vice chairman may sign and
execute in the name of the corporation any and all deeds, mortgages, bonds,
contracts, agreements, certificates or other instruments or documents authorized
by the board or any committee thereof empowered to authorize the same.
Section 6.8. President. The president shall be the chief executive
officer of the corporation, shall preside at all meetings of the stockholders
and the board of directors if there shall be no chairman or vice chairman of the
board or if the chairman or vice chairman of the board shall not be present or
shall be unable or unwilling to act at any such meeting, shall have general and
active management of the business of the corporation and shall see that all
orders and resolutions of the board of directors are carried into effect. He
shall execute deeds, mortgages, bonds, contracts, agreements, certificates or
other instruments or documents requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation.
Section 6.9. Vice Presidents. In the absence of the president, the
chairman of the board and the vice chairmen of the board or, in the event of
their inability or refusal to act, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated by the
directors or, in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
B-7
have all the powers of and be subject to all the restrictions upon the
president. The vice presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
Section 6.10. Secretary. The secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 6. 11. Assistant Secretary. The assistant secretary, or if
there shall be more than one, the assistant secretaries in the order determined
by the board of directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the secretary or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the secretary and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
Section 6.12. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the, name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation. If required by the
board of directors, he shall give the corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 6.13. Assistant Treasurer. The assistant treasurer, or if
there shall be more than one, the assistant treasurers in the order determined
by the board of directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the treasurer and shall perform such other duties and have such other powers
as the board of directors may-from time to time prescribe.
ARTICLE 7
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 7.1. Third-Party Actions. The corporation shall indemnify to
the fullest extent authorized or permitted by Section 145 of the DGCL any person
(his heirs, executors and administrators) who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director or officer of the corporation, or is or was serving
at the request of the corporation as a director or officer or in any other
capacity for another corporation, partnership, joint venture, trust or other
enterprise, against all expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, that such person had reasonable cause to believe
that his or her conduct was unlawful.
B-8
The corporation may indemnify any employee or agent of the
corporation, or any employee or agent serving at the request of the corporation
as an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in the manner and to the extent that it shall
indemnify any director or officer under this Section 7.1.
Section 7.2. Derivative Actions. The corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against all expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Chancery of Delaware or such other
court shall deem proper.
Section 7.3. Determination of Indemnification. Any indemnification
under Section 7.1 or 7.2 of this Article 7 (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 7.1 or 7.2 of this Article 7. Such
determination shall be made (i) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in,
a written opinion, or (iii) by the stockholders.
Section 7.4. Right to Indemnification. Notwithstanding the other
provisions of this Article 7, to the extent that a director, officer, employee
or agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 7.1 or 7.2 of
this Article 7, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 7.5. Advance of Expenses. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the corporation on
behalf of a director, officer, employee or agent in advance of the final
disposition of such action, suit or proceeding as authorized by the board of
directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that such person is entitled to be indemnified by the
corporation as authorized in this Article 7.
Section 7.6. Indemnification Not Exclusive. The indemnification
provided by this Article 7 shall not be deemed exclusive of any other rights to
which any person seeking indemnification may be entitled under any law, any
agreement, the certificate of incorporation, any vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7.7. Insurance. The corporation may 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, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the corporation would have the,
power to indemnify such person against liability under the provisions of this
Article 7.
Section 7.8. Definitions of Certain Terms. For purposes of this
Article 7, references to "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
B-9
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents, so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article 7 with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
For purposes of this Article 7, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
7.
Section 7.9. Continuity. The indemnification and advancement of
expenses provided for in this Article 7 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent of the corporation and shall inure to the benefit of
the heirs, executors and administrators of such a person.
ARTICLE 8
CERTIFICATES OF STOCK
Section 8.1. Certificates. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or the
president or a vice president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof, and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise stated in Section 202 of the DGCL, as amended, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional and other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 8.2. Facsimile Signatures. When any such certificate is
countersigned by a transfer agent or registered by a registrar other than the
corporation or an employee of the corporation, any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 8.3. Lost Certificates. The board of directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sun as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
B-10
Section 8.4. Transfers of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 8.5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall (i) not precede the
date upon which the resolution fixing the record date is adopted by the board
and (ii) not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the board.
Section 8.6. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 9.2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors may from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 9.3. Annual Statement. The board of directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 9.4. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 9.5. Contracts. The board may authorize any officer or
officers, agent or agents, in the name and on behalf of the corporation, to
enter into any contract or to execute and deliver any instrument, which
authorization may be general or confined to specific instances; and, unless so
authorized by the board, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable pecuniarily for any purpose or for any amount.
Section 9.6. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 9.7. Seal. The corporate seal shall have inscribed thereon the
name of the corporation and the words "Seal" or "Corporate Seal." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
B-11
Section 9.8. Conflicts with Certificate of Incorporation. In the event
of a conflict between the provisions of these Bylaws and the certificate of
incorporation, the provisions of the certificate of incorporation shall control.
ARTICLE 10
AMENDMENTS
Section 10.1. Amendments. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by a majority of the entire board of
directors, at any meeting of the board of directors if notice of such
alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such meeting.
B-12
ANNEX C
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement"), dated as of
____________, 2004, is made by and among GB Holdings, Inc., a Delaware
corporation ("Parent") and Greate Bay Hotel and Casino, Inc., a New Jersey
corporation ("Operating"; and together with Parent, sometimes referred to as
"Transferors") and Atlantic Coast Entertainment Holdings, Inc., a Delaware
corporation ("Atlantic Holdings") and ACE Gaming LLC, a New Jersey limited
liability company ("ACE Gaming"; and together with Atlantic Holdings, sometimes
referred to as "Transferees").
BACKGROUND
A. Operating is a wholly-owned subsidiary of Parent. Operating owns and
operates the Sands Hotel and Casino in Atlantic City, New Jersey ("The Sands").
Atlantic Holdings is a newly formed, wholly-owned subsidiary of Operating.
Operating owns one (1) share of the common stock of Atlantic Holdings, which (1)
share represents all of the outstanding stock of Atlantic Holdings (the
"Existing Atlantic Holdings Stock"). ACE Gaming is a newly formed, wholly-owned
subsidiary of Atlantic Holdings. Immediately prior to the Tier 1 Contribution
(as defined herein), GB Property Funding Corp., a Delaware corporation
("Funding") and a wholly-owned subsidiary of Parent, will be merged with and
into Atlantic Coast Depository, LLC, a Delaware limited liability company ("AC
Depository") and a wholly-owned subsidiary of Operating, with AC Depository as
the surviving entity of such merger (the "Funding Merger"), such that all of the
assets and liabilities of Funding shall become the assets and liabilities of AC
Depository. In conjunction with the formation of AC Depository and pursuant to
the terms of that certain Assignment and Assumption Agreement dated as of
[____], 2004 by and between Operating and AC Depository, AC Depository assumed
the obligations of Operating under that certain Greate Bay Hotel and Casino,
Inc. 11% Intercompany Note in the principal amount of $110,000,000.00 due 2005
made by Operating and Funding (the "Mirror Note").
B. Atlantic Holdings and ACE Gaming engaged in that certain Consent
Solicitation and Offer to Exchange detailed in that certain Form S-4
Registration Statement, No. 333-110485, filed on November 14, 2003 by Atlantic
Holdings and ACE Gaming with the United States Securities and Exchange
Commission (the "SEC"), as amended by those certain Amendment Nos. 1, 2, 3, and
4 to Form S-4 Registration Statement, No. 333-110485, filed on February 13,
2004, March 22, 2004, April 21, 2004 and May ___, 2004, respectively, by
Atlantic Holdings and ACE Gaming with the SEC (the "Note Registration
Statement"). Pursuant to the terms of the exchange offer detailed in the Note
Registration Statement (the "Exchange Offer"), Atlantic Holdings is offering the
holders of those certain 11% Notes due 2005 (the "Existing Notes") issued by
Funding, the opportunity to exchange such notes for (1) $100 in cash for each
$1,000 principal amount of Existing Notes exchanged (the "Cash Payment"); (2) on
a dollar for dollar basis, 3% Notes due 2008 (the "New Notes") issued by
Atlantic Holdings; and (3) the accrued but unpaid interest on the Existing
Notes. The New Notes shall be governed by the terms of that certain Indenture
dated [____], 2004 by and among Atlantic Holdings, ACE Gaming and Wells Fargo
Bank, National Association, as Trustee (the "New Note Indenture"). Upon issuance
of the New Notes, and otherwise in accordance with the terms of the Exchange
Offer, Atlantic Holding shall cancel all Existing Notes tendered for exchange.
C. Parent is also conducting a proxy solicitation under a Proxy
Statement and Prospectus on Form S-4 Registration Statement, No. 333-110484,
filed on November 14, 2003 by Atlantic Holdings as registrant with the SEC, as
amended by those certain Amendment Nos. 1, 2, 3, and 4 to Form S-4 Registration
Statement, No. 333-110484, filed on February 13, 2004, March 22, 2004, April 21,
2004 and May ___, 2004, respectively, by Atlantic Holdings with the SEC (the
"Common Stock Registration Statement"). Pursuant to the terms of the
C-1
Transaction (as defined in the Common Stock Registration Statement), prior to
the consummation of the Transaction, the holders of a majority of the
outstanding stock of Parent are required to vote in favor of the Transaction at
a meeting of the stockholders of Parent on [______].
D. As a predicate to the Exchange Offer, in connection with the
capitalization of Atlantic Holdings and ACE Gaming, and subject to receipt of
the consent of (1) the holders of a majority of the outstanding stock of Parent,
and (2) the holders of a majority of the aggregate principal amount of the
Existing Notes, (a) (i) Parent desires to contribute to Operating all of
Parent's assets, other than the stock of Operating, and (ii) Operating desires
to contribute to Atlantic Holdings all of Operating's assets, other than the
membership interests in AC Depository, the stock of Atlantic Holdings, and the
policies of directors and officer's insurance, but including the assets obtained
from Parent all as more fully set forth herein (the "Tier 1 Contribution"), and
(b) Atlantic Holdings desires to contribute to ACE Gaming all of the assets
obtained in the Tier 1 Contribution, but specifically excluding the membership
interests of ACE Gaming (the "ACE Gaming Membership Interests"), less cash in an
amount necessary to fund the obligations relating to the Transaction all as more
fully set forth herein (the "Tier 2 Contribution"; and together with the Tier 1
Contribution, the "Asset Contributions").
E. In consideration of the Tier 1 Contribution, Atlantic Holdings,
among other things, shall issue to Operating certain securities of Atlantic
Holdings and Atlantic Holdings shall assume all liabilities, other than the
Excluded Liabilities (as defined herein), relating to the assets contributed to
it by Transferors. The securities to be issued by Atlantic Holdings shall be
determined by reference to the outcome of the Exchange Offer. If 100% of the
Existing Notes are exchanged for New Notes, then Atlantic Holdings will issue to
Operating 27.5% (on a fully diluted basis immediately after consummation of the
Transactions and without giving effect to any further issuance not related to
such Transaction) of the outstanding common stock, par value $0.01 per share, of
Atlantic Holdings (the "Atlantic Holdings Common Stock"), less the Existing
Atlantic Holdings Stock. If less than 100% of the Existing Notes are exchanged
for New Notes, then Atlantic Holdings will issue to Operating (1) warrants to
purchase shares of Atlantic Holdings Common Stock at a purchase price of $0.01
per share (the "Warrants") representing 27.5% (on a fully diluted basis
immediately after consummation of the Transaction and without giving effect to
any further issuance not related to such Transaction) of the outstanding
Atlantic Holdings Common Stock, and (2) a portion of the Atlantic Holdings
Common Stock equal to the product of (y) 72.5% and (z) a fraction, the numerator
of which is the total principal amount of the Existing Notes that are not
exchanged for New Notes and the denominator of which is the total principal
amount of the Existing Notes outstanding immediately prior to the completion of
the Exchange Offer, less the Existing Atlantic Holdings Stock. The Atlantic
Holdings Common Stock and the Warrants, if any, issued by Atlantic Holdings in
connection with the Exchange Offer, as described above, are sometimes
collectively referred to as the "Atlantic Holdings Securities".
F. In consideration of the Tier 2 Contribution, ACE Gaming, among other
things, shall issue to Atlantic Holdings all of the outstanding ACE Gaming
Membership Interests, ACE Gaming shall assume all liabilities relating to the
assets contributed to it by Atlantic Holdings and ACE Gaming shall guarantee the
New Notes and grant liens upon substantially all of the assets of ACE Gaming for
the benefit of the holders of the New Notes, all as more fully set forth herein.
G. Following the Asset Contributions and after the effectiveness of the
exchange transactions contemplated by the Exchange Offer and the cancellation of
the Existing Notes tendered in the Transaction, Operating and AC Depository will
each be merged with and into Parent, with Parent as the surviving entity, such
that all of the assets and liabilities
C-2
of Operating and AC Depository shall become the assets and liabilities of Parent
(the merger of Operating and AC Depository into Parent, the "Operating Merger").
H. For Federal income tax purposes, it is intended that the asset
contribution described in clause (ii) of the Tier 1 Contribution and the
Operating Merger qualify as a "reorganization" under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and Parent,
Operating, and Atlantic Holdings hereby adopt this Agreement as a plan of
reorganization.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and the other agreements being entered in connection with the
Exchange Offer and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Tier 1 Contribution.
1.1 Capital Contribution. Effective as of the date hereof, (i)
Parent hereby contributes, transfers, assigns and conveys to Operating all
right, title and interest in and to all of the assets of Parent, both tangible
and intangible, of every nature and type whatsoever, other than its stock in
Operating, and (ii) Operating hereby contributes, transfers, assigns and conveys
to Atlantic Holdings all right, title and interest in and to all of the assets
both tangible and intangible of every nature and type whatsoever of Operating
(including those obtained pursuant to clause (i) of this Section 1.1) less only
those "Excluded Assets" listed on Schedule 1.1 hereto (the assets so transferred
being referred to collectively as the "Tier 1 Assets").
1.2 Conveyance of the Tier 1 Assets. As of the date hereof, or as
soon after the date hereof as practicable, Transferors shall:
(i) place Atlantic Holdings in effective possession, control and
operation of the Tier 1 Assets and deliver to Atlantic Holdings all Tier 1
Assets, title to which is capable of passing by delivery; and
(ii) deliver to Atlantic Holdings duly executed assignments or
other instruments and documentation reasonably required to transfer to Atlantic
Holdings all right, title and interest in and to the Tier 1 Assets.
1.3. Consideration. In consideration of the Tier 1 Contribution,
Atlantic Holdings, on behalf of itself and its subsidiaries now existing and
hereafter acquired, hereby:
(i) accepts all right, title and interest in and to the Tier 1
Assets and does hereby assume and agree to promptly and fully pay, perform and
discharge when due all obligations and liabilities associated with the Tier 1
Assets, less only those "Excluded Liabilities" listed on Schedule 1.3(i) hereto
(the obligations and liabilities so assumed collectively referred to as the
"Atlantic Holdings Assumed Liabilities"); and
(ii) agrees to indemnify Transferors against all actions,
proceedings, costs, liabilities, damages, claims and demands arising out of the
Atlantic Holdings Assumed Liabilities or the operation of The Sands by Atlantic
Holdings or its transferee subsequent to the date hereof except insofar as such
actions, proceedings, costs, damages, claims and
C-3
demands arise out of the gross negligence or willful misconduct of Transferors
or a breach of any of the representations and warranties of Transferors
contained in Section 1.4; and
(iii) agrees to issue to Operating or its designee the Atlantic
Holdings Securities in such form and amounts as is required under the terms of
the Exchange Offer;
(iv) agrees to (a) acquire those Existing Notes which are
tendered in connection with the Exchange Offer, (b) issue New Notes in
consideration of such tender as required by the terms of the Exchange Offer, and
(c) cancel those Existing Notes which are tendered in connection with the
Exchange Offer; and
(v) undertakes to provide to Parent the Permitted Payment (as
that term is defined in the New Note Indenture).
1.4. Transferors' Representations and Warranties. Transferors
hereby represent and warrant to Atlantic Holdings that, as of the date hereof:
1.4.1 Organization and Existence. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Operating is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey. Transferors have all
requisite corporate power and authority to own and operate their properties, to
carry on their business as now conducted and as proposed to be conducted, to
enter into the Exchange Offer and to carry out the transactions contemplated by
the Registration Statement. AC Depository is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. AC Depository has all requisite limited liability company power and
authority to own and operate its properties, to carry on its business as now
conducted and as proposed to be conducted, to carry out the transactions
contemplated hereby.
1.4.2 Due Authorization. The execution, delivery and performance
of all documents contemplated by the Registration Statement have been duly
authorized by all necessary corporate action on the part of Transferors.
1.4.3 Due Execution and Delivery; Enforceability. This Agreement
has been duly executed and delivered by Transferors in accordance with its terms
and represents the legal, valid and binding agreement of Transferors enforceable
against Transferors in accordance with its terms.
1.4.4 No Conflicts. Except as set forth on Schedule 1.4.4, the
execution, delivery and performance of this Agreement by Transferors, and the
consummation of the transactions contemplated hereby, do not and will not
conflict with or result in a breach or violation of (i) any of the terms or
provisions of, or constitute a default or cause an acceleration or any
obligation under, or result in the imposition or creation of (or the obligation
to create or impose), any security interest, mortgage, pledge, claim, lien,
encumbrance or adverse interest of any nature (each, a "Lien") with respect to
any obligation, bond agreement, note, debenture or other evidence of
indebtedness or any indenture, mortgage, deed of trust or other agreement, lease
or instrument to which Transferors or any of their affiliates is a party or by
which Transferors or any of their affiliates is bound or to which any of the
properties or assets of Transferors or any of their affiliates (including,
without limitation, the Tier 1 Assets) may be subject or (ii) any Federal, state
or local law, rule, administrative regulation or ordinance or order of any court
or governmental agency, body or official having jurisdiction over Transferors or
any of the Tier 1 Assets, except, in the case of clause (i), for immaterial
breaches of contracts.
1.4.5 No Consents or Approvals. Except as set forth on Schedule
1.4.5, no authorization, approval, consent or order of, or filing with, (i) any
court or governmental body, agency or official, including the New Jersey Casino
Control Commission, the New Jersey Division of Gaming Enforcement and the New
Jersey Department of Environmental Protection, or (ii) and other third party is
necessary in connection with any material element of the transactions
contemplated by this Agreement, except those that have been obtained or made,
and are in full force and effect or which are immaterial in nature.
C-4
1.4.6 Title to Tier 1 Assets. Except as set forth on Schedule
1.4.6, Transferors have good title to the Tier 1 Assets, free and clear of any
Liens.
2. Tier 2 Contribution.(1)
2.1 Capital Contribution. Immediately following the Tier 1
Contribution and the issuance of the Atlantic Holdings Securities, Atlantic
Holdings hereby contributes, transfers, assigns and conveys to ACE Gaming all
right, title and interest in and to all of the Tier 1 Assets, less only (a) cash
in an amount necessary to fund the Cash Payment and the accrued and unpaid
interest paid on those Existing Notes being exchanged in the Exchange Offer and
(b) those "Excluded Assets" listed on Schedule 2.1 hereto (the assets so
transferred being referred to collectively as the "Tier 2 Assets" and
collectively with the Tier 1 Assets, the "Assets").
2.2 Conveyance of the Tier 2 Assets. As of the date hereof, or as
soon after the date hereof as practicable, Atlantic Holdings shall:
(i) place ACE Gaming in effective possession, control and
operation of the Tier 2 Assets and deliver to ACE Gaming all Tier 2 Assets,
title to which is capable of passing by delivery; and
(ii) deliver to ACE Gaming duly executed assignments or other
instruments and documentation reasonably required to transfer to ACE Gaming all
right, title and interest in and to the Tier 2 Assets.
2.3. Consideration. In consideration of the Tier 2 Contribution,
ACE Gaming, on behalf of itself and its subsidiaries now existing and hereafter
acquired, hereby:
(i) accepts all right, title and interest in and to the Tier 2
Assets and does hereby assume and agree to promptly and fully pay, perform and
discharge when due all obligations and liabilities of Atlantic Holdings,
exclusive of the "Excluded Liabilities" listed on Schedule 2.3(i) hereto (the
obligations and liabilities so assumed collectively referred to as the "ACE
Gaming Assumed Liabilities"); and
(ii) agrees to indemnify Atlantic Holdings against all actions,
proceedings, costs, liabilities, damages, claims and demands arising in
connection with the ACE Gaming Assumed Liabilities or the operation of The Sands
by ACE Gaming or its transferee subsequent to the date hereof except insofar as
such actions, proceedings, costs, damages, claims and demands arise out of the
gross negligence or willful misconduct of Atlantic Holdings or a breach of any
of the representations and warranties of Atlantic Holdings contained in Section
2.4; and
(iii) undertakes to provide to Atlantic Holdings the funds
necessary to make the Permitted Payment.
(iv) agrees to take such actions and execute such documents as
may be necessary to effectively (a) guaranty each and every obligation of
Atlantic
C-5
Holdings described in the New Notes and the New Note Indenture, and (b)
pledge as security for such guaranty all or substantially all of the assets of
ACE Gaming.
2.4. Atlantic Holdings' Representations and Warranties. Atlantic
Holdings hereby represents and warrants to ACE Gaming that, as of the date
hereof:
2.4.1 Organization and Existence. Atlantic Holdings is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Atlantic Holdings has all requisite corporate power
and authority and limited liability company power and authority, respectively,
to own and operate their properties, to carry on their business as now conducted
and as proposed to be conducted, to enter into the Exchange Offer and to carry
out the transactions contemplated by the Registration Statement.
2.4.2 Due Authorization. The execution, delivery and performance of
all documents contemplated by the Registration Statement have been duly
authorized by all necessary corporate action on the part of Transferors.
2.4.3 Due Execution and Delivery; Enforceability. This Agreement
has been duly executed and delivered by Atlantic Holdings in accordance with its
terms and represents the legal, valid and binding agreement of Atlantic Holdings
enforceable against Atlantic Holdings in accordance with its terms.
2.4.4 No Conflicts. Except as set forth on Schedule 2.4.4, the
execution, delivery and performance of this Agreement by Atlantic Holdings, and
the consummation of the transactions contemplated hereby, do not and will not
conflict with or result in a breach or violation of (i) any of the terms or
provisions of, or constitute a default or cause an acceleration or any
obligation under, or result in the imposition or creation of (or the obligation
to create or impose), Lien with respect to any obligation, bond agreement, note,
debenture or other evidence of indebtedness or any indenture, mortgage, deed of
trust or other agreement, lease or instrument to which Atlantic Holdings or any
of its affiliates is a party or by which Atlantic Holdings or any of its
affiliates is bound or to which any of the properties or Tier 2 Assets of
Atlantic Holdings or any of its affiliates (including, without limitation, the
Tier 2 Assets) may be subject or (ii) any Federal, state or local law, rule,
administrative regulation or ordinance or order of any court or governmental
agency, body or official having jurisdiction over Atlantic Holdings or any of
the Tier 2 Assets, except, in the case of clause (i), for immaterial breaches of
contracts.
2.4.5 No Consents or Approvals. Except as set forth on Schedule
2.4.5, no authorization, approval, consent or order of, or filing with, (i) any
court or governmental body, agency or official, including the New Jersey Casino
Control Commission, the New Jersey Division of Gaming Enforcement and the New
Jersey Department of Environmental Protection, or (ii) any other third party is
necessary in connection with any material element of the transactions
contemplated by this Agreement, except those that have been obtained or made,
and are in full force and effect or which are immaterial in nature.
2.4.6 Title to Tier 2 Assets. Except as set forth on Schedule
2.4.6, Atlantic Holdings has good title to the Tier 2 Assets, free and clear of
any Liens.
3. Excluded Liabilities. Parent and Operating hereby expressly
acknowledge and agree that neither Atlantic Holdings or ACE Gaming has assumed
or shall have any responsibility for or obligations in respect of or relating to
the Excluded Liabilities listed on Schedule 1.3(i).
4. Miscellaneous.
4.1 Further Assurances. The Transferors shall at any time and from
time to time after the date hereof, upon the request of the Transferees, execute
and deliver such further instruments of conveyance and transfer, in form and
substance reasonably satisfactory to Transferee's counsel, and take such other
action as Transferee may reasonably request in order to more effectively convey,
transfer and vest in Transferee full and
C-6
complete ownership of the Assets and to enable Transferee to collect and reduce
the Assets to its possession as contemplated hereby.
4.2 Waiver; Amendment. Neither this Agreement nor any provision
hereof shall be waived, amended, modified, changed, discharged or terminated
except by an instrument in writing executed by Transferors and Transferees.
4.3 Entire Agreement. This Agreement, together with the schedules
hereto, sets forth the entire agreement and understanding of the parties hereof
with respect to the transactions contemplated hereby and supersedes any and all
prior agreements and understandings relating to the subject matter thereof. No
representation, promise or statement of intention has been made by any party
hereto which is not embodied in this Agreement or the written schedules or other
documents delivered pursuant hereto or in connection with the transactions
contemplated hereby, and no party hereto shall be bound by or liable for any
alleged representation, promise or statement of intention not set forth herein
or therein. All of the documents referred to in the immediately preceding
sentence are hereby incorporated by reference and shall be deemed a part of this
Agreement with the same effect as if set forth in full herein.
4.4 Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, this Agreement shall continue in full force and effect without
said provision; provided that no such severance of provision shall be effective
if it materially changes the economic benefit of this Agreement to any party.
4.5 Section and Other Headings. The section headings contained in
this Agreement and the schedules thereto are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
4.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPALS THEREOF. TRANSFERORS AND
TRANSFEREES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW JERSEY
STATE COURT SITTING IN ATLANTIC CITY, NEW JERSEY OR ANY FEDERAL COURT SITTING IN
CAMDEN, NEW JERSEY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPT FOR THEMSELVES AND IN
RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE
AFORESAID COURTS. TRANSFERORS AND TRANSFEREES IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.
4.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
4.8 Notice. Each notice, demand, request, request for approval,
consent, approval, disapproval, designation or other communication (each of the
foregoing being referred to herein as "notice") required or desired to be given
or made under this
C-7
Agreement shall be in writing (except as otherwise provided in this Agreement),
and shall be effective and deemed to have been received (i) when delivered in
person, (ii) when sent by facsimile transmission with receipt acknowledged,
(iii) three (3) days after having been mailed by certified or registered United
States mail, postage prepaid, return receipt requested, or (iv) the next
business day after having been sent by a nationally recognized overnight mail or
courier service, receipt requested (a) if to Transferors, at
[_____________________]; or (b) if to Transferees, at [_____________________].
4.9 Compliance with State Gaming Regulations. Each of the
provisions of this Agreement is subject to and shall be enforced in compliance
with the provisions, regulations or approvals required by any statement gaming
authority, including, without limitation, the New Jersey Casino Control
Commission and the New Jersey Division of Gaming Enforcement.
4.10 Third Party Rights. Nothing in this Agreement is intended or
shall be construed to confer upon or give any person, other than the parties
hereto and their respective successors, any rights or remedies under or by
reason of this Agreement or any transaction contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
ATTEST: GB HOLDINGS, INC., a Delaware corporation
By:
- ----------------------------- --------------------------------------------
ATTEST: GREATE BAY HOTEL AND CASINO, INC., a New Jersey
corporation
By:
- ----------------------------- --------------------------------------------
ATTEST: ATLANTIC COAST ENTERTAINMENT
HOLDINGS, INC., a Delaware corporation
By:
- ----------------------------- --------------------------------------------
ATTEST: ACE GAMING LLC, a New Jersey limited liability
company
By:
- ----------------------------- --------------------------------------------
C-8
SCHEDULE 1.1
EXCLUDED ASSETS
1. Policies of Directors and Officers Insurance.
2. Membership Interests in AC Depository.
3. Common Stock of Atlantic Holdings.
C-9
SCHEDULE 1.3(i)
EXCLUDED LIABILITIES
1. All obligations, duties, liabilities, indemnities, debts, guarantees,
covenants, agreements and other obligations of any kind or description under, in
respect of, associated with, arising under or otherwise relating to the Existing
Notes and the Mirror Note, including without limitation, that certain Indenture
among Funding, as Issuer, Holdings and Operating, as Guarantors and the Trustee
relating to the Existing Notes; Security Agreement by Funding, Operating and
Holdings in favor of Trustee; $110,000,000 principal amount 11% Intercompany
Note of GBHC due September 29, 2005, together with blank Irrevocable Bond Power;
Mortgage, Fixture Filing and Security Agreement by Operating in favor of
Trustee; Collateral Assignment of Leases by Operating in favor of Trustee;
Fractional Note Pool Trust Agreement between Funding and Trustee; and any other
indenture, security agreements, guaranties or other instruments related thereto.
C-10
SCHEDULE 1.4.4
CONFLICTS
C-11
SCHEDULE 1.4.5
CONSENTS AND APPROVALS
C-12
SCHEDULE 1.4.6
TITLE EXCEPTIONS
C-13
SCHEDULE 2.1
EXCLUDED ASSETS
1. Membership Interests in ACE Gaming.
C-14
SCHEDULE 2.3(i)
EXCLUDED LIABILITIES
1. All obligations under the New Notes, except ACE Gaming's obligations as
guarantor of Atlantic Holdings' obligations under the New Note Indenture and the
New Notes arising under the guaranty of ACE Gaming delivered in connection with
the issuance of the New Notes.
C-15
SCHEDULE 2.4.4
CONFLICTS
C-16
SCHEDULE 2.4.5
CONSENTS AND APPROVALS
C-17
SCHEDULE 2.4.6
TITLE EXCEPTIONS
C-18
ANNEX D
WARRANT AGREEMENT
BETWEEN
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION
Dated as of _______, 2004
D-i
TABLE OF CONTENTS
Page
----
ARTICLE I DISTRIBUTION OF WARRANT CERTIFICATES....................................................................... 1
Section 1.1 Appointment of Warrant Agent............................................................... 1
Section 1.2 Form of Warrant Certificates............................................................... 1
Section 1.3 Execution of Warrant Certificates.......................................................... 1
Section 1.4 Issuance and Distribution of Warrant Certificates.......................................... 2
Section 1.5 Conditions to Distribution of Warrant Certificates......................................... 2
ARTICLE II WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS............................................................ 2
Section 2.1 Exercise Price............................................................................. 2
Section 2.2 Registration of Common Stock and Exercisability of Warrants................................ 2
Section 2.3 Procedure for Exercise of Warrants......................................................... 3
Section 2.4 Issuance of Common Stock................................................................... 3
Section 2.5 Certificates for Unexercised Warrants...................................................... 3
Section 2.6 Reservation of Shares...................................................................... 3
Section 2.7 Disposition of Proceeds.................................................................... 3
Section 2.8 Cancellation of Warrants................................................................... 3
ARTICLE III ADDITIONAL SECURITIES AND NOTICE PROVISIONS................................................................ 4
Section 3.1 Additional Securities...................................................................... 4
Section 3.2 Deferral of Adjustments to Warrant Shares.................................................. 4
Section 3.3 Adjustment to Number of Warrant Shares..................................................... 4
Section 3.4 Reorganizations............................................................................ 4
Section 3.5 Verification of Computations............................................................... 5
Section 3.6 Exercise Price Not Less Than Par Value..................................................... 5
Section 3.7 Notice of Certain Actions.................................................................. 5
Section 3.8 Notice of Certain Actions.................................................................. 5
Section 3.9 Warrant Certificate Amendments............................................................. 5
Section 3.10 Fractional Shares.......................................................................... 5
Section 3.11 Current Market Price....................................................................... 6
Section 3.12 Right to Adjust Exercise Price and Exercise Deadline....................................... 6
ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF REGISTERED HOLDERS OF WARRANT CERTIFICATES........................... 6
Section 4.1 Rights of Warrant Holders.................................................................. 6
Section 4.2 Lost, Stolen, Mutilated, or Destroyed Warrant Certificates................................. 6
ARTICLE V SPLIT UP, COMBINATION, EXCHANGE, TRANSFER, AND CANCELLATION OF WARRANT CERTIFICATES......................... 6
Section 5.1 Split Up, Combination, Exchange, and Transfer of Warrant Certificates...................... 6
Section 5.2 Cancellation upon Surrender of Warrant Certificates........................................ 7
Section 5.3 Agreement of Warrant Certificate Holders................................................... 7
ARTICLE VI PROVISIONS CONCERNING THE WARRANT AGENT AND OTHER MATTERS.................................................. 7
Section 6.1 Payment of Taxes and Charges............................................................... 7
D-ii
Section 6.2 Resignation or Removal of Warrant Agent.................................................... 7
Section 6.3 Notice of Appointment...................................................................... 8
Section 6.4 Merger of Warrant Agent.................................................................... 8
Section 6.5 Company Responsibilities................................................................... 8
Section 6.6 Certification for the Benefit of Warrant Agent............................................. 8
Section 6.7 Books and Records.......................................................................... 8
Section 6.8 Liability of Warrant Agent................................................................. 8
Section 6.9 Use of Attorneys, Agents, and Employees.................................................... 9
Section 6.10 Indemnification............................................................................ 9
Section 6.11 Acceptance of Agency....................................................................... 9
Section 6.12 Changes to Agreement....................................................................... 9
Section 6.13 Assignment................................................................................. 9
Section 6.14 Successor to Company....................................................................... 9
Section 6.15 Notices.................................................................................... 9
Section 6.16 Defects in Notice.......................................................................... 10
Section 6.17 Governing Law.............................................................................. 10
Section 6.18 Standing................................................................................... 10
Section 6.19 Headings................................................................................... 10
Section 6.20 Counterparts............................................................................... 10
Section 6.21 Conflict of Interest....................................................................... 10
Section 6.22 Availability of the Agreement.............................................................. 11
EXHIBIT A FORM OF WARRANT CERTIFICATE
D-iii
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of ______, 2004, between ATLANTIC COAST
ENTERTAINMENT HOLDINGS, INC., a Delaware corporation (the "Company") and Wells
Fargo Bank, National Association (the "Warrant Agent").
WITNESSETH:
WHEREAS, the Company is a wholly owned subsidiary of GB Holdings, Inc.,
a Delaware corporation (the "Parent");
WHEREAS, the Company proposes to enter into the transaction (the
"Transaction") described in that certain Proxy Statement and Registration
Statement on Form S-4 (the "Form S-4") pursuant to which the Company shall
distribute to the stockholders of Parent (the "Distribution") 10 million
warrants (the "Warrants") to purchase common stock, par value $.01 per share the
("Common Stock") of the Company, each Warrant entitling the holder thereof to
purchase .275 shares of Common Stock;
WHEREAS, the Company proposes to issue certificates evidencing the
Warrants (such Warrant certificates issued pursuant to this Agreement being
hereinafter called the "Warrant Certificates");
WHEREAS, the Company desires the Warrant Agent, and the Warrant Agent
agrees, to act on behalf of the Company in connection with the issuance,
transfer, exchange, replacement, redemption, and surrender of the Warrant
Certificates; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Warrant Agreement, among other things, the form and provisions of the Warrant
Certificates and the terms and conditions under which they may be issued,
transferred, exchanged, replaced, redeemed, and surrendered in connection with
the exercise and redemption of the Warrants;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DISTRIBUTION OF WARRANT CERTIFICATES
Section 1.1 Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act on behalf of the Company in accordance with the
instructions hereinafter set forth, and the Warrant Agent hereby accepts such
appointment.
Section 1.2 Form of Warrant Certificates. The Warrant Certificates shall
be issued in registered form only and, together with the purchase and assignment
forms to be printed on the reverse thereof, shall be substantially in the form
of Exhibit A attached hereto. The Warrant Certificates may have such letters,
numbers, or other marks of identification or designation and such legends,
summaries, or endorsements stamped, printed, lithographed, or engraved thereon
as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement or as, in any particular case, may be required, in
the opinion of counsel for the Company, to comply with any law or with any rule
or regulation of any regulatory authority or agency, or to conform to customary
usage.
Section 1.3 Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by its Chairman, Vice Chairman,
President, or any Vice President and by its Chief Financial Officer, Treasurer,
Assistant Treasurer, Secretary, or Assistant Secretary, either manually or by
facsimile signature printed thereon. The Warrant Certificates shall be manually
countersigned and dated the date of countersignature by the Warrant Agent and
shall not be valid for any purpose unless so countersigned and dated. If any
authorized officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company either before or
after delivery thereof by the Company to the Warrant Agent, the signature of
such person on such Warrant Certificates nevertheless shall be valid and such
Warrant Certificates may be countersigned by the Warrant Agent and issued and
delivered to those persons entitled to receive the Warrants represented thereby
with the same
D-1
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company.
Section 1.4 Issuance and Distribution of Warrant Certificates. Upon
completion of the Distribution, the Company shall deliver to the Warrant Agent
an adequate supply of Warrant Certificates executed on behalf of the Company as
described in Section 1.3 hereof. Upon receipt of an order from the Company, the
Warrant Agent shall within three business days complete and countersign Warrant
Certificates representing the total number of Warrants to be issued hereunder
and shall deliver such Warrant Certificates pursuant to written instructions of
the Company.
Section 1.5 Conditions to Distribution of Warrant Certificates. If the
Distribution or the Transaction is not consummated for any reason, no Warrant
Certificates shall be distributed and this Agreement shall terminate and be of
no further force or effect.
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 Exercise Price. Each Warrant Certificate shall, when signed
by the Chairman, Vice Chairman, President, or any Vice President and by the
Chief Financial Officer, Treasurer, Assistant Treasurer, Secretary, or Assistant
Secretary of the Company and countersigned by the Warrant Agent, entitle the
registered holder thereof to purchase from the Company .275 shares (each a
"Warrant Share") of Common Stock for each Warrant evidenced thereby, at the
purchase price of $.01 per share, or such adjusted number of shares at such
adjusted purchase price as may be established from time to time pursuant to the
provisions of Article III hereof, payable in full at the time of exercise of the
Warrant. Except as the context otherwise requires, the term "Exercise Price" as
used in this Agreement shall mean the purchase price of $.01 per share of Common
Stock upon exercise of a Warrant, reflecting all appropriate adjustments made in
accordance with the provisions of Article III hereof.
Section 2.2 Registration of Common Stock and Exercisability of Warrants.
Each Warrant may be exercised at any time after the earliest to occur of the
following events (the first date on which any such event occurs being referred
to as the "Vesting Date"):
(a) the payment of the entire principal amount and accrued interest
on any of the Company's outstanding 3% Notes due 2008 issued by
the Company (the "New Notes"), pursuant to and in accordance with
the terms thereof whether such payment is in the form of cash or
by issuance of shares of Common Stock to the holder thereof in
lieu of cash payment or any conversion of any of such notes into
common stock pursuant to and in accordance with the terms
thereof;
(b) a determination by a majority of the board of directors of the
Company (the "Board") (including at least one independent
director) that the Warrants may be exercised; and
(c) payment in full by the Parent of principal and accrued, but
unpaid interest on all outstanding 11% Notes due 2005 issued by
the Parent which have not been exchanged for the New Notes in the
Transaction.
Promptly after the Vesting Date, the Company shall send written notice
to the Warrant Agent that such Vesting Date has occurred (the "Vesting Notice").
The Warrant Agent shall within ten days after receipt of the Vesting Notice
cause a similar notice to be mailed to each registered holder of a Warrant
Certificate.
The latest time and date at which the Warrants may be exercised (the
"Exercise Deadline") shall be 5:00 P.M. New York City time on the earlier of (i)
the date that is the seventh anniversary of the completion of the Distribution;
or (ii) the Cancellation Date (as defined in Section 2.8 below).
The Company shall use its reasonable efforts to secure the effective
registration of the Warrant Shares under the Securities Act of 1933, as amended
(the "Securities Act"), and register or qualify such shares under applicable
state laws; provided, however, that the Company shall have no obligation to
register the Warrant Shares in the event that, by amendment to the Securities
Act or otherwise, such registration or qualification or the delivery of such
prospectus is not required at the time said Warrant Shares are to be issued; and
further that, if by amendment to the Securities Act or otherwise, some other or
different requirement shall be imposed by act of the Congress of the United
States which shall relate to the issuance of the Warrant Shares upon exercise of
the Warrants, the Company shall use its reasonable efforts to comply with such
requirements so long as the same shall not be more burdensome
D-2
to the Company than the registration statement under the Securities Act.
Promptly after a registration statement under the Securities Act covering the
aforementioned Warrant Shares has become effective, or such other action as
contemplated hereby and as may be required has been taken, as the case may be,
the Company shall cause notice thereof or a copy of the prospectus covering the
Warrant Shares to be mailed to each registered holder of a Warrant Certificate.
Section 2.3 Procedure for Exercise of Warrants. During the period
specified in and subject to the provisions of Section 2.2 hereof, Warrants may
be exercised by surrendering the Warrant Certificates representing such Warrants
to the Warrant Agent at the principal office of its corporate trust department
(the "Principal Office"), which is presently at _________________, with the
election to purchase form set forth on the Warrant Certificate duly completed
and executed, with medallion signatures guaranteed by a member of a medallion
guarantee program ("Signatures Guaranteed"), accompanied by payment in full of
the Exercise Price as provided for in Section 2.1 hereof in effect at the time
of such exercise, together with such taxes as are specified in Section 6.1
hereof, for each Warrant Share with respect to which such Warrant is being
exercised. Such Exercise Price and taxes shall be paid in full by certified
check or money order, payable in United States currency to the order of the
Company. The date on which Warrants are exercised in accordance with this
Section 2.3 is sometimes referred to herein as the "Date of Exercise" of such
Warrants.
Section 2.4 Issuance of Common Stock. As soon as practicable after the
Date of Exercise of any Warrants, the Company shall issue, or cause the transfer
agent for the Common Stock, if any, to issue, a certificate or certificates for
the number of full shares of Common Stock to which such holder is entitled,
registered in accordance with the instructions set forth in the election to
purchase. All Warrant Shares shall be validly authorized and issued, fully paid,
and nonassessable, and free from all taxes, liens, and charges created by the
Company in respect of the issue thereof. Each person in whose name any such
certificate for shares of Common Stock is issued shall for all purposes be
deemed to have become the holder of record of the Common Stock represented
thereby on the Date of Exercise of the Warrants resulting in the issuance of
such shares, irrespective of the date of issuance or delivery of such
certificate for shares of Common Stock.
Section 2.5 Certificates for Unexercised Warrants. If less than all of
the Warrants represented by a Warrant Certificate are exercised, the Warrant
Agent shall execute and mail, by first-class mail, within 30 days of the Date of
Exercise, to the registered holder of such Warrant Certificate, or such other
person as shall be designated in the election to purchase, a new Warrant
Certificate representing the number of full Warrants not exercised. In no event
shall a fraction of a Warrant be exercised, and the Warrant Agent shall
distribute no Warrant Certificates representing fractions of Warrants under this
or any other section of this Agreement. Final fractions of shares shall be
treated as provided in Section 3.11 hereof.
Section 2.6 Reservation of Shares. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants a number
of its authorized but unissued shares of Common Stock that will be sufficient to
permit the exercise in full of all outstanding Warrants.
Section 2.7 Disposition of Proceeds. The Warrant Agent shall account
promptly to the Company with respect to Warrants exercised and concurrently
deliver to the Company all proceeds from such exercise.
Section 2.8 Cancellation of Warrants. At any time after the Vesting
Date, the Company by action of the Board, may at its option, cancel all, but not
less than all of the Warrants provided that the Company is in compliance with
its obligations under Section 2.2 hereof to register the Warrant Shares under
the Securities Act. Notice of such cancellation shall be promptly given to the
Warrant Agent by the Company and such notice (the "Cancellation Notice") shall
be mailed to all registered holders of Warrant Certificates, specifying a date
(the "Cancellation Date") established by the Board which shall be at least 90
days after the date of such notice. The Cancellation Notice will specify the
Cancellation Date and will also state that the right to exercise the Warrants
will terminate at 5:00 p.m., New York City time on the Cancellation Date. The
Company will also make a prompt public announcement of the determination by the
Board of the Cancellation Date by news release and by notice to any national
securities exchange on which the Warrants are listed for trading.
D-3
ARTICLE III
ADDITIONAL SECURITIES AND NOTICE PROVISIONS
Section 3.1 Additional Securities. In addition to the Warrant Shares
issuable upon the exercise of this Warrant as contemplated in Section 2.1 above:
(a) In case the Company shall, at any time after the date hereof and
on or prior to the Date of Exercise (i) declare a dividend or
make a distribution on the Common Stock in shares of the Common
Stock, (ii) subdivide the outstanding shares of the Common Stock
into a greater number of shares, (iii) combine the outstanding
shares of its Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in
connection with a consolidation or merger of the Company), then
upon the exercise of a Warrant the holder of such Warrant shall
be entitled to receive the aggregate number and kind of shares
which, if such Warrant had been exercised immediately prior to
such time, such holder would have been entitled to receive by
virtue of such dividend, subdivision, combination, or
reclassification.
(b) In case the Company shall, at any time after the date hereof and
on or prior to the Date of Exercise, issue to all holders of the
Common Stock rights, options, or warrants to subscribe for or
purchase the Common Stock (or securities convertible into or
exchangeable for the Common Stock), and if the same are not
issued or otherwise provided to the holders of Warrants at such
time pro rata on a fully-diluted basis as if all warrants, other
rights, options or convertible securities in respect of Common
Stock, and as if all such securities were exercised or paid, then
upon the exercise of the Warrant, the holder of such Warrant
exercised shall be entitled to receive the aggregate number and
kind of rights, options, or warrants to subscribe for or purchase
the Common Stock (or securities convertible into or exchangeable
for the Common Stock) which if, such holder would have received
by virtue of such issuance of rights, options, or warrants to
subscribe for or purchase the Common Stock (or securities
convertible into or exchangeable for the Common Stock), if such
Warrant had been exercised immediately prior to such time.
Section 3.2 Deferral of Adjustments to Warrant Shares. In any case in
which this Article III shall require that an adjustment in the Warrant Shares be
made effective as of a record date for a specified event, the Company may elect
to defer, until the occurrence of such event, issuing to the holders of the
Warrants, if any holder has exercised a Warrant after such record date, the
shares of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares; provided, however, that the Company shall deliver to such
exercising holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment. All calculations under this Article III shall
be made to the nearest cent or one-hundredth of a share, as the case may be.
Section 3.3 Adjustment to Number of Warrant Shares. Upon each action set
forth in Section 3.1 that requires an adjustment in the number of Warrant
Shares, each Warrant shall thereupon evidence the right to purchase that number
of Warrant Shares (calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable immediately prior,
after giving effect to Section 3.1, to such adjustment upon exercise of the
Warrant by the Exercise Price in effect immediately prior to such adjustment.
Section 3.4 Reorganizations. In case of any consolidation or merger of
the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property) (such actions being hereinafter
collectively referred to as "Mergers"), there shall thereafter be deliverable
upon exercise of any Warrant (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Merger if such Warrant had been exercised in full
immediately prior to such Merger. In case of any Merger, appropriate adjustment,
as determined in good faith by the Board shall be made in the application of the
provisions herein set forth with respect to the rights and interests of Warrant
holders so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of Warrants. Any such adjustment shall be made by and
set forth in a supplemental agreement between the Company, or any successor
D-4
thereto, and the Warrant Agent and shall for all purposes hereof conclusively be
deemed to be an appropriate adjustment. The Company shall not effect any such
Merger unless upon or prior to the consummation thereof the successor
corporation, or if the Company shall be the surviving corporation in any such
Merger and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Common Stock outstanding at
the effective time thereof, then such issuer, shall assume by written instrument
the obligation to deliver to the registered holder of any Warrant Certificate
such shares of stock, securities, cash, or other property as such holder shall
be entitled to purchase in accordance with the foregoing provisions.
Section 3.5 Verification of Computations. Whenever the Warrant Shares
are adjusted as provided pursuant to Section 3.1 hereof, the Company will
promptly obtain a certificate of a firm of independent public accountants of
recognized standing selected by the Board (who may be the regular auditors of
the Company) setting forth the Warrant Shares as so adjusted and a brief
statement of the facts accounting for such adjustment, and will make available a
brief summary thereof to the holders of the Warrant Certificates, at their
addresses listed on the register maintained for that purpose by the Warrant
Agent.
Section 3.6 Exercise Price Not Less Than Par Value. In no event shall
the Exercise Price be adjusted below the par value per share of the Common
Stock.
Section 3.7 Notice of Certain Actions. In the event the Company shall
publicly announce its intention to:
(a) pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in
an amount per share greater than the most recent such cash
dividend) to all holders of Common Stock;
(b) issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities;
(c) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or combination
of outstanding shares of Common Stock) or Merger (other than a
merger in which no distribution of securities or other property
is made to holders of Common Stock); or
(d) take any other action which would result in the issuance of
additional consideration to the holders of Warrants;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the Warrant Agent. Such notice shall specify the date on which
the books of the Company shall close, or a record be taken, for determining
holders of Common Stock entitled to receive such stock dividend or other
distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution, winding up, or exchange or other action
shall take place or commence, as the case may be, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to receive
securities or other property deliverable upon such action, if any such date has
been fixed. The Company shall cause copies of such notice to be mailed to each
registered holder of a Warrant Certificate not later than 30 days after such
action.
Section 3.8 Notice of Certain Actions. Whenever any additional
consideration or adjustment is required to be made pursuant to this Article III,
the Company shall cause notice of same to be mailed to the Warrant Agent within
15 days thereafter, such notice to include in reasonable detail (a) the events
precipitating the adjustment, (b) the computation of any such adjustment, and
(c) the Exercise Price and the number of shares or the securities or other
property purchasable upon exercise of each Warrant, after giving effect thereto.
The Warrant Agent shall within 15 days after receipt of such notice from the
Company cause a similar notice to be mailed to each registered holder of a
Warrant Certificate.
Section 3.9 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Article III, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments.
Section 3.10 Fractional Shares. The Company shall not be required upon
the exercise of any Warrant to issue fractional shares of Common Stock which may
result from adjustments in accordance with this Article III to the Exercise
Price or number of shares of Common Stock purchasable under each Warrant. If
more than one Warrant is exercised at one time by the same registered holder,
the number of full shares of Common Stock which shall be
D-5
deliverable shall be computed based on the number of shares deliverable in
exchange for the aggregate number of Warrants exercised. With respect to any
final fraction of a share called for upon the exercise of any Warrant or
Warrants, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Current Market Price (as
defined below) of a share of Common Stock calculated in accordance with Section
3.12 hereof.
Section 3.11 Current Market Price. The "Current Market Price" per share
at any date shall be the average of the "closing prices" for the 30 consecutive
trading days ending on the trading day immediately preceding the date in
question, where the "closing price" on any day is (a) the last reported sales
price regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (including, for
purposes hereof, the Nasdaq National Market), if on such date the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or a similar organization
if Nasdaq is no longer reporting such information, or (c) if on such date the
Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted by Nasdaq or any similar organization, as determined
by reference to the "pink sheets" published by National Quotation Bureau or, if
not so published, by such other method of determining market value as the Board
shall in good faith from time to time deem to be fair and such other method
shall be conclusive.
Section 3.12 Right to Adjust Exercise Price and Exercise Deadline. The
Company may at any time, by notice to the Warrant Agent, reduce the Exercise
Price to such price, or extend the Exercise Deadline to such date, as the
Company may set forth in such notice. Any such reduction shall remain in effect
for such period as may be set forth in such notice. The Warrant Agent shall
promptly after receipt of any such notice from the Company cause a similar
notice to be mailed to each registered holder of a Warrant Certificate.
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF REGISTERED HOLDERS OF WARRANT CERTIFICATES
Section 4.1 Rights of Warrant Holders. No Warrant Certificate shall
entitle the registered holder thereof to any of the rights of a stockholder of
the Company, including without limitation the right to vote, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company.
Section 4.2 Lost, Stolen, Mutilated, or Destroyed Warrant Certificates.
If any Warrant Certificate shall be mutilated, lost, stolen, or destroyed, the
Company in its discretion may direct the Warrant Agent to execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Warrant
Certificate, or in lieu of or in substitution for a lost, stolen, or destroyed
Warrant Certificate, a new Warrant Certificate for the number of Warrants
represented by the Warrant Certificate so mutilated, lost, stolen, or destroyed
but only upon receipt of evidence of such loss, theft, or destruction of such
Warrant Certificate, and of the ownership thereof, and indemnity, if requested,
all satisfactory to the Company and the Warrant Agent. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges incidental thereto as the
Company or the Warrant Agent may prescribe. Any such new Warrant Certificate
shall constitute an original contractual obligation of the Company, whether or
not the allegedly lost, stolen, mutilated, or destroyed Warrant Certificate
shall be at any time enforceable by anyone.
ARTICLE V
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER,
AND CANCELLATION OF WARRANT CERTIFICATES
Section 5.1 Split Up, Combination, Exchange, and Transfer of Warrant
Certificates. Prior to the Exercise Deadline, Warrant Certificates, subject to
the provisions of Section 5.2, may be split up, combined, or exchanged for other
Warrant Certificates representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any holder desiring to split up, combine, or
exchange a Warrant Certificate or Warrant Certificates shall make
D-6
such request in writing delivered to the Warrant Agent at its Principal Office
and shall surrender the Warrant Certificate or Warrant Certificates so to be
split up, combined, or exchanged at said office. Subject to any applicable laws,
rules, or regulations restricting transferability, any restriction on
transferability that may appear on a Warrant Certificate in accordance with the
terms hereof, or any "stop-transfer" instructions the Company may give to the
Warrant Agent to implement any such restrictions (which instructions the Company
is expressly authorized to give), transfer of outstanding Warrant Certificates
may be effected by the Warrant Agent from time to time upon the books of the
Company to be maintained by the Warrant Agent for that purpose, upon a surrender
of the Warrant Certificate to the Warrant Agent at its Principal Office, with
the assignment form set forth in the Warrant Certificate duly executed and with
Signatures Guaranteed. Upon any such surrender for split up, combination,
exchange, or transfer, the Warrant Agent shall execute and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Warrant Agent shall not be required to effect any split
up, combination, exchange, or transfer which will result in the issuance of a
Warrant Certificate evidencing a fraction of a Warrant. The Warrant Agent may
require the holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split up, combination,
exchange, or transfer of Warrant Certificates prior to the issuance of any new
Warrant Certificate.
Section 5.2 Cancellation upon Surrender of Warrant Certificates. Any
Warrant Certificate surrendered upon the exercise of Warrants or for split up,
combination, exchange, or transfer, or purchased or otherwise acquired by the
Company, shall be cancelled and shall not be reissued by the Company; and,
except as provided in Section 2.5 hereof in case of the exercise of less than
all of the Warrants evidenced by a Warrant Certificate or in Section 5.1 hereof
in case of a split up, combination, exchange, or transfer, no Warrant
Certificate shall be issued hereunder in lieu of such cancelled Warrant
Certificate. Any Warrant Certificate so cancelled shall be destroyed by the
Warrant Agent unless otherwise directed by the Company.
Section 5.3 Agreement of Warrant Certificate Holders. Every holder of a
Warrant Certificate by accepting the same consents and agrees with the Company
and the Warrant Agent and with every other holder of a Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be registered on the
books of the Company maintained for that purpose by the Warrant
Agent only if surrendered at the Principal Office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of
transfer, with Signatures Guaranteed; and
(b) prior to due presentment for registration of transfer, the
Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute
owner thereof and of the Warrants evidenced thereby
(notwithstanding any notations of ownership or writing on the
Warrant Certificates made by anyone other than the Company or the
Warrant Agent) for all purposes whatsoever, and neither the
Company nor the Warrant Agent shall be affected by any notice to
the contrary.
ARTICLE VI
PROVISIONS CONCERNING THE WARRANT
AGENT AND OTHER MATTERS
Section 6.1 Payment of Taxes and Charges. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to the
Warrant Agent for the payment of, all taxes and charges that may be imposed by
the United States or any state upon the Company or the Warrant Agent in
connection with the issuance or delivery of shares of Common Stock upon the
exercise of any Warrants, but any transfer taxes in connection with the issuance
of Warrant Certificates or certificates for shares of Common Stock in any name
other than that of the registered holder of the Warrant Certificate surrendered
shall be paid by such registered holder; and, in such case, the Company shall
not be required to issue or deliver any Warrant Certificate or certificate for
shares of Common Stock until such taxes shall have been paid or it has been
established to the Company's satisfaction that no tax is due.
Section 6.2 Resignation or Removal of Warrant Agent. The Warrant Agent
may resign its duties and be discharged from all further duties and liabilities
hereunder after giving 30 days notice in writing to the Company, except that
such shorter notice may be given as the Company shall, in writing, accept as
sufficient. Upon
D-7
comparable notice to the Warrant Agent, the Company may remove the Warrant
Agent; provided, however, that in such event the Company shall appoint a new
Warrant Agent, as hereinafter provided, and the removal of the Warrant Agent
shall not be effective until a new Warrant Agent has been appointed and has
accepted such appointment. If the office of Warrant Agent becomes vacant by
resignation or incapacity to act or otherwise, the Company shall appoint in
writing a new Warrant Agent. If the Company shall fail to make such appointment
within a period of 30 days after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant Agent or by
the registered holder of any Warrant Certificate, then the registered holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent. Any new Warrant Agent appointed hereunder
shall execute, acknowledge, and deliver to the former Warrant Agent last in
office, and to the Company, an instrument accepting such appointment under
substantially the same terms and conditions as are contained herein, and
thereupon such new Warrant Agent without any further act or deed shall become
vested with the rights, powers, duties, and responsibilities of the Warrant
Agent and the former Warrant Agent shall cease to be the Warrant Agent; but if
for any reason it becomes necessary or expedient to have the former Warrant
Agent execute and deliver any further assurance, conveyance, act, or deed, the
same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the former Warrant Agent.
Section 6.3 Notice of Appointment. Not later than the effective date of
the appointment of a new Warrant Agent the Company shall cause notice thereof to
be mailed to the former Warrant Agent and the transfer agent for the Common
Stock, and shall forthwith cause a copy of such notice to be mailed to each
registered holder of a Warrant Certificate. Failure to mail such notice, or any
defect contained therein, shall not affect the legality or validity of the
appointment of the successor Warrant Agent.
Section 6.4 Merger of Warrant Agent. Any company into which the Warrant
Agent may be merged or with which it may be consolidated, or any company
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, shall be the successor Warrant Agent under this Agreement without further
act, provided that such company would be eligible for appointment as a successor
Warrant Agent under the provisions of Section 6.2 hereof. Any such successor
Warrant Agent may adopt the prior countersignature of any predecessor Warrant
Agent and distribute Warrant Certificates countersigned but not distributed by
such predecessor Warrant Agent, or may countersign the Warrant Certificates in
its own name.
Section 6.5 Company Responsibilities. The Company agrees that it shall
(a) pay the Warrant Agent reasonable remuneration for its services as Warrant
Agent hereunder and will reimburse the Warrant Agent upon demand for all
expenses, advances, and expenditures that the Warrant Agent may reasonably incur
in the execution of its duties hereunder (including fees and expenses of its
counsel); and (b) perform, execute, acknowledge, and deliver or cause to be
performed, executed, acknowledged, and delivered all further and other acts,
instruments, and assurances as may reasonably be required by the Warrant Agent
for the carrying out or performing by the Warrant Agent of the provisions of
this Agreement.
Section 6.6 Certification for the Benefit of Warrant Agent. Whenever in
the performance of its duties under this Agreement the Warrant Agent shall deem
it necessary or desirable that any matter be proved or established or that any
instructions with respect to the performance of its duties hereunder be given by
the Company prior to taking or suffering any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established, or such instructions may be
given, by a certificate or instrument signed by the Chairman, any Vice Chairman,
the President, any Vice President, the Secretary, any Assistant Secretary, the
Chief Financial Officer, Treasurer, or any Assistant Treasurer of the Company
and delivered to the Warrant Agent. Such certificate or instrument may be relied
upon by the Warrant Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement; but in its discretion the Warrant Agent
may in lieu thereof accept other evidence of such matter or may require such
further or additional evidence as it may deem reasonable.
Section 6.7 Books and Records. The Warrant Agent shall maintain the
Company's books and records for registration and registration of transfer of the
Warrant Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Warrant Certificates, the number of
Warrants evidenced on its face by each Warrant Certificate, and the date of each
Warrant Certificate.
Section 6.8 Liability of Warrant Agent. The Warrant Agent shall be
liable hereunder for its own negligence or willful misconduct. The Warrant Agent
shall act hereunder solely as an agent for the Company and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not be
liable for or by reason of any of the
D-8
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only. The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken, or any failure to take action, in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document, or
instrument reasonably believed by the Warrant Agent to be genuine and to have
been signed, sent, or presented by the proper party or parties. The Warrant
Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof by the Company or in respect of
the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall it be responsible for the making of any
adjustment required under the provisions of Article III hereof or responsible
for the manner, method, or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock or other securities to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any shares of Common Stock
or other securities will when issued be validly authorized and issued and fully
paid and nonassessable.
Section 6.9 Use of Attorneys, Agents, and Employees. The Warrant Agent
may execute and exercise any of the rights or powers hereby vested in it or
perform any duty hereunder either itself or by or through its attorneys, agents,
or employees.
Section 6.10 Indemnification. The Company agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses, or
liabilities, including judgments, costs, and counsel fees arising out of or in
connection with its agency under this Agreement, except as a result of the
negligence or willful misconduct of the Warrant Agent.
Section 6.11 Acceptance of Agency. The Warrant Agent hereby accepts the
agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth.
Section 6.12 Changes to Agreement. The Warrant Agent may, without the
consent or concurrence of any registered holder of a Warrant Certificate, by
supplemental agreement or otherwise, join with the Company in making any changes
or corrections in this Agreement that they shall have been advised by counsel
(a) are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, (b) add to the covenants and agreements of the Company or the Warrant
Agent in this Agreement such further covenants and agreements thereafter to be
observed, or (c) result in the surrender of any right or power reserved to or
conferred upon the Company or the Warrant Agent in this Agreement, but which
changes or corrections do not or will not adversely affect, alter, or change the
rights, privileges, or immunities of the registered holders of Warrant
Certificates.
Section 6.13 Assignment. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns.
Section 6.14 Successor to Company. The Company will not merge or
consolidate with or into any other corporation or sell or otherwise transfer its
property, assets, and business substantially as an entirety to a successor
corporation unless the corporation resulting from such merger, consolidation,
sale, or transfer (if not the Company) shall expressly assume, by supplemental
agreement satisfactory in form and substance to the Warrant Agent and delivered
to the Warrant Agent, the due and punctual performance and observance of each
and every covenant and condition of this Agreement to be performed and observed
by the Company.
Section 6.15 Notices. Any notice or demand required by this Agreement to
be given or made by the Warrant Agent or by the registered holder of any Warrant
Certificate to or on the Company shall be sufficiently given if made in writing
and shall be mailed by certified mail, return receipt requested or sent by
Federal Express, Express Mail, or similar overnight delivery or courier service
or delivered (in person or by telecopy, telex, or similar telecommunications
equipment) against receipt to the party to whom it is to be given as follows:
D-9
if to the Company:
Atlantic Coast Entertainment Holdings, Inc.
c/o Sands Hotel & Casino
Indiana Avenue & Brighton Park
Atlantic City, New Jersey 08401
Phone: (609) 441-4432
Attention: Douglas S. Niethold.
If to the Warrant Agent:
[warrant agent address]
Any notice or demand required by this Agreement to be given or made by the
Company or the Warrant Agent to or on the registered holder of any Warrant
Certificate shall be sufficiently given or made, whether or not such holder
receives the notice, if sent by first-class or registered mail, postage prepaid,
addressed to such registered holder at his last address as shown on the books of
the Company maintained by the Warrant Agent. Otherwise such notice or demand
shall be deemed given when received by the party entitled thereto.
Section 6.16 Defects in Notice. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement, shall not affect in any way the rights of any
registered holder of a Warrant Certificate or the legality or validity of any
adjustment made pursuant to Section 3.1 hereof, or any transaction giving rise
to any such adjustment, or the legality or validity of any action taken or to be
taken by the Company.
Section 6.17 Governing Law. This Agreement and the Warrant Certificates
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of law. Each of the parties
submits to the jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Agreement or any of the transactions contemplated hereby, and hereby
waives, to the maximum extent permitted by law, any objection, including an
objections based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions.
Section 6.18 Standing. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, the Warrant Agent, and the registered holders of the Warrant
Certificates any right, remedy, or claim under or by reason of this Agreement or
of any covenant, condition, stipulation, promise, or agreement contained herein;
and all covenants, conditions, stipulations, promises, and agreements contained
in this Agreement shall be for the sole and exclusive benefit of the Company and
the Warrant Agent and their successors, and the registered holders of the
Warrant Certificates.
Section 6.19 Headings. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 6.20 Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts shall together constitute but one and the same instrument.
Section 6.21 Conflict of Interest. The Warrant Agent and any
stockholder, director, officer, or employee of the Warrant Agent may buy, sell,
or deal in any of the Warrant Certificates or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company, including, without limitation, as trustee under
any indenture or as transfer agent for any securities of the Company or for any
other entity.
D-10
Section 6.22 Availability of the Agreement. The Warrant Agent shall keep
copies of this Agreement available for inspection by holders of Warrants during
normal business hours at its Corporate Trust Department. Copies of this
Agreement may be obtained upon written request addressed to:
Douglas S. Niethold
c/o Sands Hotel & Casino
Indiana Avenue & Brighton Park
Atlantic City, New Jersey 08401
(609) 441-4432
D-11
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
BY:
-------------------------------------------
Name:
Title:
[Warrant Agent]
BY:
-------------------------------------------
Name:
Title:
D-12
Exhibit A
[FORM OF WARRANT CERTIFICATE]
No.
Certificate for _____ Warrants
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that ____________________________________ or registered
assigns is the registered holder (the "Registered Holder") of the number of
Warrants set forth above, each of which represents the right to purchase .275
fully paid and nonassessable share of Common Stock, par value $.01 per share
(the "Common Stock"), of Atlantic Coast Entertainment Holdings, Inc., (the
"Company"), a Delaware corporation, at the initial exercise price (the "Exercise
Price") of $.01, at any time after the shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby have been registered under the
Securities Act of 1933, as amended, or such other action as may be required by
Federal or state law relating to the issuance or distribution of securities
shall have been taken, but not before the Vesting Date hereinafter referred to,
and not after the Exercise Deadline hereinafter referred to, by surrendering
this Warrant Certificate, with the form of election to purchase set forth hereon
duly executed with signatures guaranteed as provided below, at the office
maintained pursuant to the Warrant Agreement hereinafter referred to for that
purpose by Wells Fargo Bank, National Association, or its successor as warrant
agent (any such warrant agent being herein called the "Warrant Agent"), and by
paying in full the Exercise Price, plus transfer taxes, if any. Payment of the
Exercise Price shall be made in United States currency, by certified check or
money order payable to the order of the Company. Capitalized terms used herein,
but not otherwise defined shall have the meaning set forth in the Warrant
Agreement, (the "Warrant Agreement") dated as of [___ ___, 2004] by and between
the Company and the Warrant Agent.
Upon certain events provided for in the Warrant Agreement, the number of
shares of Common Stock issuable upon the exercise of each Warrant is required to
be adjusted.
Each Warrant may be exercised at any time after the earliest to occur of
the following events (the first date on which any such event occurs being
referred to as the "Vesting Date") :
(a) the payment of the entire principal amount and accrued interest
on any of the Company's outstanding 3% Notes due 2008 issued by
the Company (the "New Notes"), pursuant to and in accordance with
the terms thereof whether such payment is in the form of cash or
by issuance of shares of Common Stock to the holder thereof in
lieu of cash payment or any conversion of any of such notes into
common stock pursuant to and in accordance with the terms
thereof;
(b) a determination by a majority of the board of directors of the
Company (the "Board") (including at least one independent
director) that the Warrants may be exercised; and
(c) payment in full by the Parent of principal and accrued, but
unpaid interest on all outstanding 11% Notes due 2005 issued by
the Parent which have not been exchanged for the New Notes in the
Transaction.
Promptly after the Vesting Date, the Company shall send written notice
to the Warrant Agent that such Vesting Date has occurred (the "Vesting Notice").
The Warrant Agent shall within ten days after receipt of the Vesting Notice
cause a similar notice to be mailed to each registered holder of a Warrant
Certificate.
The latest time and date at which the Warrants may be exercised (the
"Exercise Deadline") shall be 5:00 P.M. New York City time on the earlier of (i)
the date that is the seventh anniversary of the completion of the Distribution;
or (ii) the Cancellation Date (as defined below).
At any time after the Vesting Date, the Company by action of the Board,
may at its option, cancel all, but not less than all of the Warrants provided
that the Company uses reasonable efforts to register the Warrant Shares under
D-13
the Securities Act. Notice of such cancellation shall be promptly given to the
Warrant Agent by the Company and such notice (the "Cancellation Notice") shall
be mailed to all registered holders of Warrant Certificates, not less than 90
days prior to the date established by the Board (the "Cancellation Date"). The
Cancellation Notice will specify the Cancellation Date and will also state that
the right to exercise the Warrants will terminate at 5:00 p.m., New York City
time on the Cancellation Date. The Company will also make a prompt public
announcement by news release and by notice to any national securities exchange
on which the Warrants are listed for trading.
After the Exercise Deadline, all Warrants evidenced hereby shall
thereafter become void.
Prior to the Exercise Deadline, subject to any applicable laws, rules,
or regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement, the Registered Holder shall be entitled to
transfer this Warrant Certificate in whole or in part upon surrender of this
Warrant Certificate at the office of the Warrant Agent maintained for that
purpose with the form of assignment set forth hereon duly executed, with
signatures guaranteed by a member firm of a national securities exchange, a
commercial bank (not a savings bank or a savings and loan association) or a
trust company located in the United States, a member of the National Association
of Securities Dealers, Inc., or other eligible guarantor institution which is a
participant in a signature guarantee program (as such terms are defined in Reg.
240.17Ad-15 under the Securities Exchange Act of 1934, as amended) acceptable to
the Warrant Agent. Upon any such transfer, a new Warrant Certificate or Warrant
Certificates representing the same aggregate number of Warrants will be issued
in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Exercise Deadline, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for such purpose by the Warrant Agent.
No fractional shares will be issued upon the exercise of Warrants. As to
any final fraction of a share which the registered holder of one or more Warrant
Certificates, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay the cash value thereof determined as provided in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the Registered Holder
consents by acceptance hereof.
This Warrant Certificate shall not entitle the registered holder of such
Certificate to any of the rights of a stockholder of the Company, including,
without limitation, the right to vote, to receive dividends and other
distributions, or to attend or receive any notice of meetings of stockholders or
any other proceedings of the Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
D-14
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its facsimile corporate seal.
Atlantic Coast Entertainment Holdings, Inc.
BY:
-------------------------------------------------
President
Seal Attest:
-------------------------------------------------
Secretary
Countersigned: [Warrant Agent]
-------------------------------------------------
Dated as Warrant Agent
D-15
[FORM OF]
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise __________ of the
Warrants represented by this Warrant Certificate and to purchase the shares of
Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:
(NAME)
(ADDRESS, INCLUDING ZIP CODE)
(SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER)
DELIVER TO:
(NAME)
at
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_________ by certified check or money order payable in United States currency
to the order of the Company.
Dated____________________, 20__
Name of Warrant Holder:
--------------------------------------------------------
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
D-16
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant Certificate, with respect to the number of Warrants set
forth below:
Name of Assignee Address No. of Warrants
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint ___________ Attorney to make
such transfer on the books of Atlantic Coast Entertainment Holdings, Inc.
maintained for that purpose, with full power of substitution in the premises.
Dated: ___.
-----------------------------------------
Signature
-----------------------------------------
SIGNATURE(S) GUARANTEED Signature
NOTICE: The signature(s) on this
assignment must correspond with the
name(s) as written upon the face of the
Certificate, in every particular,
without alteration or enlargement or
By any change whatever.
-----------------------------------
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION. (Banks, Stock Brokers,
Savings and Loan Associations, and
Credit Unions) WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM PURSUANT TO S.E.C.
RULE 17Ad-15.
D-17
ANNEX E
================================================================================
GB PROPERTY FUNDING CORP.,
as Issuer,
GB HOLDINGS INC. and GREATE BAY HOTEL
and CASINO, INC.,
as Guarantors,
and
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
as Trustee
----------
Amended and Restated Indenture
Dated as of October 12, 2001
----------
$110 Million
11% Notes Due 2005
================================================================================
E-i
GB Property Funding Corp.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of ________
TIA INDENTURE
SECTION SECTION
------- ---------
310(a)(1)............................................... 607
(a)(2)............................................ 607
(a)(3)............................................ N.A.
(a)(4)............................................ N.A.
(a)(5)............................................ 607
(b)............................................... 604, 608
(c)............................................... N.A.
311..................................................... 604
312..................................................... 701
313..................................................... 601, 702
314(a).................................................. 703, 1008
(b)............................................... 1401(d)
(c)(1)............................................ 102
(c)(2)............................................ 102
(c)(3)............................................ N.A.
(d)............................................... 1405
(e)............................................... 102
(f)............................................... N.A.
315(a).................................................. 602
(b)............................................... 601
(c)............................................... 602
(d)............................................... 602
(e)............................................... N.A.
316(a)(last sentence)................................... 101("Outstanding")
(a)(1)(A)......................................... 512
(a)(1)(B)......................................... 513
(a)(2)............................................ N.A.
(b)............................................... 508
(c)............................................... 104(d)
317(a)(1)............................................... 503
(a)(2)............................................ 504
(b)..................................................... 1003
318(a).................................................. 111
- ----------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
E-ii
TABLE OF CONTENTS (1)
PARTIES................................................................................... 1
RECITALS.................................................................................. 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions................................................................. 1
Section 102. Compliance Certificates and Opinions........................................ 13
Section 103. Form of Documents Delivered to Trustee...................................... 13
Section 104. Acts of Holders............................................................. 14
Section 105. Notices, etc., to Trustee, Company and Guarantors........................... 15
Section 106. Notice to Holders; Waiver................................................... 15
Section 107. Effect of Headings and Table of Contents.................................... 16
Section 108. Successors and Assigns...................................................... 16
Section 109. Separability Clause......................................................... 16
Section 110. Benefits of Indenture....................................................... 16
Section 111. Governing Law............................................................... 16
Section 112. Legal Holidays.............................................................. 16
Section 113. Casino Control Act.......................................................... 16
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally............................................................. 17
Section 202. Form of Face of Notes....................................................... 17
Section 203. Form of Reverse of Notes.................................................... 18
Section 204. Form of Trustee's Certificate of Authentication............................. 20
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms............................................................. 21
Section 302. Denominations............................................................... 21
Section 303. Execution, Authentication, Delivery and Dating.............................. 21
Section 304. Temporary Securities........................................................ 22
Section 305. Registration, Registration of Transfer and Exchange......................... 23
Section 306. Mutilated, Destroyed, Lost and Stolen Securities............................ 23
Section 307. Payment of Interest; Interest Rights Preserved.............................. 24
Section 308. Persons Deemed Owners....................................................... 25
Section 309. Cancellation................................................................ 25
Section 310. Computation of Interest..................................................... 25
Section 311. Maximum Interest Rate....................................................... 25
E-iii
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture..................................... 25
Section 402. Application of Trust Money.................................................. 26
ARTICLE FIVE
REMEDIES
Section 501. Events of Default........................................................... 26
Section 502. Acceleration of Maturity; Rescission and Annulment.......................... 28
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee............. 29
Section 504. Trustee May File Proofs of Claim............................................ 29
Section 505. Trustee May Enforce Claims Without Possession of Securities................. 30
Section 506. Application of Money Collected.............................................. 30
Section 507. Limitation on Suits......................................................... 30
Section 508. Unconditional Right of Holders to Receive Principal Premium and Interest.... 30
Section 509. Restoration of Rights and Remedies.......................................... 31
Section 510. Rights and Remedies Cumulative.............................................. 31
Section 511. Delay or Omission Not Waiver................................................ 31
Section 512. Control by Holders.......................................................... 31
Section 513. Waiver of Defaults and Compliance........................................... 31
ARTICLE SIX
THE TRUSTEE
Section 601. Notice of Defaults.......................................................... 32
Section 602. Certain Rights of Trustee................................................... 32
Section 603. Trustee Not Responsible for Recitals or Issuance of Securities.............. 33
Section 604. May Hold Securities......................................................... 33
Section 605. Money Held in Trust......................................................... 33
Section 606. Compensation and Reimbursement.............................................. 33
Section 607. Corporate Trustee Required: Eligibility..................................... 34
Section 608. Resignation and Removal; Appointment of Successor........................... 34
Section 609. Acceptance of Appointment by Successor...................................... 35
Section 610. Merger, Conversion, Consolidation or Succession to Business................. 35
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTORS
Section 701. Disclosure of Names and Addresses of Holders................................ 36
Section 702. Reports by Trustee.......................................................... 36
Section 703. Reports by Company and Guarantors........................................... 37
E-iv
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Holdings and Subsidiaries May Consolidate, etc.,Only on Certain Terms....... 37
Section 802. Successor Substituted....................................................... 38
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Amendments to Security Documents Without Consent
of Holders............................................................... 39
Section 902. Supplemental Indentures and Amendments to Security Documents with Consent of
Holders.................................................................. 39
Section 903. Execution of Supplemental Indentures and Amendments to Security Documents... 40
Section 904. Effect of Supplemental Indentures........................................... 40
Section 905. Conformity with Trust Indenture Act......................................... 40
Section 906. Reference in Securities to Supplemental Indentures.......................... 40
Section 907. Notice of Supplemental Indentures and Amendments to Security Documents...... 40
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium, if any, and Interest......................... 41
Section 1002. Maintenance of Office or Agency............................................. 41
Section 1003. Money for Security Payments to Be Held in Trust............................. 41
Section 1004. Corporate Existence......................................................... 42
Section 1005. Payment of Taxes and Other Claims........................................... 42
Section 1006. Maintenance of Properties................................................... 42
Section 1007. Insurance................................................................... 43
Section 1008. Statement by Officers as to Compliance...................................... 43
Section 1009. Statement by Officers of Certain Defaults................................... 43
Section 1010. Purchase of Securities upon Change in Control............................... 43
Section 1011. [Intentionally Omitted.].................................................... 44
Section 1012. [Intentionally Omitted.].................................................... 44
Section 1013. Limitation on Restricted Payments........................................... 44
Section 1014. [Intentionally Omitted.].................................................... 44
Section 1015. [Intentionally Omitted.].................................................... 44
Section 1016. [Intentionally Omitted.].................................................... 44
Section 1017. Limitation on Asset Sales................................................... 44
Section 1018. Application of Net Cash Proceeds in Event of Loss........................... 45
Section 1019. Ownership of Stock of Subsidiaries.......................................... 46
Section 1020. Limitation on Transactions with Affiliates.................................. 46
Section 1021. Change in Nature of Business................................................ 46
Section 1022. Additional Collateral....................................................... 46
E-v
Section 1023. CRDA Investments............................................................ 46
Section 1024. Subsidiaries................................................................ 46
Section 1025. Security Documents.......................................................... 47
Section 1026. Validity of Security Interest............................................... 47
Section 1027. Duty of Cooperation......................................................... 47
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Optional Redemption......................................................... 47
Section 1102. Applicability of Article.................................................... 47
Section 1103. Election to Redeem; Notice to Trustee....................................... 48
Section 1104. Selection by Trustee of Securities to Be Redeemed........................... 48
Section 1105. Notice of Redemption........................................................ 48
Section 1106. Deposit of Redemption Price................................................. 49
Section 1107. Securities Payable on Redemption Date....................................... 49
Section 1108. Securities Redeemed in Part................................................. 49
Section 1109. Redemption Pursuant to Gaming Laws.......................................... 49
ARTICLE TWELVE
GUARANTEE ARRANGEMENTS
Section 1201. Guarantee................................................................... 50
Section 1202. Execution and Deliver of Guarantee.......................................... 51
Section 1203. Additional Guarantors....................................................... 51
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance................ 51
Section 1302. Defeasance and Discharge.................................................... 51
Section 1303. Covenant Defeasance......................................................... 52
Section 1304. Conditions to Defeasance or Covenant Defeasance............................. 52
Section 1305. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other
Miscellaneous Provisions................................................. 53
Section 1306. Reinstatement............................................................... 54
E-vi
ARTICLE FOURTEEN
SECURITY INTEREST
Section 1401. Assignment of Security Interest............................................. 54
Section 1402. Suits to Protect the Collateral............................................. 55
Section 1403. Further Assurances and Security............................................. 55
Section 1404. Collateral Account.......................................................... 55
Section 1405. Release Notice; Subordination Request, Permitted Liens...................... 56
Section 1406. Reliance on Opinion of Counsel.............................................. 57
Section 1407. Purchaser May Rely.......................................................... 57
Section 1408. Payment of Expenses......................................................... 57
ARTICLE FIFTEEN
MISCELLANEOUS
Section 1501. Counterparts................................................................ 58
Exhibit A
TESTIMONIUM...............................................................................
SIGNATURE AND SEALS.......................................................................
(1) This table of contents shall not, for any purpose, be deemed to be a part of
this Indenture.
SCHEDULES
1.01 Permitted Indebtedness
1.02 Permitted Affiliate Transactions
E-vii
AMENDED AND RESTATED INDENTURE, dated as of October 12, 2001 among GB
Property Funding Corp. (herein called the "Company"), GB Holdings, Inc. (herein
called "Holdings") and Greate Bay Hotel and Casino, Inc. (herein called "GBHC",
and, together with Holdings, herein called the "Guarantors"), each of which is a
corporation duly organized and existing, in the case of the Company and
Holdings, under the laws of the State of Delaware, and in the case of GBHC,
under the laws of the State of New Jersey, and each having its principal office
c/o Sands Hotel and Casino at Indiana Avenue & Brighton Park, Atlantic City, New
Jersey 08401, and Wells Fargo Bank Minnesota, National Association, Trustee
(herein called the "Trustee").
The Company has duly authorized and issued its 11% Notes Due 2005
(herein called "Notes" or the "Securities"), under an Indenture dated as of
September 29, 2000 (the "Original Indenture") of substantially the tenor and
amount set forth in the Original Indenture, and to provide therefore the Company
has duly authorized the execution and delivery of the Original Indenture, as
amended and restated by this Amended and Restated Indenture (this "Indenture").
The Company has duly authorized the creation of Liens to secure the Securities,
and to provide therefore the Company has duly authorized the execution and
delivery of the Security Documents to which it is a party.
Each of the Guarantors has duly authorized its guarantee of the
Securities, and to provide therefore each of the Guarantors has duly authorized
the execution and delivery of this Indenture. Each of the Guarantors has duly
authorized the creation of Liens to secure its guarantee of the Securities, and
to provide therefore each of the Guarantors has duly authorized the execution
and delivery of the Security Documents to which it is a party.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated by the Trustee and delivered hereunder
and duly issued by the Company, the valid obligations of the Company, to make
the Guarantees the valid obligation of each of the Guarantors and to make this
Indenture a valid agreement of each of the Company and the Guarantors, in
accordance with their and its terms.
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular;
(b) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction"
and "self-liquidating paper", as used in TIA Section 311, shall have
the meanings assigned to them in the rules of the Commission adopted
under the Trust Indenture Act;
E-1
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of
such computation;
(d) any reference herein to any "first priority lien",
"first priority security interest" or words of similar import or
otherwise regarding the priority of any Lien, shall apply and refer,
and shall be deemed to apply and refer, only to the Collateral and all
such Liens shall, and shall be deemed to be: (i) subject and inferior
to any Lien to secure Working Capital Indebtedness; and (ii) subject
to any release or subordination contemplated in Section 1405 hereof.
Any reference herein to the "terms of any release or subordination
contemplated in Section 1405 hereof" or "any release or subordination"
or words of similar import shall be deemed to refer to and include,
without limitation, any and all terms, provisions and conditions of
any such release or subordination and of all agreements, documents and
instruments related thereto, associated therewith or arising from or
in connection with any such release or subordination or any related or
associated transaction; and
(e) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Subsidiary of Holdings or is combined
or acquired through an asset acquisition, merger or otherwise, with Holdings or
a Subsidiary of Holdings, including, without limitation, Indebtedness incurred
by such Person in connection with, or in anticipation of, such Person becoming a
Subsidiary of Holdings or of such acquisition, in each case which, if secured,
is not secured by Collateral.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" of any Person means any other Person that,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such Person and with respect to any natural
Person, any other Person having a relationship by blood, marriage or adoption,
not more remote than first cousins with such natural Person. For the purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock or other equity interests, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Allowed Indebtedness" means any Indebtedness or Preferred
Stock, including, without limitation, Indebtedness or Preferred Stock that: (i)
is not secured by a Lien; (ii) is (or to the extent that it is) secured by a
Lien on assets other than the Collateral; (iii) is secured by a Lien on
Collateral which, except for and subject to any release or subordination
contemplated in Section 1405 hereof, is inferior to the Liens of the Trustee on
such Collateral; (iv) constitutes Acquired Indebtedness, or (v) is incurred
between or among Holdings and its Subsidiaries.
"Amortization Expense" means, for any Person for any period,
the amount of the amortization expense (including, without limitation, the
write-down of non-current assets, including CRDA Investments) that is reflected
on the financial statements of such Person and its Subsidiaries consolidated in
such financial statements for such period in accordance with GAAP.
"Approved Project" means any transaction that has been
approved by the Board of Directors of Holdings or any of its Subsidiaries
involving: (a) the incurrence of Indebtedness to be entered into or incurred by
Holdings or any of its Subsidiaries; (b) any Approved Transfer; or (c) any
similar, related or associated event, transaction or activity.
"Approved Transfer" means any sale, conveyance, transfer,
disposition or contribution by a Person, or any Subsidiary of such Person, to
any Person ("Transferee") if such Person or Subsidiary has or obtains debt or
equity interests in the Transferee.
"Asset Acquisition" means (a) any capital contribution
(including, without limitation, transfers of cash or other property to others or
payments for property or services for the account or use of others, or
otherwise), or purchase or acquisition of Capital Stock or other similar
ownership or profit interest, by Holdings or
E-2
any of its Subsidiaries in any other Person, in either case pursuant to which
such Person shall become a Subsidiary of Holdings or any of its Subsidiaries or
shall be merged with or into Holdings or any of its Subsidiaries or (b) any
acquisition by Holdings or any of its Subsidiaries of the assets of any Person
which constitute substantially all of an operating unit or business of such
Person.
"Asset Sale" means, as applied to any Person, any direct or
indirect sale, conveyance, transfer, lease or other disposition (other than a
Sale-Leaseback Transaction) by such Person or any Subsidiary of such Person to
any Person other than such Person or a wholly owned Subsidiary of such Person,
in one transaction or a series of related transactions, of any Capital Stock of
any Subsidiary of such Person or other similar equity interest of such
Subsidiary or any other property or asset of such Person or any Subsidiary of
such Person (provided that the term "Asset Sale" shall not include (a) sales,
conveyances, transfers, leases or other dispositions in the ordinary course of
business, (b) all other dispositions pursuant to which such Person receives,
directly or indirectly, Net Cash Proceeds or fair market value of less than or
equal to $5,000,000 in the aggregate in any twelve month period, (c) sales,
conveyances, transfers, leases or other dispositions of CRDA Investments, (d)
any Approved Transfer, (e) sales, conveyances, transfers, leases or other
transactions or dispositions made in accordance with the provisions of Section
1405 of this Indenture or (f) sales, conveyances, transfers, leases or other
transactions or dispositions made pursuant to the terms of any agreement,
document or instrument entered into in connection with any Approved Project in
respect of which any release or subordination has occurred in accordance with
the provisions of Section 1405 of this Indenture, including, without limitation,
any sale or other disposition resulting from any default or foreclosure).
"Assets" means, as applied to any Person, any tangible or
intangible assets, or rights or real or personal properties of such Person or
any of its Subsidiaries including capital stock of Subsidiaries.
"Board of Directors" means either the board of directors of
a Person or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of a Person to have been duly adopted by
the Board of Directors of such Person and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in The City
of New York or the State of New Jersey are authorized or obligated by law or
executive order to close.
"Capital Stock" means, with respect to any Person, any and
all shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock,
whether outstanding on the Issue Date or issued after such date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Capitalized Lease Obligation" means any obligation to pay
rent or other amounts under a lease of (or other agreement conveying the right
to use) any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose hereof, the amount of such obligation at any date of determination
shall be the capitalized amount thereof at such date, determined in accordance
with GAAP.
"Cash Equivalents" means any of the following, to the extent
owned by Holdings or any of its Subsidiaries free and clear of all Liens (other
than Liens in favor of the Trustee or the Holders) and having a maturity of not
greater than 270 days from the date of acquisition: (a) any evidence of
Indebtedness issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof): (b) insured certificates of deposit or acceptances of any commercial
bank that is a member of the Federal Reserve System, that issues (or the parent
of which issues) commercial paper rated as described in clause (c) below and
that has combined capital and surplus and undivided profits of not less than
$100,000,000; (c) commercial paper issued by a corporation (except an Affiliate
of Holdings) organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 (or the then equivalent grade) by
Standard & Poor's Corporation or at least Prime-1 (or the then equivalent grade)
by Moody's Investors Service, Inc.; and (d) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof (provided that the full faith and credit of the United States
E-3
of America is pledged in support thereof); provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency.
"Casino Control Act" means the New Jersey Casino Control
Act, N.J. Stat. Ann. 5:12-1 et seq. (New Jersey Public Law 1977, C.110), and the
regulations promulgated thereunder, N.J.A.C. 19:40-1.1 et seq., as from time to
time amended, or any successor provision of law.
"Casino Control Commission" means the New Jersey Casino
Control Commission as established by Section 50 of the Casino Control Act or any
successor agency appointed pursuant to the Casino Control Act.
"Change of Control" means, after the Issue Date, an event or
series of events by which any "person" (as such term is used in Section 13(d)
and 14(d) of the Exchange Act), other than Carl C. Icahn and his Affiliates, or
Holdings and its Subsidiaries, is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly (including through ownership of
Voting Stock of a Person owning, directly or indirectly, Voting Stock of the
Company, GBHC or Holdings) of securities representing 50% or more of the
combined voting power of the Voting Stock of the Company, GBHC or Holdings.
"Collateral" has the meaning attributed to it in the
Security Agreement and the Mortgage and includes and is limited to, to the
extent contemplated in such definition, assets (other than cash, cash
equivalents, CRDA Investments and gaming receivables and revenues) owned by
Holdings or its Subsidiaries as of the Issue Date and assets contemplated in
Section 1404 of this Indenture; provided that for purposes of this Indenture and
the Security Documents, the Collateral shall not include any asset to the extent
that it has ceased to be subject to the Security Interest pursuant to Section
1405 hereof.
"Collateral Account" shall have the meaning ascribed to such
term in the Security Agreement.
"Collateral Assignment of Leases" means the Assignment,
dated as of September 29, 2000, by GBHC in favor of the Trustee for its own
benefit and the benefit of the Holders, as the same may be amended from time to
time.
"Collateral Proceeds" means, subject to and as permitted by
the terms of this Indenture and the terms of any release or subordination
contemplated in Section 1405 hereof, (a) any Net Cash Proceeds received or
receivable by Holdings or GBHC or any other Grantor as a result of an Asset Sale
or Event of Loss that involves all or a portion of the Collateral and (b) all
interest or other earnings on amounts in deposit in the Collateral Account.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and
all shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means GB Property Funding Corp., until a successor
Person shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
E-4
"Consolidated" or "consolidated" refers to the consolidation
of accounts in accordance with GAAP, and each reference to any such
consolidation in this Indenture including, without limitation, "Consolidated
Cash Flow", "Consolidated Coverage Ratio", "Consolidated Fixed Charges",
"Consolidated Income Tax Expense", and "Consolidated Net Income" shall include
and be deemed to include, if, prior to the calculation date, one or more
acquisitions have been engaged in by Holdings or any of its Subsidiaries
(including through mergers or consolidations or other asset or business
acquisitions or combination transactions), the accounts of such acquired person
or business for the entire applicable reference period, and such acquisition
shall be deemed to have occurred on the first day of the applicable reference
period and shall be given pro forma effect, in all events exclusive of all
obligations or charges: (x) of a non-recurring nature, (y) attributable to
discontinued operations, and (z) otherwise attributable to operations or
businesses disposed of prior to the Transaction Date.
"Consolidated Cash Flow" means, for any Person for any
period, the sum of:
(a) the Consolidated Net Income of such Person and its
Subsidiaries for such period, plus
(b) the sum of the following items (to the extent deducted
in determining Consolidated Net Income and without duplication): (i)
all Consolidated Fixed Charges; (ii) Amortization Expense; (iii)
Depreciation Expense; and (iv) Consolidated Income Tax Expense.
"Consolidated Coverage Ratio" means for any Person the ratio
of (a) Consolidated Cash Flow of such Person and its Subsidiaries for the four
full fiscal quarters for which financial statements are available that
immediately precede the date of the transaction or other circumstances giving
rise to the need to calculate the Consolidated Coverage Ratio (the "Transaction
Date") (or, for purposes of clause (b) of the definition of the term "Permitted
GBHC Indebtedness", projected as contemplated therein) to (b) the Consolidated
Fixed Charges for the fiscal quarter in which the Transaction Date occurs and to
be accrued during any balance of such quarter and during the three fiscal
quarters immediately following such fiscal quarter (based upon the pro forma
amount of Indebtedness of such Person and its Subsidiaries outstanding on the
Transaction Date and after giving effect to the transaction in question) (or,
for purposes of clause (b) of the definition of the term "Permitted GBHC
Indebtedness", projected as contemplated therein). For purposes of this
definition, if the Transaction Date occurs before the date on which such
Person's consolidated financial statements for the four full fiscal quarters
after the Issue Date are first available, "Consolidated Cash Flow" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis as if the Securities outstanding on the Transaction Date were issued
on the first day of such four full fiscal quarter period. In addition,
"Consolidated Cash Flow" and "Consolidated Fixed Charges" shall be calculated
after giving effect on a pro forma basis for the period of such calculation to
(i) the incurrence or retirement of any Indebtedness of such Person and its
Subsidiaries at any time during the period (the "Reference Period") (A)
commencing on the first day of the four full fiscal quarters ended before the
Transaction Date for which financial statements are available and (B) to, and
including, the Transaction Date, including, without limitation, the incurrence
of the Indebtedness giving rise to the need to make such calculation, as if such
Indebtedness were incurred or retired on the first day of the Reference Period;
provided that if such Person or any of its Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the above clause shall give effect to
the incurrence of such guaranteed Indebtedness as if such Person or such
Subsidiary had directly incurred such guaranteed Indebtedness and (ii) any Asset
Sale, Event of Loss or Asset Acquisition (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of such Person or any of its Subsidiaries (including any Person who becomes a
Subsidiary as result of the Asset Acquisition) incurring Acquired Indebtedness)
occurring during the Reference Period and any retirement of Indebtedness in
connection with such Asset Acquisition, as if such Asset Sale, Event of Loss or
Asset Acquisition and/or retirement occurred on the first day of the Reference
Period. Furthermore, in calculating the denominator (but not the numerator) of
this "Consolidated Coverage Ratio," interest on Indebtedness determined on a
fluctuating basis that cannot be determined in advance shall be deemed to accrue
at the rate in effect on the Transaction Date for such entire period.
"Consolidated Fixed Charges" means as applied to any Person
for any period (a) the sum of the following items (without duplication): (i) the
aggregate amount of interest reflected in the financial statements by such
Person and its Subsidiaries in respect of their consolidated Indebtedness
(including, without limitation, all interest capitalized by such Person and its
Subsidiaries during such period, any amortization of debt discount and all
commissions, discounts and other similar fees and charges owed by such Person or
any of its Subsidiaries for letters of credit and bankers' acceptance financing
and the net costs associated with Interest and Currency Rate Protection
Obligations of such Person and its Subsidiaries); (ii) the aggregate amount of
the interest component of rentals in respect of Capitalized Lease Obligations
recognized by such Person and its Subsidiaries; (iii) to the extent any
E-5
Indebtedness of any other Person is guaranteed by such Person or any of its
Subsidiaries, the aggregate amount of interest paid or accrued by such other
Person during such period attributable to any such guaranteed Indebtedness; (iv)
dividends on Preferred Stock of any Subsidiary that is held by a Person other
than such Person or a wholly owned Subsidiary; (v) the interest portion of any
deferred payment obligation; and less (b) to the extent included in clause (a)
above, amortization or write-off of deferred financing costs of such Person and
its Subsidiaries and any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness before its stated
maturity, with the foregoing amounts in the case of both clauses (a) and (b)
above, as determined in accordance with GAAP.
"Consolidated Income Tax Expense" means, as applied to any
Person for any period, federal, state, local and foreign income taxes of such
Person and its Subsidiaries for such period, determined in accordance with GAAP;
provided that, for purposes hereof, "income taxes" shall specifically exclude
any taxes paid to or imposed by a Gaming Authority.
"Consolidated Net Income" means, as applied to any Person
for any period, the aggregate of the consolidated Net Income (or net loss) of
such Person and its Subsidiaries (determined in accordance with GAAP) less (to
the extent included in such Consolidated Net Income): (a) the Net Income of any
other Person in which such Person and any of its Subsidiaries has a joint
interest with a third party (which interest does not cause the Net Income of
such other Person to be consolidated into the Net Income of such Person and its
Subsidiaries in accordance with GAAP) except to the extent of the amount of cash
dividends or other cash distributions in respect of Capital Stock actually paid
(out of funds legally available therefrom) to and received by such Person or a
Subsidiary, net of any taxes applicable thereto; (b) items (other than the tax
benefit of the utilization of net operating loss carry forwards or alternative
minimum tax credits) classified as extraordinary; (c) the net income of any
Subsidiary (other than a Guarantor) to the extent that the declaration of
dividends or similar distributions by such Subsidiary of that income is not at
the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, law,
rule or governmental regulations applicable to that Subsidiary or its
stockholders; (d) any net gain or loss resulting from an Asset Sale or Event of
Loss or reserves relating thereto by such Person or any of its Subsidiaries; (e)
any gain (but not loss), net of taxes, realized upon the termination of any
employee pension benefit plan; and (f) all income taxes of such Person and its
Subsidiaries accrued according to GAAP for such period attributable to
extraordinary gains or losses.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at 6th and Marquette, MAC N9303-120, Minneapolis, MN 55479,
except that with respect to presentation of Securities for payment or for
registration of transfer or exchange, such term shall mean the office or agency
of the Trustee at which, at any particular time, its corporate agency business
shall be conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"CRDA Investments" means Investments in securities issued
by, and monies deposited with, the Casino Reinvestment Development Authority of
the State of New Jersey.
"Default" means any Event of Default, or an event that would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
"Defaulted Interest" has the meaning specified in Section
307.
"Depreciation Expense" means, as applied to any Person for
any period, the provision for depreciation that is reflected on the consolidated
financial statements of such Person and its Subsidiaries in accordance with
GAAP.
"Disqualified Holders" shall have the meaning provided in
Section 1109.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock or other similar ownership or profit interest that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
exchangeable for Indebtedness, or is redeemable at the option of the holder
thereof, in whole or in part, on or before the Maturity Date of the Securities.
E-6
"Division of Gaming Enforcement" means the Division of
Gaming Enforcement of the New Jersey Department of Law and Public Safety as
established by Section 55 of the Casino Control Act or any successor division or
agency.
"Event of Default" has the meaning specified in Section 501.
"Event of Loss" means, with respect to any property or asset
(tangible or intangible, real or personal), any of the following: (i) any loss,
destruction or damage of such property or asset; (ii) the condemnation or
seizure of such property or asset or the exercise of any right of eminent domain
or navigational servitude; or (iii) 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; provided, that in any such case the Net Cash Proceeds
relating thereto are in excess of $5 million.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" or "fair value" means, with respect to
any asset or property, the price which could be negotiated in an arm's-length
free market transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair Market Value shall be determined by the Board of Directors of
Holdings acting in good faith and shall be evidenced by a Board Resolution
delivered to the Trustee.
"Federal Bankruptcy Code" means the 1978 Bankruptcy Act of
Title 11 of the United States Code, as amended from time to time.
"FF&E Financing" means Indebtedness, the proceeds of which
will be used solely to finance the acquisition or lease of furniture, fixtures
or equipment ("FF&E") used by the Person incurring such Indebtedness in the
ordinary course in the operation of a Permitted Line of Business and secured by
a Lien on such FF&E.
"GAAP" means generally accepted accounting principles 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 that are applicable
as of the Issue Date.
"Gaming Authority" means any agency, authority, board,
bureau, commission, department, office or instrumentality of any nature
whatsoever of the United States federal government or foreign government, any
state, province or any city or other political subdivision or otherwise and
whether now or hereafter in existence, or any officer or official thereof with
authority to regulate any gaming operation (or proposed gaming operation) owned,
managed, or operated by Holdings or any of its Subsidiaries.
"Gaming Laws" means each gaming law of any applicable Gaming
Authority as amended from time to time, and the regulations promulgated and
rulings issued thereunder applicable to Holdings or any of its Subsidiaries or
shareholders.
"Grantor" means (i) any "Grantor" as defined in the Security
Agreement, (ii) any "Mortgagor" as defined in the Mortgage and (iii) any other
Person that grants a security interest in its assets in favor of the Trustee for
its benefit and the benefit of the Holders.
"Guarantee" means the guarantee of the Guarantors set forth
in Article Twelve.
"Guarantor" means each of GBHC and Holdings and any
successor thereto.
"Holder" means a Person in whose name a Security is
registered in the Security Register.
"incur" means to directly or indirectly create, assume,
suffer to exist, guarantee in any manner, or in any manner become liable for the
payment of.
"Indebtedness" of any Person means (a) any liability,
contingent or otherwise, of such Person (whether or not the recourse of the
lender is to the whole of the assets of such Person, or only to a portion
thereof), (i) for borrowed money (ii) evidenced by a note, bond, debenture or
similar instrument, letters of credit, acceptances or other similar facilities
(other than a trade payable or a current liability incurred in the ordinary
course
E-7
of business) or (iii) for the payment of money relating to a Capitalized Lease
Obligation or other obligation relating to the deferred purchase price of
property or services (including a purchase money obligation); (b) any liability
of others of the kind described in the preceding clause (a) which such Person
has guaranteed including, without limitation, (x) to pay or purchase such
liability, (y) to supply funds to or in any other manner invest in the debtor
(including an agreement to pay for property or services irrespective of whether
such property is received or such services are rendered and (z) to purchase,
sell or lease (as lessee or lessor) property or to purchase or sell services,
primarily for the purpose of enabling a debtor to make a payment of such
Indebtedness or to assure the holder of such Indebtedness against loss; (c) any
obligation secured by a Lien to which the property or assets of such Person are
subject, whether or not the obligations secured thereby shall have been assumed
by or shall otherwise be such Person's legal liability; (d) all obligations of
such Person to purchase, redeem, retire, defease or otherwise make any payment
in respect of any Capital Stock of or other ownership or profit interest in such
Person or any of its Affiliates or any warrants, rights or options to acquire
such Capital Stock, valued, in the case of Disqualified Stock, at the greater of
its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends; (e) all Interest and Currency Rate Protection Obligations; and (f)
any and all deferrals, renewals, extensions and refundings of any liability of
the kind described in any of the preceding clauses.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented, changed, modified or amended (by
any addition to or elimination of, the provisions hereof, or otherwise) by one
or more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof.
"Independent", when used with respect to any Person, means
such other Person who (a) does not have any material financial interest in
Holdings or in any Affiliate of Holdings and (b) is not an officer, employee,
promoter, underwriter, trustee, partner or person performing similar functions
for Holdings or a spouse, family member or other relative of any such Person;
provided, that with respect to any director of any corporation, such director
shall also be deemed to be "Independent" if such director meets the requirements
for independence established by any "national securities exchange" (as
contemplated in the Securities Exchange Act of 1934) for audit committee
membership. Whenever it is provided in this Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by Holdings.
"Interest and Currency Rate Protection Obligations" means
the obligations of any Person pursuant to any interest rate swap, cap or collar
agreement, interest rate future or option contract, currency swap agreement,
currency future or option contract and other similar agreement designed to hedge
against fluctuations in interest rates or foreign exchange rates.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Investment" in any Person means any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(including, without limitation, transfers of cash or other property to others or
payments for property or services for the account or use of others (excluding
unbilled or uncollected receivables), or otherwise), or purchase or acquisition
of Capital Stock, warrants, rights, options, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person or
Indebtedness of any other Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Issue Date" means September 29, 2000.
"Lien" means any mortgage, lien (statutory or other),
pledge, security interest, encumbrance, hypothecation, assignment for security,
or other security agreement of any kind or nature whatsoever. For purposes of
this Indenture, a Person shall be deemed to own subject to a Lien any property
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, or other title retention agreement
relating to such Person.
"Maturity", when used with respect to any Security, means
the date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption or otherwise.
E-8
"Maturity Date", when used with respect to any Security,
means the date specified in such Security as the fixed date on which the final
installment of principal of such Security is due and payable.
"Mortgage" means the Mortgage and Fixture Security
Agreement, dated as of September 29, 2000, duly executed by GBHC in favor of the
Trustee for the benefit of the Holders, as the same may be amended from time to
time.
"Net Cash Proceeds" means, with respect to any Asset Sale or
Event of Loss, as the case may be, the proceeds thereof in the form of cash or
Cash Equivalents received by Holdings or any of its Subsidiaries (whether as
initial consideration, through the payment or disposition of deferred
compensation or the release of reserves), after deducting therefrom (without
duplication): (a) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finders fees and other similar fees and expenses
incurred in connection with such Asset Sale or Event of Loss; (b) provisions for
all taxes payable as a result of such Asset Sale or Event of Loss; (c) payments
made to retire Indebtedness (other than payments on the Securities) secured by
the assets subject to such Asset Sale or Event of Loss to the extent required
pursuant to the terms of such Indebtedness; and (d) appropriate amounts to be
provided by Holdings or any of its Subsidiaries, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale or Event of Loss and retained by Holdings or any of its Subsidiaries,
as the case may be, after such Asset Sale or Event of Loss, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale or Event of Loss, in each case to
the extent, but only to the extent, that the amounts so deducted are, at or
around the time of receipt of such cash or Cash Equivalents, actually paid to a
Person that is not an Affiliate of Holdings or, in the case of reserves, are
actually established and, in each case, are properly attributable to such Asset
Sale or Event of Loss.
"Net Income" means, with respect to any Person for any
period, the net income (or loss) of such Person determined in accordance with
GAAP.
"Officers' Certificate" for any Person means a certificate
signed by the Chairman, the President, Executive Vice President or a Vice
President, and by the Chief Financial Officer or the Secretary of such Person,
and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel for
the Company or any of the Guarantors or any of their respective Affiliates,
including an employee of any such Person, or any other counsel reasonably
acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means,
as of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Securities; provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made;
(iii) Securities, except to the extent provided in Sections
1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Securities in respect of which, pursuant to Section
306, other Securities have been authenticated and delivered pursuant
to this Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to
it that such Securities are held by a bona fide purchaser in whose
hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder or taken any other
action, Securities owned by Holdings or its Subsidiaries shall be disregarded
and deemed not to be
E-9
Outstanding (but the Securities of any other Affiliates shall be deemed for all
such purposes to be Outstanding). In determining whether the Trustee shall be
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
owned by Holdings or its Subsidiaries which the Trustee knows to be so owned
shall be so disregarded. Securities owned by Holdings or its Subsidiaries which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company, a
Guarantor or a Subsidiary of Holdings.
"Paying Agent" means any Person (including the Company
acting as Paying Agent) authorized by the Company to pay the principal of (and
premium, if any, on) or interest on any Securities on behalf of the Company.
"Permitted GBHC Indebtedness" means any of the following
Indebtedness to the extent incurred by GBHC:
(a) Indebtedness under the Notes, the Indenture, the
Guarantee or any Security Document;
(b) Indebtedness if, immediately after giving pro forma
effect to the incurrence thereof, the projected Consolidated Coverage
Ratio of GBHC for the next full fiscal quarter, as determined by the
Board of Directors of GBHC based upon its projections, would be no
less than 1.5:1;
(c) Indebtedness, including borrowing from Affiliates,
having a maturity at the time of its incurrence of one year or less
incurred solely to provide funds for working capital purposes;
provided that such Indebtedness (i) does not exceed $15 million
outstanding in the aggregate at any one time and (ii) for a period of
60 consecutive days during any calendar year, does not exceed in the
aggregate $5 million;
(d) FF&E Financing and/or Capitalized Lease Obligations so
long as the sum of (x) the aggregate principal amount of such FF&E
Financing and (y) the aggregate amount of such Capitalized Lease
Obligations does not exceed $50 million in the aggregate at any time;
(e) Indebtedness of GBHC and Lieber Check Cashing LLC
("Lieber") that is outstanding on the Issue Date and the items listed
on Schedule 1.01 hereof on the Issue Date; and
(f) purchase money mortgage notes or other Indebtedness to
acquire Block 47, Lot 8 on the Tax Map of the City of Atlantic City,
and to acquire Block 156, Lots 28, 40 and 41 on the Tax Map of the
City of Atlantic City in fee simple or by long-term lease, which
purchase money mortgage note or similar indebtedness encumbers only
such Block and Lot numbers on the Tax Map of the City of Atlantic
City, or any other Indebtedness for the purpose of engaging in any
transaction in which the value of the assets acquired, for GAAP
purposes (including applicable goodwill) is equal to or greater than
the financing undertaken in connection with such transaction.
"Permitted Liens" means:
(i) Liens on property acquired after the Issue Date by way
of a merger or other business combination of a Person with or into
Holdings or any Subsidiary or the acquisition of a Person or its
assets by Holdings or any Subsidiary or otherwise and provided that
except as permitted in this Indenture such Liens do not extend to any
Collateral;
(ii) statutory Liens to secure the performance of
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business (exclusive of obligations in respect of the payment of
borrowed money), or for taxes, assessments or governmental charges or
claims, provided that in each case the obligations are not yet
delinquent or are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded and any
reserve or other adequate provision as shall be required in conformity
with GAAP shall have been made therefor;
(iii) licenses, leases or subleases granted in the ordinary
course of business to others not interfering in any material respect
with the business of Holdings or any Subsidiary;
E-10
(iv) easement granted to the City of Atlantic City, New
Jersey, pursuant to municipal ordinance to extend Mt. Vernon Avenue
right-of-way upon part of Block 48, Lot 8 on the Tax Map of the City
of Atlantic City;
(v) with respect to the property involved, easements,
rights-of-way, 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 Holdings and its Subsidiaries as now conducted
or as contemplated herein;
(vi) Liens granting a security interest in CRDA Investments
to the Casino Redevelopment Authority of New Jersey or any other
entity as required by applicable law;
(vii) Liens permitted by the Security Documents, including,
without limitation, Liens granted under or to secure Permitted GBHC
Indebtedness;
(viii) Liens: (a) on Assets or property of any kind other
than Collateral and (b) on Collateral (including, without limitation,
any such Liens incurred to secure Allowed Indebtedness) which, except
for and subject to any release or subordination contemplated in
Section 1405 hereof, shall be inferior to the Liens of the Trustee on
such Collateral; and
(ix) Liens (which shall be superior to the Liens of the
Trustee under the Security Documents) to secure Working Capital
Indebtedness.
"Permitted Line of Business" means the casino gaming
business and any business that is related to, ancillary or supportive of,
connected with or arising out of the gaming business (including, without
limitation, developing and operating lodging, dining, sports or entertainment
facilities, transportation services, software development or other related
activities or enterprises and any additions or improvements thereto).
"Permitted Related Investment" means the direct or indirect
acquisition, repair or restoration (including, without limitation, as permitted
in Article 9 of the Mortgage) of property or other Assets (including, without
limitation, Securities of any person possessing any such Asset or with rights
to, any Assets) to be used in connection with a Permitted Line of Business.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Predecessor Security" of any particular Security means
every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security authenticated and delivered under Section 306 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock", as applied to the Capital Stock of any
Person, means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends on or to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security
to be redeemed, means 100% of the principal amount of such Security, together
with accrued, unpaid interest.
"Regular Record Date" for the interest payable on any
Interest Payment Date means the September 14 or March 14 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
"Release Notice" means a written notice of Holdings or any
of its Subsidiaries in the form of a Company Order delivered pursuant to Section
1405(a).
E-11
"Responsible Officer", when used with respect to the
Trustee, means the chairman or any vice-chairman of the board of directors, the
chairman or any vice-chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above-designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Payment" means either of the following: (a) the
declaration or payment of any dividend or any other distribution on Common Stock
of Holdings or any Subsidiary or any payment made to the direct or indirect
holders (in their capacities as such) of Common Stock of Holdings or any
Subsidiary in respect of that stock (other than (i) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) and (ii) in the
case of a Subsidiary, dividends or distributions payable to Holdings or to a
wholly owned Subsidiary) or (b) the purchase, defeasance, redemption or other
acquisition or retirement for value of any Common Stock of Holdings or any
Subsidiary (other than Common Stock of such Subsidiary held by Holdings or any
of its wholly owned Subsidiaries).
"Sale-Leaseback Transaction" means any arrangement with any
Person providing for the leasing by Holdings or any Subsidiary of any real or
tangible personal property, which property has been or is to be sold or
transferred by Holdings or any such Subsidiary to such Person or its Affiliates
in contemplation of such leasing.
"Sands" means the Sands Hotel and Casino located in Atlantic
City, New Jersey.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Security Agreement" means the Security Agreement dated as
of September 29, 2000 made by each of Holdings, GBHC and the Company to the
Trustee for its benefit and the benefit of the Holders, as the same may be
amended from time to time.
"Security Documents" means this Indenture, the Security
Agreement, the Collateral Assignment of Leases, and the Mortgage and any other
mortgage, deed of trust, security agreement or similar instrument securing the
Company's, Holdings, or GBHC's obligations with respect to the Securities or
under this Indenture or any of the other Security Documents.
"Security Interest" has the meaning specified in Section
1401(a).
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or
any installment of principal thereof or interest thereon, means the date
specified in such Security as the fixed date on which the principal of such
Security or such installment of principal or interest is due and payable,
including pursuant to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such security at the option of the
holder thereof).
"Subordination Determination" has the meaning specified in
Section 1405(b).
"Subordination Request" means a written request of Holdings
or any of its Subsidiaries in the form of a Company Order delivered pursuant to
Section 1405(b).
"Subsidiary" of any Person means any corporation,
partnership, joint venture, trust or estate of which (or in which) more than 50%
of (a) the issued and outstanding Capital Stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership or
joint venture or (c) the beneficial interest
E-12
in such trust or estate, is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939, as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the
first paragraph of this Indenture until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States Government Obligations" means securities
which are (i) direct obligations of the United States of America for the payment
of which its full faith and credit is pledged or (ii) obligations of a Person,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America.
"Vice President", when used with respect to the Company or
the Trustee, means any vice president, whether or not designated by a number or
a word or words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only as long as no senior class of securities has such voting power by reason of
any contingency.
"Working Capital Indebtedness" means Indebtedness designated
as such by the Board of Directors of the borrower, the proceeds of which are to
be held or applied for working capital purposes, not to exceed, at any one time
outstanding, in the aggregate, principal of $25 million (plus interest accrued
for not more than 365 days) for all such Indebtedness of Holdings and its
Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company or the
Guarantors to the Trustee to take any action under any provision of this
Indenture, the Company or the Guarantors shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture (including any covenant compliance with which constitutes
a condition precedent) relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture (other than pursuant to
Section 1008) shall include:
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.
E-13
Any certificate or opinion of an officer of the Company or
the Guarantors may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company or the Guarantors stating that the information with respect to such
factual matters is in the possession of the Company or the Guarantors, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture or
otherwise to be given or taken by Holders may be embodied in and
evidenced by one or more instruments of substantially similar tenor
signed by such Holders in person or by agents duly appointed in
writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required,
to the Company or the Guarantors. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such
instrument or instruments. Proof of execution of any such instrument
or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and
the Company or the Guarantors, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness
of such execution or by a certificate of a notary public or other
officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to
him the execution thereof. Where such execution is by a signer acting
in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of authority. The
fact and date of the execution of any such instrument or writing, or
the authority of the Person executing the same, may also be proved in
any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities
held by any Person, and the date of holding the same, shall be proved
by the Security Register.
(d) If the Company or the Guarantors shall solicit from the
Holders of Securities any request, demand, authorization, direction,
notice, consent, waiver or other Act, the Company or the Guarantors
may, at its option, by or pursuant to Board Resolution, fix in advance
a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or
other Act, but the Company or the Guarantors shall have no obligation
to do so. Notwithstanding TIA Section 316(c), such record date shall
be the record date specified in or pursuant to such Board Resolution,
which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a
record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other Act may be given before or after such
record date, but only the Holders of record at the close of business
on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed
as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions
of this Indenture not later than eleven months after the record date.
E-14
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in
exchange therefore or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company or the
Guarantors in reliance thereon, whether or not notation of such action
is made upon such Security.
(f) For the purpose of the Company or the Guarantors
complying with any requirement of the Casino Control Commission, or
the Division of Gaming Enforcement or of the Casino Control Act, every
holder, intermediary holder, intermediary beneficial holder and
beneficial holder of a Security shall be deemed to authorize any
Holder and any other holder, intermediary holder, intermediary
beneficial holder and beneficial holder of a Security, upon written
request of an Officer of the Company, GBHC, Holdings, or the Trustee
expressing reliance on this Section and enclosing a copy of this
Section, to release, and any such holder, intermediary holder,
intermediary beneficial holder and beneficial holder shall be required
to release, to the Company, GBHC, Holdings, or the Trustee, as the
case may be, the name, address, telephone number, principal contact
person, and amount of such holdings, intermediary holdings,
intermediary beneficial holdings and beneficial holdings of Securities
of each such holder, intermediary holder, intermediary beneficial
holder and beneficial holder of a Security.
SECTION 105. Notices, etc., to Trustee, Company and
Guarantors.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, the Company or the Guarantors
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate
Trust Office, Attention: Corporate Trust Administration, or
(2) the Company or the Guarantors by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company or the Guarantors, as the
case may be, addressed to it at the address of its principal office
specified in the first paragraph of this Indenture, with a copy to:
Sands Hotel and Casino, Indiana Avenue and Brighton Park, Atlantic
City, N.J. 08401, or at any other address previously furnished in
writing to the Trustee by the Company or the Guarantors, as the case
may be.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
Any notices hereunder that are required to be given to the
Casino Control Commission shall be addressed to: Document Control Unit, Casino
Control Commission, Tennessee Avenue and the Boardwalk, Arcade Building,
Atlantic City, New Jersey 08401, Attention: Chief of Administrative Operations.
Any notices hereunder that are required to be given to the Division of Gaming
Enforcement shall be addressed to: Division of
E-15
Gaming Enforcement, 140 East Front Street, CN-047, Trenton, New Jersey 08625,
Attention: Deputy Director for the Division of Gaming Enforcement.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture and in the
Security Documents by each of the Company or the Guarantors shall bind its
successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Securities Registrar and their successors hereunder, and the Holders,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the law of the State of New York. This Indenture is
subject to the provisions of the Trust Indenture Act of 1939, as amended, that
are required to be part of this Indenture and shall, to the extent applicable,
be governed by such provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption
Date, sinking fund payment date or Stated Maturity or Maturity of any Security
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Securities) payment of interest or principal (and premium,
if any) need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, Redemption Date or sinking fund payment date, or at the Stated Maturity or
Maturity; provided that no interest shall accrue on such payment for the period
from and after such Interest Payment Date, Redemption Date, sinking fund payment
date, Stated Maturity or Maturity, as the case may be.
SECTION 113. Casino Control Act.
Notwithstanding the provisions of Section 111 hereof, each
of the provisions of this Indenture is subject to and shall be enforced in
compliance with the provisions of the Casino Control Act, to the extent
applicable, and the regulations promulgated thereunder, unless such provisions
are in conflict with the TIA, in which case the TIA shall control. The
Securities are to be held subject to the condition that if a holder thereof is
found to be disqualified by the Casino Control Commission pursuant to the
provisions of the Casino Control Act, such holder shall dispose of the
Securities in accordance with the provisions of Section 1109 hereof. The Company
shall have the right to repurchase the Securities at the lowest of (i) the
principal amount thereof, (ii) the amount which the Disqualified Holder or
beneficial owner paid for the Securities, together with accrued interest up to
the date of the determination of disqualification, or (iii) the market value of
such Securities.
E-16
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange
or as may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities. Any portion of
the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Securities, as
evidenced by their execution of such Securities.
SECTION 202. Form of Face of Notes.
GB PROPERTY FUNDING CORP.
11% Note Due 2005
No. _______________ $_____________
GB Property Funding Corp., a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to __________ or registered assigns, the principal sum of __________ U.S.
Dollars on September 29, 2005 at the office or agency of the Company referred to
below, and to pay interest thereon on March 29, 2001 and thereafter, on
September 29 and March 29 in each year, from September 29, 2000, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of 11% per annum, until the principal hereof is paid
or duly provided for. Notwithstanding anything contained herein, the rate of
interest on the Securities shall not exceed the highest rate permitted by law.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the September 14 or March 14 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest
may be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture. Payment of the
principal of (and premium, if any, on) and interest on this Security will be
made at the office or agency of the Company maintained for that purpose in The
City of New York, or at such other office or agency of the Company as may be
maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company (i) by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register or (ii) by
transfer to an account maintained by the payee located in the United States.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place. Unless the
certificate of authentication hereon has been duly executed by the Trustee
referred to on the reverse hereof by manual signature, this Security shall not
be entitled to any benefit under the Indenture, or be valid or obligatory for
any purpose.
E-17
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed under its corporate seal.
Dated: September 29, 2000 GB PROPERTY FUNDING CORP.
By
---------------------------
Attest:
- ---------------------------------------------
Authorized Signature
SECTION 203. Form of Reverse of Notes
This Security is one of a duly authorized issue of
securities of the Company designated as its 11% Notes Due 2005 (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $110 million, which may be
issued under an indenture (herein called the "Indenture") dated as of September
29, 2000 between the Company, GB Holdings, Inc. and Greate Bay Hotel and Casino,
Inc. (the "Guarantors") and Wells Fargo Bank Minnesota, National Association,
trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. Interest on the
Securities shall be computed on the basis of a 360-day year of twelve 30-day
months.
The Securities are subject to redemption upon not less than
30 nor more than 60 days' notice, at any time after January 1, 2001, as a whole
or in part, at the election of the Company, at a Redemption Price equal to 100%
of the principal amount, together in the case of any such redemption with
accrued, unpaid interest, if any, to the Redemption Date, all as provided in the
Indenture.
Upon the occurrence of a Change of Control, the Holder of
this Security may require the Company, subject to certain limitations provided
in the Indenture, to repurchase this Security at a purchase price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest.
Each of the provisions of this Security is subject to and
shall be enforced in compliance with the provisions of the Casino Control Act
and the regulations promulgated thereunder, to the extent applicable.
Each Holder by accepting a Security agrees that all Holders,
whether initial holders or subsequent transferees, shall be subject to the
qualification provisions of the Casino Control Act. As set forth more fully in
the Indenture, in the event that the Casino Control Commission determines that a
Holder is not qualified under the Casino Control Act, the Company shall have the
absolute right and obligation to purchase from such Holder (the "Disqualified
Holder") the Securities the Disqualified Holder may then possess, no later than
forty-five days after the date that the Company serves notice on any
Disqualified Holder of such determination. Immediately upon such determination,
the Disqualified Holder shall have (i) no further right to exercise, directly or
through any trustee or nominee, any right conferred by its Securities or (ii) no
further right to receive any dividends, interest, or other distribution or
payment with respect to any such Securities. In the event a Disqualified Holder
fails to so sell its Securities within 30 days after the determination by the
Casino Control Commission, the Company shall purchase such Securities within 15
days after the end of such 30 day period at the lowest of (i) the principal
amount thereof, (ii) the amount which the Disqualified Holder paid for the
Securities, together with accrued interest up to the date of the determination
of disqualification or (iii) the market value of such Securities.
In the case of any redemption of Securities, interest
installments whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Date
referred to on the face hereof. Securities (or portions thereof) for whose
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the Redemption Date.
E-18
In the event of redemption of this Security in part only, a
new Security or Securities for the unredeemed portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time
of (a) the entire indebtedness of the Company on this Security and (b) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security. Any Lien that may from time to time secure
the Securities is subject to subordination or termination as provided in Section
1405 of the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the Guarantors and the rights of the Holders
under the Indenture at any time by the Company, the Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such amendment, modification, consent or waiver by or on behalf of the
Holder of this Security, or otherwise in accordance with the terms of the
Indenture, shall be conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
thereof is made upon this Security.
No reference herein to the Indenture and no provision of
this Security or of the Indenture shall alter or impair the obligation of the
Company or the Guarantors, which is absolute and unconditional, to pay the
principal of (and premium, if any, on) and interest on this Security at the
times, place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registerable on
the Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose in The City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amounts will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Securities are entitled to the benefit of the Guarantees
by the Guarantors to the extent provided in the Guarantees.
Prior to the time of due presentment of this Security for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security is registered as
the owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
Each Guarantor (which term includes any successor Person
under the Indenture) has unconditionally guaranteed, to the extent set forth in
the Indenture and subject to the provisions in the Indenture, (a) the due and
punctual payment of the principal of and interest on the Securities, whether at
maturity, by acceleration
E-19
or otherwise, the due and punctual payment of interest on overdue principal,
and, to the extent permitted by law, interest, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms set forth in the Indenture and (b) in
case of any extension of time of payment or renewal of any Securities or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
Stated Maturity, by acceleration or otherwise.
The obligations of the Guarantors to the Holders of
Securities and to the Trustee pursuant to the Guarantee and the Indenture are
expressly set forth in the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee.
Guarantors:
GB HOLDINGS INC.
By:
-------------------------------
GREATE BAY HOTEL AND CASINO, INC.
By:
-------------------------------
SECTION 204 Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the
within-mentioned Indenture.
Wells Fargo Bank Minnesota,
National Association as Trustee
By:
-------------------------------
Authorized Officer
E-20
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
(a) The aggregate principal amount of securities which may
be authenticated and delivered under this Indenture is limited to $110
million, except for securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
securities.
(b) The Notes shall be known and designated as the "11%
Notes Due 2005" of the Company. Their Stated Maturity shall be
September 29, 2005, and they shall bear interest at the rate of 11%
per annum from September 29, 2000, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for,
payable on March 29, 2001 and semiannually thereafter on September 29
and March 29 in each year and at said Stated Maturity, until the
principal thereof is paid or duly provided for.
(c) The principal of (and premium, if any, on) and interest
on the Securities shall be payable at the office or agency of the
Company maintained for such purpose in The City of New York, or at
such other office or agency of the Company as may be maintained for
such purpose; provided, however, that, at the option of the Company,
interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Security
Register.
(d) The Securities shall be redeemable as provided in
Article Eleven.
(e) If the Company is served with notice of the
disqualification of any Holder under Section 105(d) of the Casino
Control Act by the Casino Control Commission, such Holder will be
prohibited under Section 105(e) of the Casino Control Act from (a)
receiving interest on the Securities held by such Holder, (b)
exercising, directly or through any trustee or nominee, any right
conferred on such Securities, and (c) receiving any remuneration in
any form from any Person licensed or qualified by the Casino Control
Commission (including the Company, the Guarantors and the Trustee) for
services rendered or otherwise. Notwithstanding the foregoing, the
Trustee shall be entitled to exercise all rights with respect to the
Securities held by such Holder including, but not limited to,
accelerating the Securities (any monies or securities received by the
Trustee on behalf of such Holder to be held in trust for such Holder
pursuant to Section 605 hereof). If the Trustee exercises voting
rights with respect to such Securities, such votes shall be cast in
the same proportion as the votes of the other Outstanding Securities
are cast on such issue. A copy of any notice served upon the Company
as described above shall be promptly delivered by the Company to the
Trustee. Any such notice to the Trustee shall be effective against the
Trustee on the second Business Day after receipt thereof by a
Responsible Officer of the Trustee.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
its Chairman, its President, a Vice President, or the Chief Financial Officer.
The signature of any officer on the Securities may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a
E-21
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Securities.
The initial Company Order shall be accompanied by the
documents contemplated in Section 1401 and an Officers Certificate or other
satisfactory confirmation indicating that: (i) the order of the United States
Bankruptcy Court for the District of New Jersey confirming the Joint Plan of
Reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code Proposed by
the Official Committee of Unsecured Creditors and High River (Case No. 98-10001)
(JW) has been entered and is not stayed and together with the Plan, allows for
the execution and delivery of this Indenture, the Security Documents and the
Securities; and (ii) that after compliance by the Trustee with the Company
Order, the conditions specified in Section 7.02 of the Plan will have been
satisfied or waived.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
E-22
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Security Register
shall be in written form or any other form capable of being converted into
written form within a reasonable time. At all reasonable times, the Security
Register shall be open to inspection by the Trustee. The Trustee is hereby
initially appointed as security registrar (the "Security Registrar") for the
purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security
at the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denomination or denominations of a like aggregate principal
amount and like terms.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount and like terms, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities.
If (i) any mutilated Security is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
E-23
Every new Security issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002; provided, however, that each installment of interest may at the
Company's option be paid by (i) mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 308,
to the address of such Person as it appears in the Security Register or (ii)
transfer to an account maintained by the payee located in the United States.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest ("Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in clause
(1) or (2) below:
(1) the Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date,
and in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be given in the manner provided for in Section
106, not less than 10 days prior to such Special Record Date. Notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2); or
(2) the Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and
upon such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner of payment shall be deemed practicable by
the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
E-24
SECTION 308. Persons Deemed Owners.
Prior to the due presentment of a Security for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name such Security is registered as the
owner of such Security for the purpose of receiving payment of principal of (and
premium, if any, on) and (subject to Sections 305 and 307) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and none of the Company, the Trustee or any agent of the Company or the
Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of
a 360-day year of twelve 30-day months.
SECTION 311. Maximum Interest Rate.
Regardless of any provision contained herein, in the
Securities or in any of the Security Documents, the Holders shall not be
entitled to receive, collect or apply as interest (whether termed interest in
the documents or deemed to be interest by judicial determination or operation of
law) on the Securities, any amount in excess of the maximum amount allowed by
applicable law, and, if any Holder ever receives, collects or applies as
interest any such excess, the amount that would be excessive interest shall be
deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Securities is paid in full, any remaining
excess shall forthwith be paid to the Company. In determining whether or not the
interest paid or payable under any specific contingency exceeds the maximum
amount of interest allowed by applicable law, the Company and the Holders shall,
to the maximum extent permitted under applicable law, (i) characterize any
nonprincipal payment as an expense fee, or premium rather than interest; (ii)
exclude voluntary prepayments and the effects thereof; and (iii) amortize,
prorate, allocate and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of the Securities.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities herein expressly provided for) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture and releasing all liens and
security interests in the Collateral when
(1) either
(a) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or
paid
E-25
as provided in Section 306 and (ii) Securities for whose
payment money has theretofore been deposited in trust with
the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003)
have been delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above,
has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on
such Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for in this Section 401 relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003, shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money and property deposited with the Trustee pursuant to Section 401
shall be held in trust and, at the direction of the Company, be invested prior
to Maturity in United States Government Obligations, and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for whose
payment such money has been deposited with the Trustee; but such money need not
be segregated from other funds except to the extent required by law. Any funds
remaining following payment of all Securities and all other obligations of the
Company hereunder shall be the property of the Company.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest on any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
E-26
(2) default in the payment of any principal of (or premium,
if any, on) any Security at its Maturity; or
(3) default in the performance, or breach, of any covenant
or warranty of Holdings or any of its Subsidiaries in this Indenture
or of Holdings or any other Grantor in the Security Documents (other
than a default in the performance, or breach, of a covenant or
warranty which is specifically dealt with elsewhere in this Section),
and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the
Company and the Guarantors by the Trustee or to the Company and the
Guarantors and the Trustee by the Holders of a majority in principal
amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder, unless Holdings, such
Subsidiary, or such Grantor, is proceeding, and continues to proceed,
diligently to cure any such default; or
(4) (A) there shall have occurred one or more defaults by
Holdings or any of its Subsidiaries in the payment of the principal of
or premium, if any, on Indebtedness aggregating $5 million or more,
when the same becomes due and payable at the stated maturity thereof,
and such default or defaults shall have continued after any applicable
grace period and shall not have been cured or waived or (B) in
accordance with the terms of an agreement or instrument binding upon
Holdings or any of its Subsidiaries, Indebtedness of Holdings or any
of its Subsidiaries aggregating $5 million or more shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(5) any Person entitled to take the actions described in
this Section 501(5), after the occurrence of any event of default
under any agreement or instrument evidencing any Indebtedness in
excess of $5 million in the aggregate of Holdings or any of its
Subsidiaries, shall notify the Trustee of the intended sale or
disposition of any assets of Holdings or any of its Subsidiaries that
have been pledged to or for the benefit of such Person to secure such
Indebtedness or shall commence proceedings, or take any action
(including by way of set-off) to retain in satisfaction of any
Indebtedness, or to collect on, seize, dispose of or apply, any such
assets of Holdings or any of its Subsidiaries (including funds on
deposit or held pursuant to lock-box and other similar arrangements),
pursuant to the terms of any agreement or instrument evidencing any
such Indebtedness of Holdings or any of its Subsidiaries or in
accordance with applicable law; or
(6) final judgments or orders rendered against Holdings or
any of its Subsidiaries which require the payment in money, either
individually or in an aggregate amount, that is more than $10 million
and (i) an enforcement proceeding shall have been commenced by any
creditor upon such judgment or order and (ii) there shall have been a
period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of pending appea1 or otherwise, was
not in effect; or
(7) the entry of a decree or order by a court having
jurisdiction in the premises adjudging Holdings or any of its
Subsidiaries a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition or in respect of Holdings or any such Subsidiary under the
Federal Bankruptcy Code or any other applicable federal or state law,
or appointing a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of Holdings or any such Subsidiary or of
any substantial part of their respective property, or ordering the
winding up or liquidation of their respective affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days; or
(8) the institution by Holdings or any of its Subsidiaries
of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law or the consent by it
to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of Holdings or any such Subsidiary or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due; or
E-27
(9) any of the Security Documents ceases to be in full force
and effect in any material respect or any of the Security Documents
ceases to create in favor of the Trustee, with respect to any material
amount of Collateral, a valid and perfected first priority Lien on the
Collateral purported to be covered thereby, except for any cessation,
release or subordination contemplated or permitted (or resulting from
any act contemplated or permitted) by Section 1405 hereof or as may be
otherwise contemplated by this Indenture); or
(10) the cessation of substantially all gaming operations at
The Sands for more than 60 consecutive days, except as a result of an
Event of Loss; or
(11) the loss by GBHC or its successor or assigns of its
legal right to own or operate The Sands and such loss continues for
more than 60 consecutive days.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(7) or 501(8)) occurs and is continuing, then and in
every such case, the Trustee and the Holders of not less than a majority in
principal amount of the Securities Outstanding, may declare the principal amount
of all the Securities to be due and payable immediately, by a notice in writing
to the Company and the Guarantors, and upon any such declaration such principal
amount shall become immediately due and payable. If an Event of Default
specified in Section 501(7) or 501(8) occurs and is continuing, then the
principal amount of all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee and any Holder.
At any time after a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority in principal amount of the Securities Outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all Defaulted Interest on all Outstanding
Securities,
(B) all unpaid principal of (and premium, if any, on)
any Outstanding Securities which has become due otherwise
than by such declaration of acceleration, and interest on
such unpaid principal at the rate borne by the Securities,
and
(C) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on
Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Securities because of an Event of
Default specified in Section 501(4) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness or the same has been waived or stayed, and written notice of such
discharge, rescission, waiver or stay, as the case may be, shall have been given
to the Trustee by the Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Securities, and no
other Event of Default has occurred during such 30-day period which has not been
cured or waived during such period.
E-28
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable
and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any), and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in any
Security Document or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company, the Guarantors or any other
obligor upon the Securities or the property of the Company, the Guarantors or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Company for the payment of overdue principal,
premium, if any, or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
E-29
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money and property collected by the Trustee pursuant to
this Article or in connection with the exercise of remedies under any Security
Document shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid
for principal of (and premium, if any, on,) and interest on the
Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons
entitled thereto.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(1) the Holders of a majority in principal amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(2) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(3) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and
(4) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
a majority or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Section 507 to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any of the Securities shall have the right, which is absolute and
unconditional, to receive payment, as provided herein (including, if applicable,
Article Thirteen) and in the terms of each note representing such Securities of
the principal of (and premium, if any, on) and (subject to Section 307) interest
on, such Securities on the respective Stated Maturities expressed in such
Securities (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
E-30
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Indenture or any Security Document and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 306, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or any Security Document or by law to the Trustee or to the Holders may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
Notwithstanding anything to the contrary set forth in
Section 316(a) of the TIA (the provisions of which are hereby excluded), the
Holders of not less than a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee under this Indenture or the Security
Documents, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability unless it has obtained appropriate indemnity.
SECTION 513. Waiver of Defaults and Compliance.
Notwithstanding anything to the contrary set forth in
Section 316(a) of the TIA (the provisions of which are hereby excluded) the
Holders of not less than a majority in principal amount of the Outstanding
Securities may on behalf of the Holders of all the Securities:
(1) waive any past default hereunder and its consequences,
except a default in respect of the payment of the principal of (or
premium, if any, on) or interest on any Security, and upon any such
waiver, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured and released, for
every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other default or Event of Default or impair any
right consequent thereon; and
(2) waive future compliance with any term, provision or
condition of this Indenture or the Security Documents or any related
instruments, agreements or documents (but no such waiver shall extend
to or affect such term, provision or condition except to the extent so
expressly waived), in which event the Company and the Guarantors may
omit to comply with any such term, provision or condition of this
Indenture, the Security Documents or any related instrument, agreement
or document.
E-31
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 90 days after the occurrence of any Default
hereunder, the Trustee shall transmit in the manner and to the extent provided
in TIA Section 313(c), notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of (or premium,
if any, on) or interest on any Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders; and provided further that in the case of any Default of
the character specified in Section 501(4) no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. The Trustee shall not
be deemed to have knowledge of any Default or Event of Default hereunder unless
a Responsible Officer in its Corporate Trust Department shall have actual
knowledge thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
E-32
(9) the Trustee shall not be personally liable, in case of
entry by it upon any property subject to the liens of the Security
Documents, for debts contracted or liabilities or damages incurred in
the management or operation thereof.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
The Trustee and its directors, officers, employees and
Affiliates shall cooperate with the Casino Control Commission and the Division
of Gaming Enforcement and provide such information and documentation as may from
time to time be requested by such agencies.
The Trustee may rely on, and shall be protected with respect
to any action taken or omitted to be taken in good faith in accordance with, the
direction of the Holders of not less than a majority in principal amount of
Outstanding Securities.
SECTION 603. Trustee Not Responsible for Recitals or
Issuance of Securities.
The recitals contained herein and in the Securities, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in a Statement of Eligibility and Qualification of Form
T-1 supplied to the Company are true and accurate, subject to the qualifications
set forth therein. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
The Trustee makes no representations with respect to the
effectiveness or adequacy of any Security Document, or the validity, perfection
or priority, if any, of liens granted to it under this Indenture or the Security
Documents. The Trustee shall not be responsible for ascertaining or maintaining
such validity, perfection or priority, if any, and shall be fully protected in
relying upon certificates and opinions delivered to it in accordance with the
terms of this Indenture or the Security Documents.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.
SECTION 605. Money Held in Trust.
Except as otherwise provided herein, money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law. The Trustee shall be under no liability for interest on
any money received by it hereunder except as otherwise provided herein or agreed
with the Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time
agree for all services rendered by it hereunder and under the Security
Documents (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
and
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture and under the Security
Documents (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or
bad faith; and
E-33
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust and under the Security
Documents, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder or thereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any,
on) or interest on particular Securities.
SECTION 607. Corporate Trustee Required: Eligibility.
There shall at all times be a Trustee hereunder which shall
be eligible to act as Trustee under TIA Section 310(a) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) Subject to the provisions of the Casino Control Act, the
Trustee may resign at any time by giving written notice thereof to the Company,
the Casino Control Commission and the Division of Gaming Enforcement. If the
instrument of acceptance by a successor Trustee required by Section 609 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) Subject to the provisions of the Casino Control Act, the
Trustee may be removed at any time by Act of the Holders of not less than a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, subject to the provisions of the Casino Control Act, (i)
the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to
TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly
E-34
appoint a successor Trustee. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
Notwithstanding the foregoing, any successor Trustee may be appointed only with
the prior, express approval of the Casino Control Commission, in consultation
with the Division of Gaming Enforcement, provided that such successor Trustee
must first be qualified as a financial source by and cooperate with the Casino
Control Commission and the Division of Gaming Enforcement.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 106. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall take all
necessary steps to be approved by the Casino Control Commission and shall
execute, acknowledge and deliver to the Company, to the Guarantors and to the
retiring Trustee an instrument accepting such appointment, and the successor
Trustee, the Company and the Guarantors shall enter into a supplemental
indenture evidencing the appointment of the successor Trustee and, as required,
any amendment or modification to any Security Document or any additional
Security Document. Thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities; and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture provided that the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
E-35
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTORS
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that none of the Company or the
Trustee or any agent of either of them shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with TIA Section 312, regardless of the source from which
such information was derived, and that the Trustee shall not be held accountable
by reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with
the first May 15 after the first issuance of Securities, the Trustee shall
transmit to the Holders, in the manner and to the extent provided in TIA Section
313(c), a brief report dated as of such May 15 if required by TIA Section
313(a).
The Trustee shall transmit to the Holders, within the times
hereinafter specified a brief report with respect to the following:
(1) the release, or release and substitution, of property
subject to any Lien of this Indenture (and the consideration therefor,
if any) unless the fair value of such property, as set forth in the
Officers' Certificate or Opinion of Counsel required by TIA Section
314(d), is less than 10 per centum of the aggregate principal amount
of the Securities Outstanding at the time of such release, or such
release and substitution, such report to be so transmitted within 90
days after such time; and
(2) the character and amount of any advances made by it as
such since the date of the last report transmitted pursuant to the
provisions of TIA Section 313(a) (or if no such report has yet been so
transmitted, since the date of execution of the Indenture), for the
reimbursement of which it claims or may claim a Lien or charge, prior
to that of the Indenture Securities, on the trust estate or on
property or funds held or collected by it as such Trustee, and which
it has not previously reported pursuant to this clause (2), if such
advances remaining unpaid at any time aggregate more than 10 per
centum of the aggregate principal amount of the Securities Outstanding
at such time, such report to be so transmitted within 90 days after
such time.
To the extent required by applicable laws, rules and
regulations, a copy of each such report shall, at the time of such transmission
to the Holders, be filed with each stock exchange, if any, upon which the
Securities are listed, and also with the Commission.
(b) The Trustee shall transmit by mail to the Casino Control
Commission and the Division of Gaming Enforcement (i) an initial list of the
beneficial Holders of the Securities promptly after the issuance of the
Securities, (ii) current lists of the Holders appearing in the Security Register
on a twice-per-year basis, no later than March 1 and September 1 of each year,
and (iii) upon request by the Casino Control Commission or the Division of
Gaming Enforcement, such additional information with respect to the beneficial
Holders of the Securities as the Trustee may obtain through its good faith
efforts.
(c) The Trustee shall notify the Casino Control Commission
and the Division of Gaming Enforcement, simultaneously with any notice given to
the Holders, of any default or acceleration under the Securities, this
Indenture, the Security Documents, or any other documents, instrument,
agreement, covenant, or condition related to the issuance of the Securities,
whether declared or effectuated by the Trustee or the Holders. The Trustee shall
notify the Casino Control Commission and the Division of Gaming Enforcement on a
continuing basis and in writing, of any actions taken by the Trustee or the
Holders with regard to such default, acceleration or similar matters related
thereto.
(d) The Trustee shall notify the Casino Control Commission
and the Division of Gaming Enforcement of the removal or resignation of the
Trustee promptly after such removal or resignation.
(e) The Trustee shall provide to the Casino Control
Commission and the Division of Gaming Enforcement, promptly after the execution
by the Trustee of the same, copies of any and all amendments or
E-36
modifications to this Indenture, the Securities, the Security Documents, or any
other documents, instrument, agreement, covenant or condition related to the
issuance of the Securities.
SECTION 703. Reports by Company and Guarantors.
The Company and the Guarantors shall, to the extent required
by the TIA:
(1) file with the Trustee, within 15 days after the Company
or any of the Guarantors, as the case may be, is required to file the
same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934; or, if the Company or any of the
Guarantors, as the case may be, is not required to file information,
documents or reports pursuant to either of said Sections, then it
shall file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission,
such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934 in respect of a security listed and registered on
a national securities exchange as may be prescribed from time to time
in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company or any of the Guarantors, as the
case may be, with the conditions and covenants of this Indenture as
may be required from time to time by such rules and regulations;
(3) transmit by mail to all Holders, in the manner and to
the extent provided in TIA Section 313(c), within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company or any of
the Guarantors, as the case may be, pursuant to paragraphs (1) and (2)
of this Section as may be required by rules and regulations prescribed
from time to time by the Commission; and
(4) comply in all material respects with all requirements
and provisions of the Casino Control Act and notify the Trustee by
mail of all formal hearings and formal proceedings materially relating
to the Company, the Guarantors or their respective successors, before
the Casino Control Commission relating to the plenary casino licenses
for the Casino, as the same are scheduled. Such notice shall be in
writing and given at least seven days prior to the hearing to which
such notice relates, unless a shorter notice is given to the Company
in which event the Company shall notify the Trustee promptly upon
receiving such definite information as shall be contained in such
notice. The Company hereby agrees that the Trustee may, but shall have
no obligation to, attend such hearings and other proceedings if
permitted to do so by the Casino Control Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Holdings and Subsidiaries May Consolidate,
etc., Only on Certain Terms.
Neither Holdings nor any of its Subsidiaries shall
consolidate with or merge with or into or sell, assign, convey, lease or
transfer all or substantially all of its properties and assets to any Person or
group of affiliated Persons in a single transaction or through a series of
transactions, except that:
(a) Holdings or any of its Subsidiaries may consolidate with
or merge with or into or sell, assign, convey, lease or transfer all
or substantially all of its properties and assets if (i) Holdings or
such Subsidiary shall be the continuing Person, or the resulting,
surviving or transferee Person (the "surviving entity") shall be a
Person organized and existing under the laws of the United States or
any State thereof or the District of Columbia; (ii) the surviving
entity (other than an existing Guarantor) shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee, in form
and substance reasonably satisfactory to the Trustee, all of the
obligations of Holdings or such Subsidiary,
E-37
as applicable under the Securities, the Guarantee, this Indenture and
the Security Documents, and Holdings or the surviving entity shall
have taken all steps necessary or desirable to perfect and protect the
security interests granted or purported to be granted by the Security
Documents, including, without limitation, the priority thereof, in the
applicable Collateral, subject to and as permitted by the terms of
this Indenture and the terms of any release or subordination
contemplated in Section 1405 hereof, including, without limitation,
the execution, delivery, filing and recordation of additional
mortgages, pledges, assignments, security agreements, releases of
security and subordination agreements; (iii) immediately before and
immediately after giving effect to such transaction, or series of
transactions (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of,
such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing; (iv) such transaction
will not result in the loss, unless appropriately replaced, of any
gaming or other license necessary for the continued operation of
Holdings or any Subsidiary as conducted immediately prior to such
consolidation, merger, conveyance, transfer or lease; and (v) neither
Holdings nor any Subsidiary would thereupon become obligated with
respect to any Indebtedness, nor any of its property subject to any
Lien, unless Holdings or such Subsidiary could incur such Indebtedness
or create such Lien without violation of the terms of this Indenture;
(b) a Subsidiary may consolidate with or merge into or sell,
assign, convey, lease or transfer all or substantially all of its
properties and assets to or with Holdings or any Subsidiary of
Holdings if (i) the surviving entity (other than an existing
Guarantor) shall expressly assume, by a supplemental indenture
executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all of the obligations of such
Subsidiary under the Securities, the Guarantees, this Indenture and
the Security Documents, and such Subsidiary or surviving entity, as
the case may be, shall have taken all steps necessary or desirable to
perfect and protect the security interests granted or purported to be
granted by the Security Documents, including, without limitation, the
priority thereof, subject to and as permitted by the terms of this
Indenture and the terms of any release or subordination contemplated
in Section 1405 hereof, including, without limitation, the execution,
delivery, filing and recordation of additional mortgages, pledges,
assignments, security agreements, releases of security and
subordination agreements, (ii) such transaction will not impair the
pledge of the stock of such Subsidiary granted or purported to be
granted pursuant to the Security Documents, subject to and as
permitted by the terms of this Indenture and the terms of any release
or subordination contemplated in Section 1405 hereof, and (iii) such
transaction will not result in the loss (unless appropriately
replaced) of any gaming or other license necessary for the continued
operation of Holdings and its Subsidiaries as conducted immediately
prior to such sale, assignment, conveyance, transfer or lease; and
(c) Holdings, the Company or such Person shall have
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale,
assignment conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with this covenant and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company or any Guarantor with
or merger of the Company or any Guarantor with or into any other Person or any
conveyance, transfer or lease of the properties and assets of the Company or any
Guarantor substantially as an entirety to any Person in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
or such Guarantor is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company or such Guarantor under this Indenture with the same
effect as if such successor Person had been named as the Company or such
Guarantor herein, and in the event of any such conveyance or transfer, the
Company or such Guarantor (which term shall for this purpose mean the Person
named as the "Company" or any "Guarantor," as the case may be, in the first
paragraph of this Indenture or any successor Person which shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Securities and may be dissolved and liquidated.
E-38
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures and Amendments to
Security Documents Without Consent of Holders.
Without the consent of any Holders, the Company and the
Guarantors, when each is authorized by a Board Resolution, and the Trustee, at
any time and from time to time, may enter into one or more indentures
supplemental hereto or amendment to any Security Document, in form satisfactory
to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company or any Guarantor and the assumption by any such successor of
the covenants of the Company or such Guarantor, as the case may be,
contained herein, in the Securities and in the Security Documents; or
(2) to add to the covenants of the Company or the Guarantors
for the benefit of the Holders or to surrender any right or power
herein conferred upon the Company or the Guarantors; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee pursuant to the
requirements of Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein or in the Security Documents which may be
inconsistent with any other provision herein or in the Security
Documents, or to make any other provisions with respect to matters or
questions arising under this Indenture or under the Security
Documents; provided that such action shall not adversely affect the
interests of the Holders in any material respect; or
(6) to establish or maintain the Lien of this Indenture and
the other Security Documents or to correct or amplify the description
of any Collateral subject to the Lien of this Indenture or the other
Security Documents, or to subject additional property to the Lien of
this Indenture or other Security Documents; or
(7) to add any additional Guarantor; or
(8) to make any other change that does not adversely affect
the rights of any Holder; or
(9) to secure the Securities.
SECTION 902. Supplemental Indentures and Amendments to
Security Documents with Consent of Holders.
Upon the request of the Company and the Guarantors, by a
Board Resolution authorizing the execution thereof, together with the consent of
the Holders of not less than a majority in principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Trustee, the Trustee shall
join the Company and the Guarantors in an indenture or indentures supplemental
hereto or amendments to the Security Documents, for any purpose, including,
without limitation, for the purpose of adding any provisions to or changing,
modifying or amending in any manner or eliminating any of the provisions of this
Indenture or the Security Documents or making additions to, changing, modifying,
amending or eliminating in any manner the rights of the Holders hereunder or
thereunder; provided, however, that no such supplemental indenture, or addition,
change, amendment or modification to, or elimination of any provision of, any
Security Document, shall, without the consent of the Holder of each Outstanding
Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which
any Security or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
E-39
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences
provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security
affected thereby.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture or
amendments to the Security Documents, but it shall be sufficient if such Act
shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures and
Amendments to Security Documents.
In executing, or accepting the additional trusts created by,
any supplemental indenture or amendment to the Security Documents permitted by
this Article or the modifications thereby of the trusts created by this
Indenture or the Security Documents, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture or amendment to the Security
Documents is authorized or permitted by this Indenture and all conditions
precedent herein provided for relating to such supplemental indenture have been
complied with. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture or amendment to the Security Documents which affects
the Trustee's own rights, duties, or immunities under this Indenture or under
the Security Documents or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the
Article shall conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
SECTION 907 Notice of Supplemental Indentures and Amendments
to Security Documents.
Promptly after the execution by the Company, the Guarantors
and the Trustee of any supplemental indenture or amendment to the Security
Documents pursuant to the provisions of Section 902, the Company shall give
notice thereof to the Holders of each Outstanding Security affected, in the
manner provided for in Section 106, setting forth in general terms the substance
of such supplemental indenture or amendment to the Security Documents.
E-40
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any, on) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be such
office or agency of the Company, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in
Trust.
If the Company shall at any time act as its own Paying
Agent, it will, on or before each due date of the principal of (and premium, if
any, on) or interest on any of the Securities, segregate and hold in trust for
the benefit of the Persons entitled thereto a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents
for the Securities, it will, on or before each due date of the principal of (and
premium, if any, on), or interest on, any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of (and premium, if any on) or interest on Securities in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any
payment of principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
E-41
The Company may at any time, for the purpose of obtaining
the satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any, on) or interest on any Security and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, Holdings will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of Holdings
and each of its Subsidiaries; provided, however, that Holdings shall not be
required to preserve any such right or franchise if the Board of Directors of
Holdings shall determine that the preservation thereof is no longer desirable in
the conduct of the business of Holdings and its Subsidiaries as a whole and that
the loss thereof is not disadvantageous in any material respect to the Holders
and Holdings and its Subsidiaries shall have taken all steps necessary or
desirable to protect or perfect the security interests granted or purported to
be granted by the Security Documents, subject to and as permitted by the terms
of this Indenture and the terms of any release or subordination contemplated in
Section 1405 hereof, including, without limitation, the execution, delivery,
filing and recordation of additional mortgages, pledges, assignments and
security agreements.
SECTION 1005. Payment of Taxes and Other Claims.
Holdings will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent and in accordance with
applicable provisions of the Security Documents, (a) all taxes, assessments and
governmental charges levied or imposed upon Holdings or any of its Subsidiaries
or upon the income, profits or property of Holdings or any such Subsidiary and
(b) all lawful claims for labor, materials and supplies, which, if unpaid, might
by law become a lien upon Collateral; provided, however, that Holdings shall not
be required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, Holdings will cause all properties owned by Holdings or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as required by the Security Documents and as otherwise in the
judgment of Holdings may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent Holdings from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of Holdings, desirable in the conduct of its business or the
business of any such Subsidiary and not disadvantageous in any material respect
to the Holders.
E-42
SECTION 1007. Insurance.
Holdings will, and will cause its Subsidiaries to, maintain
insurance with responsible and reputable insurance companies or associations in
such amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general areas in
which Holdings or such Subsidiary operates; provided that with respect to the
Collateral, Holdings will, and will cause its Subsidiaries to, maintain
insurance on the terms required by each of the Security Documents or, if the
Lien contemplated therein is released or subordinated as contemplated and
permitted in Section 1405, then in accordance with the requirements of the
holder of any other lien on the Collateral.
SECTION 1008. Statement by Officer as to Compliance.
The Company and each of the Guarantors will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief certificate,
which may be in the form attached as Exhibit A, from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's or such Guarantor's compliance with all
conditions and covenants under this Indenture or the Security Documents. For
purposes of this Section 1008, such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture or
the Security Documents.
SECTION 1009. Statement by Officers of Certain Defaults.
When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of Holdings or any of its Subsidiaries gives any notice or takes
any other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $5 million), Holdings shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an Officers' Certificate specifying such event, notice or
other action within five Business Days of its occurrence.
SECTION 1010. Purchase of Securities upon Change in Control.
(a) Upon the occurrence of a Change in Control and subject
to the compliance by the Company with the requirements of paragraph (b) of this
Section 1010, then each Holder shall have the right to require that the Company
repurchase such Holder's Securities in whole or in part in integral multiples of
$1,000, at a purchase price (the "Purchase Price") in cash in an amount equal to
100% of the outstanding principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment
Date"), in accordance with the procedures set forth in paragraphs (b) and (c) of
this Section.
(b) Not less than 15 days nor more than 45 days before the
Change of Control Payment Date, the Company shall make an offer to purchase the
Securities (the "Change of Control Offer") and shall give to the Trustee and to
each Holder of the Securities in the manner provided in Section 106 a notice
stating:
(1) that a Change of Control has occurred and that such
Holder has the right to require the Company to repurchase such
Holder's Securities at the Purchase Price;
(2) the circumstances and relevant facts regarding such
Change of Control (including but not limited to information with
respect to pro forma historical income, cash flow and capitalization
after giving effect to such Change of Control);
(3) the Change of Control Payment Date, which shall be no
later than 60 days following the Change of Control; and
(4) the instructions a Holder must follow in order to have
its Securities repurchased in accordance with paragraph (c) of this
Section.
(c) The Change of Control Offer shall remain open for at
least 20 Business Days and until the close of business on the Change of Control
Payment Date. Holders electing to have Securities purchased will be required to
surrender such Securities to the Company at the address specified in the notice
at least five Business Days prior to the Change of Control Payment Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Securities delivered for purchase by the
Holder as to which his election is to be withdrawn and a statement that such
Holder is
E-43
withdrawing his election to have such Securities purchased. Holders whose
Securities are purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(d) Neither the Trustee nor the Board of Directors of the
Company may amend or waive the Company's obligations to so offer to purchase all
outstanding Securities in the event of a Change of Control without the Holders
of not less than a majority of the aggregate principal amount of the Outstanding
Securities consenting to such waiver or amendment.
SECTION 1011. [Intentionally Omitted.].
SECTION 1012. [Intentionally Omitted.].
SECTION 1013. Limitation on Restricted Payments.
Holdings shall not make, directly or indirectly, and shall
not permit any Subsidiary to make, directly or indirectly, any Restricted
Payment, unless:
(a) no Default or Event of Default shall have occurred and
be continuing at the time of and after giving effect to such
Restricted Payment;
(b) with respect to a Restricted Payment, if any, to be made
to Carl C. Icahn and his Affiliates by Holdings, the Company or GBHC
(other than those to Holdings and its wholly owned Subsidiaries) at
any time prior to the expiration of 5 years from the Issue Date,
immediately after giving effect to such Restricted Payment, the
Consolidated Coverage Ratio of Holdings would be no less than 3.5:1.0;
and
(c) the aggregate of all Restricted Payments declared or
made after the Issue Date does not exceed the sum of (i) 50% of
Consolidated Net Income of Holdings (or in the event such Consolidated
Net Income shall be a deficit, minus 100% of such deficit) accrued
during the period (treated as one accounting period) beginning on the
last day of the fiscal quarter of Holdings immediately following the
Issue Date and ending on the last day of Holdings' last fiscal quarter
ending before the date of such proposed Restricted Payment plus (ii)
an amount equal to the aggregate Net Cash Proceeds received by
Holdings or any of its Subsidiaries from the issuance or sale (other
than to a Subsidiary) of, and contribution to capital in respect of,
any of its Capital Stock (excluding Disqualified Stock, but including
Capital Stock issued upon conversion of convertible Indebtedness and
from the exercise of options, warrants or rights to purchase Capital
Stock (other than Disqualified Stock) of Holdings) after the Issue
Date.
Notwithstanding the above, the Company shall not make any
Restricted Payments and agrees that all amounts received from GBHC by the
Company pursuant to the Guaranty shall be used solely to make payments on the
Securities.
SECTION 1014. [Intentionally Omitted.].
SECTION 1015. [Intentionally Omitted.].
SECTION 1016. [Intentionally Omitted.].
SECTION 1017. Limitation on Asset Sales.
Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, Holdings shall not, directly or indirectly, and shall not permit any
Subsidiary to, directly or indirectly, make any Asset Sale of Collateral unless
(a) at the time of such Asset Sale, Holdings or such Subsidiary, as the case may
be, receives consideration at least equal to the Fair Market Value of the assets
sold or otherwise disposed of (or in the case of a lease or similar arrangement,
receives an agreement for the payment pursuant to the terms of such lease of
rents from time to time at fair value); (b) the proceeds therefrom (in the case
of a lease, when paid from time to time) consist of at least 85% cash and/or
Cash Equivalents; (c) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Asset Sale; and (d)
unless otherwise expressly provided herein, the Net Cash Proceeds of such Asset
Sale shall be applied in connection with the offer to purchase the Securities
described below.
E-44
On or before the 180th day after the date on which Holdings
or any Subsidiary consummates the relevant Asset Sale of Collateral and subject
to and as permitted by the terms of this Indenture and the terms of any release
or subordination contemplated in Section 1405 hereof, the Company shall use all
of the Net Cash Proceeds from such Asset Sale to make either (i) an offer to
purchase (the "Asset Sale Offer") from all holders of Securities up to a maximum
principal amount (expressed as a multiple of $1,000) of Securities equal to such
Net Cash Proceeds at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase; or (ii) a Permitted Related Investment, upon consummation of which the
Trustee shall have received a first priority fully perfected security interest
in the property on assets acquired by Holdings or any of its Subsidiaries in
connection therewith, subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof; provided, that the Company shall not be required to make any Asset Sale
Offer if the Net Cash Proceeds of all Asset Sales and Events of Loss that are
not used to make a Permitted Related Investment within 180 days or 365 days,
respectively, do not exceed $5 million. Each Asset Sale Offer shall remain open
for a period of at least 20 business days. To the extent the Asset Sale Offer is
not fully subscribed to by the holders of the Securities, Holdings or the
relevant Subsidiary may retain such unutilized portion of the Net Cash Proceeds.
If the Asset Sale Offer is more than fully subscribed to by the Holders of the
Securities, the particular Securities to be accepted shall be selected by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection of portions of the principal of Securities; provided, however,
that no such partial acceptance shall reduce the portion of the principal amount
of a Security not redeemed to less than, $1,000; and provided further that so
long as the Securities are listed on any national securities exchange (as such
term is defined in the Exchange Act), such selection shall be made by the
Trustee in accordance with the provisions of such exchange.
Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, Holdings or such Subsidiary, as the case may be, shall cause such Net
Cash Proceeds derived from the sale of Collateral in an Asset Sale to be
deposited in the Collateral Account on the business day on which such Net Cash
Proceeds are received by Holdings or such Subsidiary. Collateral Proceeds
(including any earnings thereon) may be released from the Collateral Account
only in accordance with Section 1404.
Notwithstanding the above, the Company shall not engage,
directly or indirectly, in any Asset Sale.
SECTION 1018. Application of Net Cash Proceeds in Event of
Loss.
Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, in the event that Holdings or any Subsidiary suffers any Event of Loss
to any Collateral, on or before the 365th day after the date that Holdings or
such Subsidiary receives any Net Cash Proceeds from such Event of Loss to
Collateral, the Company shall use all of the Net Cash Proceeds from such Event
of Loss to make either (i) an offer to purchase (the "Event of Loss Offer") from
all holders of Securities up to a maximum principal amount (expressed as a
multiple of $1,000) of Securities equal to the Net Cash Proceeds at a purchase
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase; or (ii) a Permitted Related
Investment, upon consummation of which the Trustee shall have received a first
priority fully perfected security interest in the property on assets acquired by
Holdings or any of its Subsidiaries in connection therewith, subject to and as
permitted by the terms of this Indenture and the terms of any release or
subordination contemplated by Section 1405 hereof; provided, that the Company
shall not be required to make any Event of Loss Offer if the Net Cash Proceeds
of all Events of Loss to and Asset Sales of Collateral that are not used to make
a Permitted Related Investment within 365 days or 180 days, respectively, do not
exceed $5 million. Each Event of Loss Offer shall remain open for a period of at
least 20 Business Days. To the extent the Event of Loss Offer is not fully
subscribed to by the holders of the Securities, Holdings or the relevant
Subsidiary may retain such unutilized portion of the Net Cash Proceeds. If the
Event of Loss Offer is more than fully subscribed to by the Holders of the
Securities, the particular Securities to be accepted shall be selected by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection of portions of the principal of Securities; provided, however,
that no such partial acceptance shall reduce the portion of the principal amount
of a Security not redeemed to less than $1,000; and provided further that so
long as the Securities are listed on any national securities exchange (as such
term is defined in the Exchange Act), such selection shall be made by the
Trustee in accordance with the provisions of such exchange.
E-45
Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, Holdings or such Subsidiary, as the case may be, shall cause such Net
Cash Proceeds derived from the loss of Collateral to be deposited in the
Collateral Account on the Business Day on which such Net Cash Proceeds are
received by Holdings or such Subsidiary. Collateral Proceeds (including any
earnings thereon) may be released from the Collateral Account only in accordance
with Section 1404.
SECTION 1019. Ownership of Stock of Subsidiaries.
Holdings shall at all times maintain, or cause each
Subsidiary to maintain, ownership of all of each class of Voting Stock of, and
all other equity securities in, each Person that, as of the Issue Date was a
Subsidiary of Holdings, to the extent the same is included in the Collateral,
except any Subsidiary that shall be disposed of in its entirety, or consolidated
or merged with or into Holdings or another Subsidiary, in each case in
accordance with Article Eight. Subject to and as permitted by the terms of this
Indenture and the terms of any release or subordination contemplated in Section
1405 hereof, such stock will be subject to a first priority fully perfected
security interest in favor of the Trustee.
SECTION 1020. Limitation on Transactions with Affiliates.
Holdings shall not, and shall not permit, cause or suffer
any Subsidiary to, conduct any business or enter into any transaction or series
of transactions (including, without limitation, the sale, transfer, disposition,
purchase, exchange, lease or use of assets, property or services) or enter into
any contract, agreement, understanding, loan, advance or guarantees with or for
the benefit of any of their respective Affiliates, (each an "Affiliate
Transaction") other than (i) transactions among Holding and its Subsidiaries;
(ii) transactions involving aggregate payments or other Fair Market Value, of
less than $5 million in any consecutive 365-day period; (iii) transactions made
available to all Holders on a basis pro rata to their holdings of Securities;
(iv) transactions set forth on Schedule 1.02 hereto and (v) those that are
hereafter set forth in writing and are determined by the Board of Directors of
Holdings (including a majority of the Independent members of such Board), to be
on terms which are no less favorable to Holdings and its Subsidiaries than would
be obtained in an arm's length transaction with an unaffiliated third party.
Holdings shall deliver to the Trustee an Officers' Certificate certifying that
any such Affiliate Transaction contemplated in clause (v) above has received the
requisite approval of its Board of Directors.
SECTION 1021. Change in Nature of Business.
GBHC shall not, and shall not permit any of its Subsidiaries
to, own, manage or conduct any operation other than a Permitted Line of
Business.
SECTION 1022. Additional Collateral.
Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, Holdings will, and will cause each of its Subsidiaries that owns any
Collateral to, grant to the Trustee a valid and perfected first priority
security interest in such Collateral enforceable against all third parties, and
to execute and deliver all documents and to take all action reasonably necessary
or desirable to perfect and protect such a security interest in favor of the
Trustee, including the execution of the form of Security Agreement Supplement
appended to the Security Agreement.
SECTION 1023. CRDA Investments.
Holdings will not, and will not permit any of its
Subsidiaries to, directly or indirectly (i) grant a security interest in its
CRDA Investments to any Person other than any grant of a security interest or
other Lien (a "Permitted Grant:") to: (x) the Casino Reinvestment Development
Authority of the State of New Jersey ("CRDA"); (y) any other entity as required
by applicable law; or (z) any person so long as such action will not result in a
violation of applicable law; or (ii) sell, convey, transfer, lease or otherwise
dispose of its CRDA Investments otherwise than either (I) in accordance with the
terms of a Permitted Grant, or (II) for fair value (in either case, except to or
on behalf of the CRDA for a CRDA project), which shall be determined by, in
their absolute discretion, and evidenced by a resolution of, the Board of
Directors of Holdings or such Subsidiary, as the case may be.
SECTION 1024. Subsidiaries.
The Trustee will receive a pledge of the stock of any Person
that is a Subsidiary of Holdings on the Issue Date in accordance with the
Security Agreement, subject to and as permitted by the terms of
E-46
this Indenture and the terms of any release or subordination contemplated in
Section 1405 hereof. Except as otherwise provided in this Indenture, Holdings
will not, and will not permit any Subsidiary to, take any action or enter into
any transaction or series of transactions that would result in a Person becoming
a Subsidiary (whether through an acquisition or otherwise) unless, after giving
effect to such action, transaction or series of transactions before and
immediately after giving effect thereto no Default or Event of Default shall
have occurred and be continuing.
SECTION 1025. Security Documents.
Holdings shall execute, and shall cause its Subsidiaries to
execute, the respective Security Documents, as appropriate, securing its
obligations under this Indenture, the Security Documents and the Securities.
Each Holder, by accepting a Security, agrees to all terms and provisions of the
Security Documents as the same may be amended or supplemented from time to time
pursuant to the provisions hereof and thereof including, without limitation, the
terms of any release or subordination contemplated in Section 1405 hereof. The
terms of the release of the Collateral and the rights of the Holders with
respect thereto shall be governed by the Security Documents and this Indenture,
including, without limitation, the terms of any release or subordination
contemplated in Section 1405 hereof.
SECTION 1026. Validity of Security Interest.
Each of Holdings, GBHC and the Company represents and
warrants that it has, and covenants that it shall continue to have, full power
and lawful authority to grant, release, convey, assign, transfer, mortgage,
pledge, hypothecate and otherwise create the Security Interest referred to in
Article Fourteen; and subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof, each of Holdings, GBHC and the Company shall warrant, preserve and
defend the Security Interest of the Trustee in and to the Collateral or any
asset that should constitute Collateral (other than real property with respect
to matters covered by title insurance policies obtained by Holdings or its
Subsidiaries) but for the fact that Holdings and/or its Subsidiaries failed to
comply with the provisions of the Indenture or the Security Documents against
the claims of all persons, and will maintain and preserve the Security Interest
contemplated by Article Fourteen. Subject to and as permitted by the terms of
this Indenture and the terms of any release or subordination contemplated by
Section 1405 hereof, Holdings and its Subsidiaries shall be required to execute
and deliver all documents and take all action reasonably necessary or desirable
to perfect and protect a security interest in Collateral or any asset that would
constitute Collateral but for the fact that Holdings and/or its Subsidiaries
failed to comply with the provisions of the Indenture or the Security Documents,
before engaging in any sale, transfer, conveyance, or other disposition of such
assets to Holdings or any of its wholly owned Subsidiaries.
SECTION 1027. Duty of Cooperation.
The Guarantors and their respective directors, officers and
Affiliates shall cooperate with the Casino Control Commission and the Division
of Gaming Enforcement and provide such information and documentation as may from
time to time be requested by such agencies unless being contested in good faith
by appropriate proceedings.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Optional Redemption.
The Securities may be redeemed, at the election of the
Company, as a whole or from time to time in part, at the times, subject to the
conditions and at the Redemption Price specified in the form of Security,
together with accrued interest to the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article, other than repurchases
made from time to time in the open market.
E-47
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities
pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of
any redemption at the election of the Company, the Company shall, at least 60
days prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Securities to be redeemed and shall deliver
to the Trustee such documentation and records as shall enable the Trustee to
select the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be
Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities not
previously called for redemption, by such method as the Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions of the principal of Securities; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000 and, provided further that, so long as the
Securities are listed on any national securities exchange (as such term is
defined in the Exchange Act), any such redemption shall be made by the Trustee
in accordance with the provisions of such exchange.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided
for in Section 106 not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed; provided, however,
that in the case of an optional redemption in which the Company has called for
redemption all outstanding Securities in connection with a refinancing of such
Securities, the Company shall be permitted to (i) specify a proposed redemption
date, (ii) change the proposed redemption date once to a final redemption date
by notice mailed to Holders not later than five business days prior to the final
redemption date, (iii) establish the final redemption date as a date not more
than 90 days after the first notice from the Company calling the Securities for
optional redemption was mailed to Holders and (iv) rescind the redemption offer
at any time prior to the final redemption date, which rescission shall not cause
the maturity of the Securities to have changed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial
redemption, the principal amounts) of the particular Securities to be
redeemed,
(4) that on the Redemption Date the Redemption Price
(together with accrued interest, if any, to the Redemption Date
payable as provided in Section 1107) will become due and payable upon
each such Security, or the portion thereof, to be redeemed, and that
interest thereon will cease to accrue on and after said date, and
(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
E-48
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) in
immediately available funds an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Securities which are to be redeemed
on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest,
if any, to the Redemption Date; provided, however, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
SECTION 1109. Redemption Pursuant to Gaming Laws.
(a) If required to qualify by the Casino Control Commission,
all Holders, whether initial Holders or subsequent transferees, shall be subject
to the qualification provisions of the Casino Control Act relating to financial
sources and/or security holders. In the event that the Casino Control Commission
determines that a Holder is not qualified under the Casino Control Act and/or
such Holder fails to submit for qualification as required by the Casino Control
Commission in its sole discretion, the Company shall have the absolute right and
obligation to purchase from such Holder (the "Disqualified Holder") the
Securities the Disqualified Holder may then possess, either directly, indirectly
or beneficially, no later than forty-five days after the date the Company serves
notice on any Disqualified Holder of such determination. Immediately upon such
determination, the Disqualified Holder shall have no further right (i) to
exercise, directly or indirectly, through any trustee or nominee or any other
person or entity, any right conferred by any Securities and (ii) to receive any
dividends, interest, or any other distribution or payment with respect to any
such Securities or any remuneration in any form from the Company or the Trustee;
provided, however, that after such disqualification, interest on any such
Securities shall continue to accrue for the benefit of any subsequent Holder
thereof. The Company shall promptly provide to the Trustee a copy of each notice
served to a Disqualified Holder.
(b) Upon receipt of the notice referred to in clause (a)
above, the Disqualified Holder may sell its Securities either directly to any
Person then qualified or previously qualified (and not subsequently
disqualified) or through a bona fide brokerage transaction, conducted at
arm's-length, to a Person not an Affiliate of the Disqualified Holder. In the
event the Disqualified Holder fails to so sell its Securities within thirty (30)
days after the determination by the Casino Control Commission, the Company shall
purchase such Securities within fifteen (15) days after the end of such thirty
(30) day time period, at a time and place as designated by the Company, at the
lowest of (i) the principal amount thereof, (ii) the amount which the
Disqualified Holder or beneficial owner paid for the Securities, together with
accrued interest up to the date of the determination of disqualification, or
(iii)
E-49
the market value of such Securities. The right of the Company to purchase such
Security may be assigned by the Company to any Person approved by the Casino
Control Commission.
(c) The provisions of this Section shall be construed in
accordance with the applicable provisions of the Casino Control Act.
ARTICLE TWELVE
GUARANTEE ARRANGEMENTS
SECTION 1201. Guarantee.
Each Guarantor hereby unconditionally, jointly and
severally, guarantees (such guarantees collectively referred to as the
"Guarantee") to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of this Indenture, the Securities, any of the
Security Documents or the obligations of the Company or any other Guarantor to
the Holders or the Trustee hereunder or thereunder, that: (a) the principal of,
any interest on the Securities (including, without limitation, any interest that
accrues after the filing of a proceeding of the type described in Sections
501(7) and (8) hereof), premium, fees, expenses and all other amounts will be
duly and punctually paid in full when due, whether at maturity, by acceleration
or otherwise, and interest on the overdue principal and (to the extent permitted
by law) interest, if any, on the Securities and all other obligations of the
Company or any Guarantor to the Holders or the Trustee hereunder or thereunder
including fees, expenses or other whether now or hereafter existing will be
promptly paid in full or performed, all strictly in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed, or failing performance of
any other obligations of the Company to the Holders, for whatever reason, each
Guarantor will be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture, any Security
Document or the Securities shall constitute an event of default under this
Guarantee, and shall entitle the Holders of Securities to accelerate the
obligations of the Guarantors hereunder in the same manner and to the same
extent as the obligations of the Company. The obligations of a Guarantor are
independent of any obligation of the Company or any other Guarantor. Each of the
Guarantors hereby agrees that its obligations hereunder shall be absolute and
unconditional, irrespective of the validity, regularity or enforceability of the
Securities, any Security Document, this Indenture or any other document relating
thereto, the absence of any action to enforce the same, any waiver or consent by
any Holder with respect to any provisions hereof or thereof, any release or
non-perfection of Collateral, any release of any other Guarantor, any delays in
obtaining or realizing upon or failure to obtain or realize upon or application
of Collateral, the recovery of any judgment against the Company or any other
Person, any action to enforce the same or any other circumstance (including,
without limitation, any statute of limitations) which might otherwise constitute
a legal or equitable discharge or defense of a guarantor. Each of the Guarantors
hereby waives promptness, diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company or
any other Person, any right to require a proceeding first against the Company or
any other Person, protest, notice and all demands whatsoever and covenants that
its Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture, the Security Documents
and this Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor hereby irrevocably
waives any claim or other rights that it may now or hereafter acquire against
the Company or any other insider guarantor that arise from the existence,
payment, performance or enforcement of such Guarantor's obligations under this
Guarantee, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Holders or the Trustee against the
Company or any other insider guarantor or any Collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Company or any other insider guarantor, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim, remedy or right. If any amount shall be paid to such Guarantor in
violation of the preceding sentence at any time prior to the later of the
payment in full of the Securities and all other amounts payable under this
Guarantee and
E-50
the Maturity Date, such amount shall be held in trust for the benefit of the
Holders and the Trustee and shall forthwith be paid to the Trustee to be
credited and applied to the Securities and all other amounts payable under this
Guarantee, whether matured or unmatured, in accordance with the terms of this
Indenture, or to be held as Collateral for any obligations or other amounts
payable under this Guarantee thereafter arising. Each Guarantor acknowledges
that it will receive direct and indirect benefits from the financing
arrangements contemplated by this Indenture and that the waiver set forth in
this subsection is knowingly made in contemplation of such benefits. Each
Guarantor further agrees that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, (x) subject to this Article Twelve, the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article Five hereof for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the event of any acceleration of
such obligations as provided in Article Five hereof, such obligations (whether
or not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Guarantee.
SECTION 1202. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 1201,
each Guarantor hereby agrees that notation of such Guarantee shall be endorsed
on each security authenticated and delivered by the Trustee and executed by
either manual or facsimile signature of an authorized Officer of such Guarantor.
Each of the Guarantors hereby agrees that its Guarantee set forth in Section
1201 shall remain in full force and effect notwithstanding any failure to
endorse on each Security a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this
Indenture or a Security no longer holds that office at the time the Trustee
authenticates such Security or at any time thereafter, such Guarantor's
Guarantee of such Security shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of the Guarantor.
SECTION 1203. Additional Guarantors.
Any Person that was not a Guarantor on the Issue Date may
become a Guarantor by executing and delivering to the Trustee (a) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
Person to the provisions (including the representations and warranties) of the
Indenture as a Guarantor and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning creditors' rights and equitable
principles as may be acceptable to the Trustee in its discretion).
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have either Section 1302 or
Section 1303 be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same) and releasing the liens and security
interests created by the Security Documents, except for the following,
E-51
which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of Outstanding Securities to receive, solely from the trust
fund described in Section 1304 and as more fully set forth in such Section,
payments in respect of the principal of (and premium, if any, on) and interest
on such Securities when such payments are due, (B) the Company's obligations
with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (C)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
(D) this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Securities.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801 and in Sections 1005
through 1026 with respect to the Outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(3) or otherwise, but, except as specified above, the remainder of
this Indenture and such Securities shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant
Defeasance.
The following shall be the conditions to application of
either Section 1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds,
for a period of at least 123 days prior to the date of such
defeasance, in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of such Securities, (A) money in an amount, or
(B) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of (and premium, if any, on) and interest on the Outstanding
Securities on the Stated Maturity (or Redemption Date, if applicable)
of such principal (and premium, if any) or installment of interest and
(ii) any mandatory sinking fund payments or analogous payments
applicable to the Outstanding Securities on the day on which such
payments are due and payable in accordance with the terms of this
Indenture and of such Securities; provided that the Trustee shall have
been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to said payments with respect to the
Securities. Before such a deposit the Company may give to the Trustee,
in accordance with Section 1103 hereof, a notice of its election to
redeem all of the Outstanding Securities at a future date in
accordance with Article Eleven hereof, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be
given effect in applying the foregoing. For this purpose, "U.S.
Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of
which its full faith and credit is, pledged or (y) 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 the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined
in Section 3(a)(2) of the Securities Act of 1933, as amended), as
custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S.
Government
E-52
Obligation 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 U.S. Government Obligation
or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (7) and (8) of Section 501 hereof
are concerned, at any time during the period ending on the 123rd day
after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period).
(3) Such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the
Company is a party or by which it is bound.
(4) In the case of an election under Section 1302, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (y) there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that,
the Holders of the Outstanding Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
(5) In the case of an election under Section 1303, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(6) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with.
SECTION 1305. Deposited Money and U.S. Government
Obligations To Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
E-53
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE FOURTEEN
SECURITY INTEREST
SECTION 1401. Assignment of Security Interest.
(a) In order to secure the performance of the Company's and
the Guarantors' obligations to pay the principal amount of, premium, if any, and
interest on the Securities (including, without limitation, any interest that
accrues after the filing of a petition initiating any proceeding referred to in
Section 501(7) or (8) of this Indenture) when and as the same shall be due and
payable, whether at maturity or on an Interest Payment Date, by acceleration,
call for redemption or otherwise, and interest on the overdue principal of and
interest on, if any, the Securities and performance of all other obligations of
the Company and the Guarantors to the Holders and the Trustee under this
Indenture and the Securities, according to the terms hereunder or thereunder,
any Grantor pursuant to the Security Documents has unconditionally and
absolutely assigned to the Trustee for the benefit of itself and all Holders, a
first priority security interest in the Collateral, subject to the limitations
set forth in this Indenture, including, without limitation, Section 1405 hereof
(the "Security Interest").
(b) The Security Interest as now or hereafter in effect
shall be held for the Trustee and for the equal and ratable benefit and security
of the Securities without preference, priority or distinction of any thereof
over any other by reason, or difference in time, of issuance, sale or otherwise,
and for the enforcement of the payment of principal of, premium, if any, and
interest on the Securities in accordance with their terms.
(c) Each of the Company, Holdings and GBHC has executed and
delivered, filed and recorded and/or will execute and deliver, file and record,
all instruments and documents, and has done or will do or cause to be done all
such acts and other things as are necessary or desirable, subject to and as
permitted by the terms of this Indenture and the terms of any release or
subordination contemplated in Section 1405 hereof, to subject the Collateral to
the Lien of the Security Documents. Subject to and as permitted by the terms of
this Indenture and the terms of any release or subordination contemplated in
Section 1405 hereof, each of the Company, Holdings and GBHC will execute and
deliver, file and record all instruments and do all acts and other things as may
be reasonably necessary or advisable to perfect, maintain and protect the
Security Interest (including, without limitation, the first priority nature
thereof) and shall pay all filing, recording, mortgage or other taxes or fees
incidental thereto.
(d) Each of the Company, Holdings and GBHC shall furnish to
the Trustee (i) promptly after the recording or filing, or re-recording or
re-filing of the Security Documents and other security filings, an Opinion of
Counsel (who may be counsel for the Company or the Guarantors) stating that in
the opinion of such counsel the Security Documents and other security filings
have been properly recorded, filed, re-recorded or re-filed so as to make
effective and perfect the Security Interest intended to be created thereby and
reciting the details of such action; and (ii) except for Collateral released as
contemplated in Section 1405 hereof, at least annually on the anniversary date
of the Issue Date, an Opinion of Counsel (who may be counsel for the Company or
the Guarantors) either stating that in the opinion of such counsel such action
with respect to the recording, filing, re-recording or re-filing of the Security
Documents and other security filings has been taken as is necessary to maintain
the Lien and Security Interest of the Security Documents and other security
filings, subject to any subordination contemplated in Section 1405 hereof, and
reciting the details of such action, or stating that in the opinion of such
counsel no such action is necessary to maintain such Lien and Security Interest.
In giving the opinions required by this Section 1401(d) above, such counsel may
rely, to the extent recited in such opinions, on (i) certificates of relevant
public officials; (ii) certificates of an officer or officers of the Company,
the Guarantors or any other Grantor; (iii)
E-54
photocopies of filed and recorded documents certified by public officials as
being accurate copies of such documents; (iv) the opinions of other counsel
acceptable to the Trustee with respect to matters governed by law of any
jurisdiction other than the state in which such counsel is licensed to practice
law; and (v) title insurance policies and commitments. In addition, such
opinions may contain such qualifications, exceptions and limitations as are
appropriate for similar opinions relating to the nature of the Collateral.
SECTION 1402. Suits to Protect the Collateral.
To the extent permitted under the Security Documents and
this Indenture, the Trustee shall have power, but not be obliged, to institute
and maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any acts which may be unlawful or in violation
of this Indenture or the Security Documents and such suits and proceedings as
the Trustee may deem expedient to preserve or protect its interests and the
interest of the Holders in the Collateral and in the profits, rents, revenues
and other income arising therefrom (including power to institute and maintain
suits or proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the Security Interest thereunder or
be prejudicial to the interest of the Holders or of the Trustee).
SECTION 1403. Further Assurances and Security.
Each of the Company, Holdings and GBHC represents and
warrants that at the time the Security Documents and this Indenture are
executed, Holdings and/or its Subsidiaries (i) will have full right, power and
lawful authority to grant, bargain, sell, release, convey, hypothecate, assign,
mortgage, pledge, transfer and confirm, absolutely, the Collateral, in the
manner and form done, or intended to be done, in the Security Documents, free
and clear of all Liens, except for the Liens created by the Security Documents
or otherwise permitted by the Indenture or the Security Documents, and will
forever warrant and defend the title to the same against the claims of all
Persons whatsoever; (ii) will execute, acknowledge and deliver to the Trustee,
at Holdings' and/or its Subsidiaries' expense, at any time and from time to time
such further assignments, transfer, assurances or other instruments as may be
required to effectuate the terms of this Indenture or the Security Documents;
and (iii) will at any time and from time to time do or cause to be done all such
acts and things as may be necessary or proper, or as may be required by the
Trustee, to assure and confirm to the Trustee the Security Interest in the
Collateral contemplated hereby and by the Security Documents, in each case,
subject to and as permitted by the terms of this Indenture and any release or
subordination contemplated in Section 1405 hereof.
SECTION 1404. Collateral Account.
(a) Subject to and as permitted by the terms of this
Indenture and any release or subordination contemplated in Section 1405 hereof,
Holdings or any Subsidiary, as the case may be, shall cause such Net Cash
Proceeds of any Asset Sale pursuant to Section 1017 that involves the sale of
Collateral or any Event of Loss pursuant to Section 1018 that involves a loss of
Collateral to be deposited in the Collateral Account on the business day on
which such Net Cash Proceeds are received by Holdings or such Subsidiary.
Subject to and as permitted by the terms of this Indenture and any release or
subordination contemplated in Section 1405 hereof, Collateral Proceeds
(including any earnings thereon) may be released from the Collateral Account in
order to, and in only such amount as is required to, (x) pay the principal
amount of Securities tendered pursuant to an Asset Sale Offer or Event of Loss
Offer or (y) make a Permitted Related Investment; provided that upon
consummation of such Permitted Related Investment the Trustee shall, subject to
and as permitted by the terms of this Indenture and any release or subordination
contemplated in Section 1405 hereof, have received a first priority security
interest in the property or assets acquired by Holdings or any of its
Subsidiaries in connection therewith and Holdings delivers to the Trustee each
of the following:
(1) an Officers' Certificate, dated the date on which
Collateral Proceeds shall be released from the Collateral Account (the
"Collateral Proceeds Release Date"), stating in substance as to the
following matters (which statements shall, on the Collateral Proceeds
Release Date, be true):
(A) the reason Holdings is requesting a release of
the Collateral Proceeds and a description of the use to be
made of the Collateral Proceeds to be released;
(B) in the case of clause (x) above, the aggregate
principal amount of Securities purchased on the Collateral
Proceeds Release Date and, in the case of clause (y)
E-55
above, a description of the property or assets being
acquired and the Fair Market Value and the purchase price of
each such property or asset to be acquired by Holdings
and/or its Subsidiaries (if more than one);
(C) that the amount to be released from the
Collateral Account does not exceed the aggregate principal
amount of Securities to be purchased on the Collateral
Proceeds Release Date or the purchase price of the property
or assets to be acquired by Holdings or any of its
Subsidiaries, as the case may be;
(D) that, in the case of clause (y) above,
Holdings and/or its Subsidiaries, as the case may be, have
taken all steps necessary or desirable so that upon
consummation of such Permitted Related Investment the
Trustee shall, subject to the terms of any release or
subordination contemplated in Section 1405 hereof, receive a
first priority security interest in such property or assets;
and
(E) that no Default or Event of Default has
occurred and is continuing at the time of or after giving
effect to such release of Collateral Proceeds.
(2) An Opinion of Counsel stating that the certificate,
opinions, other instruments or cash which have been or are therewith
delivered to and deposited with the Trustee conform to the
requirements of this Indenture and that the property to be released
may be lawfully released from the Lien of the Security Documents and
that all conditions precedent in this Indenture and the Security
Documents relating to such release have been complied with.
(b) In connection with any release of any lien in favor of
the Trustee granted pursuant to the Security Documents on Collateral, the
Company and the Guarantors shall comply, to the extent required thereby, with
the applicable provisions of the TIA, including Section 314 thereof.
SECTION 1405. Release Notice; Subordination Request;
Permitted Liens.
(a) A Release Notice may only be delivered from time to time
in connection with, in anticipation of, as a result of or in relation to, an
Approved Project. A Release Notice shall be in the form of a Company Order and
shall request that the Trustee execute one or more specifically described
release instruments, documents and agreements (which release instruments,
documents and agreements shall accompany such Release Notice) and shall (i)
include a certified copy of the Board Resolution of Holdings or any of its
Subsidiaries in which such Board of Directors approved the Approved Project,
(ii) be accompanied by an Officers' Certificate, including a certification that
no Event of Default, or no default which with the passage of time or giving of
notice would become an Event of Default, has occurred or is continuing, in each
case unless waived in accordance with the terms of this Indenture, (iii) be
accompanied by an opinion of outside counsel to the Company and the Guarantors
(not by counsel which is an employee of the Company), which counsel shall be
reasonably satisfactory to the Trustee, stating that the action contemplated by
this Section 1405(a) is authorized and permitted by the Indenture and that all
conditions precedent herein relating to such action have been complied with and
(iv) if required by the TIA, certificates in accordance with Section 314 of the
TIA. Upon receipt of a Release Notice the Trustee, at Holdings' expense, shall
execute and deliver, within seven Business Days from the receipt of such Release
Notice, any instruments, documents and agreements specified by Holdings or any
of its Subsidiaries to release all or any part of the Collateral from the
Security Interests or any other Liens created by the Security Documents or the
Indenture including, without limitation, all instruments, documents and
agreements necessary to release any and all Liens of record and to terminate the
Security Documents.
(b) A Subordination Request may only be delivered from time
to time in connection with, in anticipation of, as a result of or in relation
to, any Approved Project. A Subordination Request shall be in the form of a
Company Order and shall request that the Trustee execute one or more
specifically described instruments, documents and agreements of subordination
(which instruments of subordination shall accompany such Subordination Request)
and shall (i) include a certified copy of the Board Resolution of Holdings or
any of its Subsidiaries in which the Subordination Determination was made, (ii)
certify that the subordination requested effects a subordination of the Security
Interests only to the extent, and only with respect to the Collateral as to
which such subordination is, contemplated by the Subordination Determination,
(iii) be accompanied by an Officers' Certificate, including a certification that
no Event of Default, and no default which with the passage of time or giving of
notice would become an Event of Default, has occurred or is continuing, in each
case unless waived in accordance with the
E-56
terms of this Indenture, (iv) be accompanied by an opinion of outside counsel to
the Company and the Guarantors (not by counsel which is an employee of the
Company), which counsel shall be reasonably satisfactory to the Trustee, stating
that the action contemplated by this Section 1405(b) is authorized and permitted
by the Indenture and that all conditions precedent herein relating to such
action have been complied with and (v) if required by the TIA, certificates in
accordance with Section 314 of the TIA. Upon receipt of a Subordination Request,
the Trustee, at Holdings' expense, will execute and deliver, within seven
Business Days from the receipt of such Subordination Request, any instruments,
documents and agreements specified by Holdings or any of its Subsidiaries to
subordinate the Security Interests or any other Liens created by the Security
Documents or the Indenture to any Lien that the Board of Directors of Holdings
or any of its Subsidiaries determines (each such determination, a "Subordination
Determination") to accord priority over the Security Interests in connection
with an Approved Project.
(c) In connection with any release of any lien pursuant to a
Release Notice or the subordination of any lien pursuant to a Subordination
Request, the Company and the Guarantors shall comply, to the extent required
thereby, with the applicable provisions of the TIA, including Section 314
thereof.
(d) Any release or subordination of Collateral made in
compliance with the provisions of this Section 1405 shall be deemed for all
purposes: (i) not to impair the Security Interests or impair the security under
the Indenture in contravention of the terms or provisions of this Indenture or
the Security Documents and (ii) not to constitute in any respect or for any
purpose a breach, default or violation of any term or provision of this
Indenture or the Security Documents and to the extent that any such breach,
default or violation would otherwise result the same are hereby waived in all
respects.
(e) In addition to, and not in limitation of, any other
rights, powers or privileges of Holdings and its Subsidiaries, and
notwithstanding any provision to the contrary set forth in this Indenture or the
Security Documents, Holdings and its Subsidiaries may incur Permitted Liens.
(f) To the extent set forth in any Release Notice or
Subordination Request or in the terms, provisions or conditions of any such
release or subordination or any agreements, documents or instruments related
thereto, associated therewith or arising from or in connection with any such
release or subordination or any related or associated transaction, the terms of
Section 1017, 1018 and 1404 hereof shall (i) cease to apply to the Assets that
are the subject of such Release Notice or Subordination Request, and to any
proceeds thereof or (ii) continue to apply to such Assets and proceeds only to
the extent set forth in the terms, provisions or conditions of any such release
or subordination or of any such agreements, documents or instruments.
SECTION 1406. Reliance on Opinion of Counsel.
The Trustee shall be fully protected in taking any action
under this Article Fourteen or omitting to take any action, in reliance upon an
Opinion of Counsel, or in the case of Section 1405, an opinion of outside
counsel to the Company and the Guarantors.
SECTION 1407. Purchaser May Rely.
A purchaser in good faith of the Collateral or any part
thereof or interest therein which is purported to be transferred, granted or
released by the Trustee as provided in this Article Fourteen shall not be bound
to ascertain, and may rely on the authority of the Trustee to execute, transfer,
grant or release, or to inquire as to the satisfaction of any conditions
precedent to the exercise of such authority, or to see to the application of the
purchase price therefor.
SECTION 1408. Payment of Expenses.
On demand of the Trustee, the Company forthwith shall pay or
satisfactorily provide for the payment of all reasonable expenditures incurred
by the Trustee under this Article Fourteen, including, without limitation, the
costs of title insurance, surveys, attorneys' fees and expenses, recording fees
and taxes, transfer taxes, taxes on indebtedness and other expenses incidental
thereto and all such sums shall be a Lien upon the Collateral prior to the
Securities and shall be secured thereby.
E-57
ARTICLE FIFTEEN
MISCELLANEOUS
SECTION 1501. Counterparts.
This Indenture may be signed in any number of counterparts
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
E-58
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
GB PROPERTY FUNDING CORP.
By /s/ Timothy A. Ebling
-------------------------------------
Title: Executive Vice President
Chief Financial Officer
Attest: /s/ Frederick H. Kraus
--------------------------------
Title: Secretary
GB HOLDINGS, INC.
By /s/ Timothy A. Ebling
-------------------------------------
Title: Executive Vice President
Chief Financial Officer
Attest: /s/ Frederick H. Kraus
-----------------------------
Title: Secretary
GREATE BAY HOTEL AND CASINO, INC.
By /s/ Timothy A. Ebling
-------------------------------------
Title: Executive Vice President
Chief Financial Officer
Attest: /s/ Frederick H. Kraus
-----------------------------
Title: Secretary
WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Jane Schweiger
-------------------------------------
Title: Assistant Vice President
Attest: /s/ Curtis D. Schwegman
-----------------------------
Title: Assistant Secretary
E-59
Exhibit A
- --------------------------------------------------------------------------------
OFFICERS' CERTIFICATE
OF
GREATE BAY HOTEL AND CASINO, INC.
- --------------------------------------------------------------------------------
Reference is made to that certain Indenture dated as of ______________
(the "Indenture") among GB Property Funding Corp. (the "Company"), as Issuer, GB
Holdings, Inc. ("Holdings") and Greate Bay Hotel and Casino, Inc. ("GBHC"), as
guarantors, and Wells Fargo Bank Minnesota, N.A., as Trustee (the "Trustee").
Except as otherwise defined herein, capitalized terms used herein shall have the
meanings set forth in the Indenture.
Pursuant to Section 1008 of the Indenture, the undersigned officer of
GBHC hereby certifies to the Trustee as follows:
He is now, and at the times mentioned herein has been, the
duly elected, qualified and acting officer of GBHC as
specified below.
To his knowledge, and without regard to any period of grace
or requirements of notice under the Indenture or the
Security Documents, GBHC is in compliance with all
conditions and covenants under the Indenture or the Security
Documents.
IN WITNESS WHEREOF, I have set my hand this ____ day of ____________.
GREATE BAY HOTEL AND CASINO, INC.
t/a "Sands Hotel & Casino"
By:
-----------------------------
E-60
Schedule 1.01
Permitted Indebtedness
Mortgage in the amount of $700,000 and interest, made by Lieber Check Cashing
L.L.C., to Andermatt Corp., dated July 22, 1996.
Mortgage in the amount of $525,000 and interest made by GBHC to Ruth M. Lubin
dated January 1, 1983.
Amendment dated April 5, 2000, to Brighton Park Improvements Agreement dated
November 5, 1987, by and between Claridge at Park Place, Inc. and GBHC.
Lease Agreement dated April 17, 2000 between Claridge at Park Place, Inc. and
GBHC for Lot 11 on Block 47 Tax Map of the City of Atlantic City.
Such liens or interests as are set forth in that certain Commitment No.
102134032 for Title Insurance of Stewart Title Guaranty Company.
The lease, license or management agreement(s) with an energy management
company(s), supplier(s), or intermediary(s) related thereto now or hereafter
entered into concerning or with respect to the supply and/or management of
utility services and/or the operation of existing or newly supplied equipment at
the property, including, but not limited to heating, ventilation, and
air-conditioning and energy production related equipment.
E-61
Schedule 1.02
Permitted Affiliate Transactions
Purchase by affiliates of Carl C. Icahn of 4,625,000 shares of common stock for
a total purchase price of $65 million cash.
E-62
ANNEX F
================================================================================
GB PROPERTY FUNDING CORP.,
as Issuer,
GB HOLDINGS INC. and GREATE BAY HOTEL
and CASINO, INC.,
as Guarantors,
and
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
--------------
AMENDMENT NO. 1
Dated ____________, 2004
to
Amended and Restated Indenture
Dated as of October 12, 2001
--------------
$110 Million
11% Notes Due 2005
================================================================================
AMENDMENT NO. 1, dated __________, 2004 ("Amendment No. 1"), to the
Amended and Restated Indenture, dated as of October 12, 2001 (the "Indenture"),
among GB Property Funding Corp. (herein called the "Company"), GB Holdings, Inc.
(herein called "Holdings") and Greate Bay Hotel and Casino, Inc. (herein called
"GBHC," and, together with Holdings, herein called the "Guarantors"), each of
which is a corporation duly organized and existing, in the case of the Company
and Holdings, under the laws of the State of Delaware, and in the case of GBHC,
under the laws of the State of New Jersey, and each having its principal office
c/o Sands Hotel and Casino at Indiana Avenue & Brighton Park, Atlantic City, New
Jersey 08401, and Wells Fargo Bank Minnesota, National Association, Trustee
(herein called the "Trustee").
The Company has duly authorized and issued its 11% Notes Due 2005
(herein called "Notes" or the "Securities"), under an Indenture, dated as of
September 29, 2000 (the "Original Indenture") of substantially the tenor and
amount set forth in the Original Indenture, and to provide therefor the Company
has duly authorized the execution and delivery of the Original Indenture, as
amended and restated by the Indenture.
The Indenture is hereby modified, amended and supplemented by the
following:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
For all purposes of this Amendment No. 1, except as otherwise
expressly provided or unless the context otherwise requires:
(i) unless otherwise defined herein, all terms used herein shall
have the meaning attributed to them under the Indenture;
(ii) the terms defined in this Amendment No. 1 have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Amendment No. 1 as a whole and
not to any particular Article, Section or other subdivision.
"ACE" means ACE Gaming LLC, a New Jersey limited liability company.
"ACE Holdings" means Atlantic Coast Entertainment Holdings, Inc., a
Delaware corporation.
"Asset Transfer Transactions" means the transfer (a) by Holdings of all
of its assets (other than the stock of GBHC and the Company) to GBHC;
(b) by GBHC of substantially all of its assets, including the assets it
received from Holdings, to ACE Holdings; and (c) by ACE Holdings of all
such assets (less the cash paid to the holders of the Notes pursuant to
the Exchange and Consent) to ACE, all as contemplated in the
Prospectuses.
"Exchange and Consent" means the exchange of the Notes for notes issued
by ACE Holdings, and the solicitation of consents of holders of Notes,
and all related activities and payments, all as contemplated in the
Prospectuses.
"Merger" means (a) the merger of the Company into an entity owned by
GBHC; (b) the merger of the surviving entity and GBHC into Holdings;
and (c) any other merger transaction implemented to achieve any of the
foregoing.
"Prospectuses" means those two registration statements and
prospectuses, as amended, filed by ACE Holdings on Form S-4 with the
Securities and Exchange Commission, with respect to the Transactions.
"Section 1409 Release Notice" means a written notice of any or all of
Holdings, the Company or GBHC in the form of a Company Order, delivered
pursuant to Section 1409.
"Transactions" means the Asset Transfer Transactions, the Merger, the
Warrant Distribution, the Exchange and Consent and all of the other
acts, activities, actions and transactions contemplated in the
Prospectuses.
F-1
"Transfer" means each transfer, assignment, disposition or conveyance
occurring as part of or in connection with the Asset Transfer
Transactions.
"Transferee" means any Person that obtains or receives any Transfer of
assets in the Asset Transfer Transactions, including, without
limitation, ACE Holdings and ACE.
"Warrant Distribution" means the distribution by Holdings of shares of
common stock or warrants to acquire shares of the common stock of ACE
Holdings as contemplated in the Prospectuses.
ARTICLE II
ADDITION OF SECTION 803 TO ARTICLE EIGHTH
"CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE" OF THE
INDENTURE
Article Eight of the Indenture is hereby amended by the addition of the
following:
Section 803. Asset Transfer Transaction.
Notwithstanding any other provision of the Indenture, Holdings
and its Subsidiaries may engage without restriction in the Transactions
free and clear of: (a) any restrictions or obligations under or created
by the Indenture or any Security Documents and (b) any Security
Interests or other liens or claims under or created by the Indenture or
any Security Documents, and neither Holdings and its Subsidiaries nor
any other Person shall be required to act in accordance with the
provisions of Section 801 or 802 of the Indenture in connection
therewith or to comply with those or any other provisions of the
Indenture in connection with the Transactions. No Transferee in or
party to any Asset Transfer Transaction, or party to the Merger, shall
be: (i) required to assume any of the obligations of any person under
the Indenture or to grant, perfect or protect any Security Interests or
other lien or claim in connection therewith or otherwise; (ii) or be
deemed to be a successor to or to succeed or be substituted for, the
Company or any Guarantor in any respect; or (iii) be required to
provide any certificate or opinion to any person. Any Transferee of
assets in any Asset Transfer Transaction and any recipient of
securities in the Warrant Distribution shall obtain those assets and
securities free and clear of any obligation, guaranty, lien, claim or
encumbrance other than, with respect to any Asset Transfer Transaction,
any obligation expressly undertaken in writing in the documents
implementing such Asset Transfer Transaction.
ARTICLE III
ADDITION TO SECTION 1013 "LIMITATION ON RESTRICTED PAYMENTS"
OF THE INDENTURE
Section 1013 of the Indenture is hereby amended by the addition of the
following as the final paragraph thereof:
The provisions of this Section 1013 notwithstanding, neither the
Warrant Distribution nor any of the other Transactions, nor any portion thereof,
shall for any purpose be deemed to constitute or involve a "Restricted Payment"
or otherwise be restricted by or subject to the terms of this Section 1013, and
the provisions of this Section 1013 set forth in the preceding paragraphs shall
have no application to the Transactions in any respect.
ARTICLE IV
ADDITION TO SECTION 1017 "LIMITATION
ON ASSET SALES" OF THE INDENTURE
Section 1017 of the Indenture is hereby amended by the addition of the
following as the final paragraph thereof:
The provisions of Section 101 and this Section 1017 notwithstanding,
neither the Asset Transfer Transactions, the Merger nor any of the other
Transactions, nor any portion thereof, shall for any purpose be deemed to
constitute or involve an "Asset Sale" or otherwise be restricted by or subject
to the terms of this Section 1017, and
F-2
the provisions of this Section 1017 set forth in the preceding paragraphs shall
have no application to the Asset Transfer Transactions, the Merger or any of the
other Transactions or any portion thereof.
ARTICLE V
ADDITION TO SECTION 1019 "OWNERSHIP OF
STOCK OF SUBSIDIARY" OF THE INDENTURE
Section 1019 of the Indenture is hereby amended by the addition of the
following as the final paragraph thereof:
The provisions of this Section 1019 notwithstanding, neither the Asset
Transfer Transactions, the Merger nor any of the other Transactions, nor any
portion thereof, shall for any purpose be deemed to be restricted by or subject
to the terms of this Section 1019, and the provisions of this Section 1019 set
forth in the preceding paragraphs shall have no application to the Asset
Transfer Transactions, the Merger or any of the other Transactions or any
portion thereof.
ARTICLE VI
ADDITION TO SECTION 1020 "LIMITATION
ON TRANSACTIONS WITH AFFILIATES" OF THE INDENTURE
Section 1020 of the Indenture is hereby amended by the addition of the
following as the final paragraph thereof:
The provisions of this Section 1020 notwithstanding, neither the Asset
Transfer Transactions, the Warrant Distribution, the Exchange and Consent nor
any of the other Transactions, nor any portion thereof, shall for any purpose be
deemed to be restricted by or subject to the terms of this Section 1020, and the
provisions of this Section 1020 set forth in the preceding paragraphs shall have
no application to the Asset Transfer Transactions, the Merger or any of the
other Transaction or any portion thereof.
ARTICLE VII
ADDITION TO SECTION 1409 TO ARTICLE FOURTEENTH,
"SECURITY INTEREST" OF THE INDENTURE
Article Fourteenth of the Indenture is hereby amended by the addition
of the following:
Section 1409. Release of Liens, Termination of Security
Documents.
A Section 1409 Release Notice may be delivered in anticipation
of the Asset Transfer Transactions. A Section 1409 Release Notice (the
"Release Notice") shall be in the form of a Company Order, and shall
request that the Trustee execute one or more specifically described
release instruments, documents and agreements (which release
instruments, documents and agreements shall accompany such Section 1409
Release Notice). Additionally, the Release Notice shall (a) include a
certified copy of the Board Resolution of Holdings or any of its
Subsidiaries in which such Board of Directors approved the delivery
thereof; (b) be accompanied by an opinion of outside counsel to the
Company and the Guarantors (not by counsel which is an employee of the
Company), which counsel shall be reasonably satisfactory to the
Trustee, stating that the action contemplated by this Section 1409 is
authorized and permitted by the Indenture as modified by this Amendment
No. 1 and that all conditions precedent herein relating to such action
have been complied with; and (c) if required by the TIA, be accompanied
by certificates in accordance with Section 314 of the TIA. Upon receipt
of the Release Notice, all of the Security Interests and other Liens
created by the Security Documents or the Indenture shall, without any
further act or deed, be and be deemed to be released and terminated and
all of the Security Documents shall be terminated and shall be of no
further force or effect and in order to further evidence the foregoing,
the Trustee, at Holdings' expense, shall execute and deliver, within
one Business Day from the receipt of such Release Notice, any
instruments, documents and agreements specified by Holdings or any of
its Subsidiaries to release all or any part of the Collateral from the
Security Interests or any other Liens created by the Security Documents
or the Indenture including,
F-3
without limitation, all instruments, documents and agreements necessary
to release any and all Liens of record and to terminate the Security
Documents.
The provisions of this Section 1409 are in addition to, and not in
limitation of, any other provision of this indenture.
ARTICLE VIII
WAIVER
It is intended that the Transactions be permitted to occur and that the
same shall not be deemed to conflict with or constitute any breach of or default
under the terms of the Indenture or the Security Documents and that any existing
breach or default be waived. Therefore, in furtherance thereof and not in
limitation of any terms, provisions or conditions set forth in this Amendment
No. 1, any term, provision or condition set forth in the Indenture, the Security
Documents or any instrument, document or agreement related thereto that
conflicts with, prevents, is inconsistent with, prohibits or otherwise would be
violated by, or in connection with, the Transactions or any portion thereof, and
any breach or default that has occurred, or may occur, in respect of the
Transactions or any portion thereof, and any other breach or default under the
Indenture, the Security Documents or any instrument, documents or agreement
related thereto occurring on or prior to the execution of this Amendment No. 1,
and all consequences of the foregoing, are hereby waived in all respects and any
Event of Default arising from or in respect of any of the foregoing shall be
deemed to have been cured and released, and compliance with any such terms,
provisions and conditions is not required and may be omitted.
ARTICLE IX
SECOND AMENDED AND RESTATED INDENTURE
The Indenture is hereby further amended and restated in its entirety,
as set forth in Exhibit A hereto, which shall be effective upon the completion
of the Transaction following the delivery of a certificate, to the Trustee, from
an officer of Holdings stating that the Transaction has been completed.
ARTICLE X
MISCELLANEOUS
Section 10.1 Counterparts.
This Amendment No. 1 may be signed in any number of counterparts each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
Section 10.2 Subsidiaries.
Following the execution and delivery of this Amendment No. 1, the
Indenture shall cease to have any application to any Subsidiary of Holdings,
GBHC or the Company (other than to GBHC and the Company as Subsidiaries of
Holdings).
Section 10.3 Effect on Indenture.
Following the execution and delivery of this Amendment No. 1, the
Indenture shall be deemed to include the terms and provisions of this Amendment
No. 1.
Section 10.4. Third Party Beneficiaries.
Each Transferee shall be deemed to be a third party beneficiary of this
Amendment No. 1.
F-4
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
GB PROPERTY FUNDING CORP.
By
------------------------------------
Title:
Attest:
--------------------------------
Title:
GB HOLDINGS, INC.
By
------------------------------------
Title:
Attest:
--------------------------------
Title:
GREATE BAY HOTEL AND CASINO, INC.
By
------------------------------------
Title:
Attest:
--------------------------------
Title:
WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION
By
------------------------------------
Title:
F-5
EXHIBIT A
================================================================================
GB HOLDINGS INC.
and
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
--------------
Second Amended and Restated Indenture
Dated as of , 200
----------- -
--------------
$ Million
---
11% Notes Due 2005
================================================================================
F-A-i
GB Property Funding Corp.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of
-------
TIA INDENTURE
SECTION SECTION
------- -------
310 (a) (1)................................................607
(a) (2)................................................607
(a) (3)................................................N.A.
(a) (4)................................................N.A.
(a) (5)................................................607
(b) ...................................................604, 608
(c) ...................................................N.A.
311 ........................................................604
312 ........................................................701
313 ........................................................601, 702
314 (a) ...................................................703, 1008
(b) ...................................................N.A.
(c) (1)................................................102
(c) (2)................................................102
(c) (3)................................................N.A.
(d) ...................................................N.A.
(e) ...................................................102
(f) ...................................................N.A.
315 (a) ...................................................602
(b) ...................................................601
(c) ...................................................602
(d) ...................................................602
(e) ...................................................N.A.
316 (a) (last sentence)....................................101("Outstanding")
(a) (1) (A)............................................512
(a) (1) (B)............................................513
(a) (2)................................................N.A.
(b) ...................................................508
(c) ...................................................104(d)
317 (a) (1)................................................503
(a) (2)................................................504
(b) ...................................................1003
318 (a) ...................................................111
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
F-A-ii
TABLE OF CONTENTS (1)
PARTIES.......................................................................1
RECITALS......................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.....................................................1
Section 102. Compliance Certificates and Opinions............................8
Section 103. Form of Documents Delivered to Trustee..........................9
Section 104. Acts of Holders.................................................9
Section 105. Notices, etc., to Trustee, Company and Guarantors...............10
Section 106. Notice to Holders; Waiver.......................................10
Section 107. Effect of Headings and Table of Contents........................11
Section 108. Successors and Assigns..........................................11
Section 109. Separability Clause.............................................11
Section 110. Benefits of Indenture...........................................11
Section 111. Governing Law...................................................11
Section 112. Legal Holidays..................................................11
Section 113. Casino Control Act..............................................11
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.................................................12
Section 202. Form of Face of Notes...........................................12
Section 203. Form of Reverse of Notes........................................13
Section 204. Form of Trustee's Certificate of Authentication.................15
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.................................................15
Section 302. Denominations...................................................15
Section 303. Execution, Authentication, Delivery and Dating..................16
Section 304. Temporary Securities............................................16
Section 305. Registration, Registration of Transfer and Exchange.............17
Section 306. Mutilated, Destroyed, Lost and Stolen Securities................17
Section 307. Payment of Interest; Interest Rights Preserved..................18
Section 308. Persons Deemed Owners...........................................19
Section 309. Cancellation....................................................19
Section 310. Computation of Interest.........................................19
Section 311. Maximum Interest Rate...........................................19
- --------------
(1) This table of contents shall not, for any purpose, be deemed to be a part
of this Indenture.
F-A-iii
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture.........................19
Section 402. Application of Trust Money......................................20
ARTICLE FIVE
REMEDIES
Section 501. Events of Default...............................................21
Section 502. Acceleration of Maturity; Rescission and Annulment..............21
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.......................................................22
Section 504. Trustee May File Proofs of Claim................................23
Section 505. Trustee May Enforce Claims Without Possession of Securities.....23
Section 506. Application of Money Collected..................................23
Section 507. Limitation on Suits.............................................24
Section 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest......................................................24
Section 509. Restoration of Rights and Remedies..............................24
Section 510. Rights and Remedies Cumulative..................................24
Section 511. Delay or Omission Not Waiver....................................24
Section 512. Control by Holders..............................................25
Section 513. Waiver of Defaults and Compliance...............................25
ARTICLE SIX
THE TRUSTEE
Section 601. Notice of Defaults..............................................25
Section 602. Certain Rights of Trustee.......................................25
Section 603. Trustee Not Responsible for Recitals or Issuance of Securities..26
Section 604. May Hold Securities.............................................27
Section 605. Money Held in Trust.............................................27
Section 606. Compensation and Reimbursement..................................27
Section 607. Corporate Trustee Required: Eligibility.........................27
Section 608. Resignation and Removal; Appointment of Successor...............28
Section 609. Acceptance of Appointment by Successor..........................28
Section 610. Merger, Conversion, Consolidation or Succession to Business.....29
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTORS
Section 701. Disclosure of Names and Addresses of Holders....................29
Section 702. Reports by Trustee..............................................29
Section 703. Reports by Company..............................................30
F-A-iv
ARTICLE EIGHT
CONSOLIDATION AND MERGER
Section 801. Company May Merge and Consolidate...............................31
Section 802. Successor Substituted...........................................31
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Amendments Without Consent of
Holders.......................................................31
Section 902. Supplemental Indentures and Amendments with Consent of Holders..32
Section 903. Execution of Supplemental Indentures and Amendments.............32
Section 904. Effect of Supplemental Indentures...............................33
Section 905. Conformity with Trust Indenture Act.............................33
Section 906. Reference in Securities to Supplemental Indentures..............33
Section 907. Notice of Supplemental Indentures and Amendments................33
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium, if any, and Interest.............33
Section 1002. Maintenance of Office or Agency.................................33
Section 1003. Money for Security Payments to Be Held in Trust.................34
Section 1004. Corporate Existence.............................................34
Section 1005. Payment of Taxes and Other Claims...............................35
Section 1006. Maintenance of Properties.......................................35
Section 1007. [Intentionally Omitted].........................................35
Section 1008. Statement by Officers as to Compliance..........................35
Section 1009. Statement by Officers of Certain Defaults.......................35
Section 1010. [Intentionally Omitted].........................................35
Section 1011. [Intentionally Omitted].........................................35
Section 1012. [Intentionally Omitted].........................................35
Section 1013. Limitation on Restricted Payments...............................35
Section 1014. [Intentionally Omitted].........................................35
Section 1015. [Intentionally Omitted].........................................35
Section 1016. [Intentionally Omitted].........................................35
Section 1017. Limitation on Asset Sales.......................................36
Section 1018. [Intentionally Omitted].........................................36
Section 1019. [Intentionally Omitted].........................................36
Section 1020. [Intentionally Omitted].........................................36
Section 1021. [Intentionally Omitted].........................................36
Section 1022. [Intentionally Omitted].........................................36
Section 1023. [Intentionally Omitted].........................................36
Section 1024. [Intentionally Omitted].........................................36
Section 1025. [Intentionally Omitted].........................................36
Section 1026. [Intentionally Omitted].........................................36
Section 1027. [Intentionally Omitted].........................................36
F-A-v
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Optional Redemption............................................36
Section 1102. Applicability of Article.......................................36
Section 1103. Election to Redeem; Notice to Trustee..........................37
Section 1104. Selection by Trustee of Securities to Be Redeemed..............37
Section 1105. Notice of Redemption...........................................37
Section 1106. Deposit of Redemption Price....................................38
Section 1107. Securities Payable on Redemption Date..........................38
Section 1108. Securities Redeemed in Part....................................38
Section 1109. Redemption Pursuant to Gaming Laws.............................38
ARTICLE TWELVE
[INTENTIONALLY OMITTED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance...39
Section 1302. Defeasance and Discharge.......................................39
Section 1303. Covenant Defeasance............................................39
Section 1304. Conditions to Defeasance or Covenant Defeasance................40
Section 1305. Deposited Money and U.S. Government Obligations To Be Held in
Trust; Other Miscellaneous Provisions........................41
Section 1306. Reinstatement..................................................41
ARTICLE FOURTEEN
INTENTIONALLY OMITTED
ARTICLE FIFTEEN
MISCELLANEOUS
Section 1501. Counterparts...................................................42
Exhibit A
TESTIMONIUM...................................................................
SIGNATURE AND SEALS...........................................................
F-A-vi
SECOND AMENDED AND RESTATED INDENTURE, dated as of ____, 200_ among GB
Holdings, Inc. (herein called the "Company"), successor by merger (the "Merger")
to GB Property Funding Corp. (herein called "Funding"), and Greate Bay Hotel and
Casino, Inc. (herein called "GBHC," and, together with Funding, herein called
the "Merged Companies"), which is a corporation duly organized and existing,
under the laws of the State of Delaware, and having its principal office c/o
Sands Hotel and Casino at Indiana Avenue & Brighton Park, Atlantic City, New
Jersey 08401, and Wells Fargo Bank Minnesota, National Association, Trustee
(herein called the "Trustee").
The Company, the Merged Companies and the Trustee were parties to an
Amended and Restated Indenture, dated as of October 12, 2001 (the "First Amended
and Restated Indenture") which was further amended by Amendment No. 1 thereto
("Amendment No. 1"). Funding authorized and issued its 11% Notes Due 2005
(herein called "Notes" or the "Securities"), under an indenture, dated as of
September 29, 2000 (the "Original Indenture") of substantially the tenor and
amount set forth in the Original Indenture in the original principal amount of
$110 million. As a result of an exchange transaction completed on or about the
date of this indenture, the remaining outstanding principal amount of the Notes
is $_____. To provide therefor, the Company has duly authorized the execution
and delivery of the Original Indenture, as amended and restated by the Amended
and Restated Indenture, Amendment No. 1 to the First Amended and Restated
Indenture and this Second Amended and Restated Indenture (this "Indenture").
Each of GBHC and the Company were guarantors of the Securities. By
virtue of the Merger of GBHC and Funding into the Company, the Company has
succeeded to all of the obligations of GBHC and Funding in respect of the
Securities and has become the obligor thereof. Any reference herein or in any of
the Securities to the Company, GBHC, Holdings "Guarantors" or any guarantor or
issuer of the Notes shall, for all purposes, be deemed to refer only to the
Company.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(i) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(ii) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper," as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(iii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation;
(iv) [intentionally omitted]; and
F-A-1
(v) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any Person means any other Person that, directly or
indirectly, controls, is controlled by or is under direct or indirect common
control with, such Person and with respect to any natural Person, any other
Person having a relationship by blood, marriage or adoption, not more remote
than first cousins with such natural Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock or other equity interests, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Amortization Expense" means, for any Person for any period, the amount
of the amortization expense (including, without limitation, the write-down of
non-current assets, including CRDA Investments) that is reflected on the
financial statements of such Person and its Subsidiaries consolidated in such
financial statements for such period in accordance with GAAP.
"Asset Sale" means, as applied to any Person, any direct or indirect
sale, conveyance, transfer, lease or other disposition (other than a
Sale-Leaseback Transaction) by such Person or any Subsidiary of such Person to
any Person other than such Person or a wholly-owned Subsidiary of such Person,
in one transaction or a series of related transactions, of any Capital Stock of
any Subsidiary of such Person or other similar equity interest of such
Subsidiary or any other property or asset of such Person or any Subsidiary of
such Person (provided that the term "Asset Sale" shall not include (a) sales,
conveyances, transfers, leases or other dispositions in the ordinary course of
business; (b) all other dispositions pursuant to which such Person receives,
directly or indirectly, Net Cash Proceeds or fair market value of less than or
equal to $5,000,000 in the aggregate in any twelve month period; and (c) sales,
conveyances, transfers, leases or other dispositions of CRDA Investments.
"Assets" means, as applied to any Person, any tangible or intangible
assets, or rights or real or personal properties of such Person or any of its
Subsidiaries including capital stock of Subsidiaries.
"Board of Directors" means either the board of directors of a Person or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of a Person to have been duly adopted by the
Board of Directors of such Person and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or the State of New Jersey are authorized or obligated by law or executive order
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after such date, and any and all rights,
warrants or options exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the purpose
hereof, the amount of such obligation at any date of determination shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means any of the following, to the extent owned by
Holdings or any of its Subsidiaries free and clear of all Liens (other than
Liens in favor of the Trustee or the Holders) and having a maturity of not
greater than 270 days from the date of acquisition: (a) any evidence of
Indebtedness issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof): (b) insured certificates of deposit or acceptances of any commercial
bank that is a member of the Federal Reserve System, that
F-A-2
issues (or the parent of which issues) commercial paper rated as described in
clause (c) below and that has combined capital and surplus and undivided profits
of not less than $100,000,000; (c) commercial paper issued by a corporation
(except an Affiliate of Holdings) organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 (or the then
equivalent grade) by Standard & Poor's Corporation or at least Prime-1 (or the
then equivalent grade) by Moody's Investors Service, Inc.; and (d) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States government
or issued by any agency thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof); provided that the terms
of such agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency.
"Casino Control Act" means the New Jersey Casino Control Act, N.J.
Stat. Ann. 5:12-1 et seq. (New Jersey Public Law 1977, C.110), and the
regulations promulgated thereunder, N.J.A.C. 19:40-1.1 et seq., as from time to
time amended, or any successor provision of law.
"Casino Control Commission" means the New Jersey Casino Control
Commission as established by Section 50 of the Casino Control Act or any
successor agency appointed pursuant to the Casino Control Act.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or, if
at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Company" means GB Holdings, Inc., until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 6th and Marquette, MAC N9303-120, Minneapolis, MN 55479, except that
with respect to presentation of Securities for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the Trustee
at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"CRDA Investments" means Investments in securities issued by, and
monies deposited with, the Casino Reinvestment Development Authority of the
State of New Jersey.
"Default" means any Event of Default, or an event that would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both.
"Defaulted Interest" has the meaning specified in Section 307.
"Disqualified Holders" shall have the meaning provided in Section 1109.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock or other similar ownership or profit interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
exchangeable for Indebtedness, or is redeemable at the option of the holder
thereof, in whole or in part, on or before the Maturity Date of the Securities.
F-A-3
"Division of Gaming Enforcement" means the Division of Gaming
Enforcement of the New Jersey Department of Law and Public Safety as established
by Section 55 of the Casino Control Act or any successor division or agency.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchanged Amount" means the principal amount of Securities exchanged
in the Exchange Offer.
"Exchange Offer" means that certain offer for the exchange of Notes set
forth in a prospectus of Atlantic Coast Entertainment Holdings, Inc., dated
___________, 2004.
"Fair Market Value" or "fair value" means either, (a) with respect to
any asset or property, the price which could be negotiated in an arm's-length
free market transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction (the "Arm's Length Value") as determined by the Board of Directors
of the Company acting in good faith and evidenced by a Board Resolution
delivered to the Trustee or (b) with respect to any asset or property, any value
within a range of values determined to reflect the Arm's Length Value by an
investment banking firm retained by the Company or the Board.
"Federal Bankruptcy Code" means the 1978 Bankruptcy Act of Title 11 of
the United States Code, as amended from time to time.
"FF&E Financing" means Indebtedness, the proceeds of which will be used
solely to finance the acquisition or lease of furniture, fixtures or equipment
("FF&E") used by the Person incurring such Indebtedness in the ordinary course
in the operation of a Permitted Line of Business and secured by a Lien on such
FF&E.
"GAAP" means generally accepted accounting principles 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 that are applicable as of the Issue
Date.
"Gaming Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States federal government or foreign government, any state, province
or any city or other political subdivision or otherwise and whether now or
hereafter in existence, or any officer or official thereof with authority to
regulate any gaming operation (or proposed gaming operation) owned, managed, or
operated by Holdings or any of its Subsidiaries.
"Gaming Laws" means each gaming law of any applicable Gaming Authority
as amended from time to time, and the regulations promulgated and rulings issued
thereunder applicable to Holdings or any of its Subsidiaries or shareholders.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"incur" means to directly or indirectly create, assume, suffer to
exist, guarantee in any manner, or in any manner become liable for the payment
of.
"Indebtedness" of any Person means (a) any liability, contingent or
otherwise, of such Person (whether or not the recourse of the lender is to the
whole of the assets of such Person, or only to a portion thereof), (i) for
borrowed money evidenced by a note, bond, debenture or similar instrument,
letters of credit, acceptances or other similar facilities (other than a trade
payable or a current liability incurred in the ordinary course of business) or
(ii) for the payment of money relating to a Capitalized Lease Obligation or
other obligation relating to the deferred purchase price of property or services
(including a purchase money obligation); (b) any liability of others of the kind
described in the preceding clause (a) which such Person has guaranteed
including, without limitation, (i) to pay or purchase such liability; (ii) to
supply funds to or in any other manner invest in the debtor (including an
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered; and (iii) to purchase, sell or lease
(as lessee or lessor) property or to purchase or sell services,
F-A-4
primarily for the purpose of enabling a debtor to make a payment of such
Indebtedness or to assure the holder of such Indebtedness against loss; (c) any
obligation secured by a Lien to which the property or assets of such Person are
subject, whether or not the obligations secured thereby shall have been assumed
by or shall otherwise be such Person's legal liability; (d) all obligations of
such Person to purchase, redeem, retire, defease or otherwise make any payment
in respect of any Capital Stock of or other ownership or profit interest in such
Person or any of its Affiliates or any warrants, rights or options to acquire
such Capital Stock, valued, in the case of Disqualified Stock, at the greater of
its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends; (e) all Interest and Currency Rate Protection Obligations; and (f)
any and all deferrals, renewals, extensions and refundings of any liability of
the kind described in any of the preceding clauses.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented, changed, modified or amended (by any addition
to or elimination of, the provisions hereof, or otherwise) by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof.
"Independent," when used with respect to any Person, means such other
Person who (a) does not have any material financial interest in the Company or
in any Affiliate of the Company and (b) is not an officer, employee, promoter,
underwriter, trustee, partner or person performing similar functions for the
Company or a spouse, family member or other relative of any such Person;
provided, that with respect to any director of any corporation, such director
shall also be deemed to be "Independent" if such director meets the requirements
for independence established by any "national securities exchange" (as
contemplated in the Securities Exchange Act of 1934) for audit committee
membership. Whenever it is provided in this Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by the Company.
"Interest and Currency Rate Protection Obligations" means the
obligations of any Person pursuant to any interest rate swap, cap or collar
agreement, interest rate future or option contract, currency swap agreement,
currency future or option contract and other similar agreement designed to hedge
against fluctuations in interest rates or foreign exchange rates.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Investment" in any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (including,
without limitation, transfers of cash or other property to others or payments
for property or services for the account or use of others (excluding unbilled or
uncollected receivables), or otherwise), or purchase or acquisition of Capital
Stock, warrants, rights, options, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person or Indebtedness of any
other Person secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.
"Issue Date" means September 29, 2000.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security, or other security
agreement of any kind or nature whatsoever. For purposes of this Indenture, a
Person shall be deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, or other title retention agreement relating to such
Person.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Maturity Date," when used with respect to any Security, means the date
specified in such Security as the fixed date on which the final installment of
principal of such Security is due and payable.
"Net Cash Proceeds" means, with respect to any Asset Sale the proceeds
thereof in the form of cash or Cash Equivalents received by the Company (whether
as initial consideration, through the payment or disposition of deferred
compensation or the release of reserves), after deducting therefrom (without
duplication): (a) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finders fees and
F-A-5
other similar fees and expenses incurred in connection with such Asset Sale; (b)
provisions for all taxes payable as a result of such Asset Sale; (c) payments
made to retire Indebtedness (other than payments on the Securities) secured by
the assets subject to such Asset Sale to the extent required pursuant to the
terms of such Indebtedness; and (d) appropriate amounts to be provided by the
Company as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, in each case to
the extent, but only to the extent, that the amounts so deducted are, at or
around the time of receipt of such cash or Cash Equivalents, actually paid to a
Person that is not an Affiliate of the Company or, in the case of reserves, are
actually established and, in each case, are properly attributable to such Asset
Sale .
"Net Income" means, with respect to any Person for any period, the net
income (or loss) of such Person determined in accordance with GAAP.
"Officers' Certificate" for any Person means a certificate signed by
the Chairman, the President, Executive Vice President or a Vice President, and
by the Chief Financial Officer or the Secretary of such Person, and delivered to
the Trustee.
"Opinion of Counsel" means a written opinion of counsel for the Company
or any of the Guarantors or any of their respective Affiliates, including an
employee of any such Person, or any other counsel reasonably acceptable to the
Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Securities, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Thirteen; and
(iv) Securities in respect of which, pursuant to Section 306, other
Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands the Securities
are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder or taken any other
action, Securities owned by Holdings or its Subsidiaries shall be disregarded
and deemed not to be Outstanding (but the Securities of any other Affiliates
shall be deemed for all such purposes to be Outstanding). In determining whether
the Trustee shall be protected in making such calculation or in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities owned by Holdings or its Subsidiaries which the Trustee knows to be
so owned shall be so disregarded. Securities owned by Holdings or its
Subsidiaries which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company, a Guarantor or a Subsidiary of Holdings.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any,
on) or interest on any Securities on behalf of the Company.
F-A-6
"Permitted Investment" means the direct or indirect acquisition, repair
or restoration of property or other Assets (including, without limitation,
Securities of any person possessing any such Asset or with rights to, any
Assets).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends on or to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means 100% of the principal amount of such Security, together with
accrued, unpaid interest.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the September 14 or March 14 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Payment" means either of the following: (a) the declaration
or payment of any dividend or any other distribution on Common Stock of the
Company or any payment made to the direct or indirect holders (in their
capacities as such) of Common Stock of the Company in respect of that stock
(other than dividends or distributions payable solely in Capital Stock (other
than Disqualified Stock) or (b) the purchase, defeasance, redemption or other
acquisition or retirement for value of any Common Stock of the Company.
"Sale-Leaseback Transaction" means any arrangement with any Person
providing for the leasing by Holdings or any Subsidiary of any real or tangible
personal property, which property has been or is to be sold or transferred by
the Company to such Person or its Affiliates in contemplation of such leasing.
"Sands" means the Sands Hotel and Casino located in Atlantic City, New
Jersey.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
F-A-7
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable, including pursuant
to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof).
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate of which (or in which) more than 50% of (a) the issued
and outstanding Capital Stock having ordinary voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency); (b) the
interest in the capital or profits of such partnership or joint venture; or (c)
the beneficial interest in such trust or estate, is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States Government Obligations" means securities which are (a)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (b) obligations of a Person, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only as long as no
senior class of securities has such voting power by reason of any contingency.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008) shall include:
(i) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
F-A-8
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture or otherwise to be given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
F-A-9
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefore or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(f) For the purpose of the Company complying with any requirement of
the Casino Control Commission, or the Division of Gaming Enforcement or of the
Casino Control Act, every holder, intermediary holder, intermediary beneficial
holder and beneficial holder of a Security shall be deemed to authorize any
Holder and any other holder, intermediary holder, intermediary beneficial holder
and beneficial holder of a Security, upon written request of an Officer of the
Company, or the Trustee expressing reliance on this Section and enclosing a copy
of this Section, to release, and any such holder, intermediary holder,
intermediary beneficial holder and beneficial holder shall be required to
release, to the Company, or the Trustee, as the case may be, the name, address,
telephone number, principal contact person, and amount of such holdings,
intermediary holdings, intermediary beneficial holdings and beneficial holdings
of Securities of each such holder, intermediary holder, intermediary beneficial
holder and beneficial holder of a Security.
SECTION 105. Notices, etc., to Trustee, Company and Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(i) the Trustee by any Holder or the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or
(ii) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, with a copy to: Sands Hotel and Casino,
Indiana Avenue and Brighton Park, Atlantic City, N.J. 08401, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
Any notices hereunder that are required to be given to the Casino
Control Commission shall be addressed to: Document Control Unit, Casino Control
Commission, Tennessee Avenue and the Boardwalk, Arcade Building, Atlantic City,
New Jersey 08401, Attention: Chief of Administrative Operations. Any notices
hereunder that are required to be given to the Division of Gaming Enforcement
shall be addressed to: Division of Gaming Enforcement, 140 East Front Street,
CN-047, Trenton, New Jersey 08625, Attention: Deputy Director for the Division
of Gaming Enforcement.
F-A-10
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture shall bind its
successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York. This Indenture is subject to
the provisions of the Trust Indenture Act of 1939, as amended, that are required
to be part of this Indenture and shall, to the extent applicable, be governed by
such provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, sinking
fund payment date or Stated Maturity or Maturity of any Security shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Securities) payment of interest or principal (and premium, if any) need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date, Redemption
Date or sinking fund payment date, or at the Stated Maturity or Maturity;
provided that no interest shall accrue on such payment for the period from and
after such Interest Payment Date, Redemption Date, sinking fund payment date,
Stated Maturity or Maturity, as the case may be.
SECTION 113. Casino Control Act.
Notwithstanding the provisions of Section 111 hereof, each of the
provisions of this Indenture is subject to and shall be enforced in compliance
with the provisions of the Casino Control Act, to the extent applicable, and the
regulations promulgated thereunder, unless such provisions are in conflict with
the TIA, in which case the TIA shall control. The Securities are to be held
subject to the condition that if a holder thereof is found to be disqualified by
the Casino Control Commission pursuant to the provisions of the Casino Control
Act, such holder shall dispose of the Securities in accordance with the
provisions of Section 1109 hereof. The Company shall have the right to
repurchase the Securities at the lowest of (a) the principal amount thereof; (b)
the amount which the Disqualified Holder or beneficial owner paid for the
Securities, together with accrued interest up to the date of the determination
of disqualification; or (c) the market value of such Securities.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and
F-A-11
such legends or endorsements placed thereon as may be required to comply with
the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution of the Securities. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security.
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. Form of Face of Notes. From and after the effective date
of the merger, certificates to be issued to evidence the Security shall be as
follows:
GB HOLDINGS INC.
From and after the effective date of the Merger, certificates to be
issued to evidence the Security shall be as follows:
11% Note Due 2005
No. $
----------------------- -----------------------
GB Holdings Inc., a Delaware corporation (herein called the "Holdings,"
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to _________ or
registered assigns, the principal sum of __________ U.S. Dollars on September
29, 2005 at the office or agency of the Company referred to below, and to pay
interest thereon on March 29, 2001 and thereafter, on September 29 and March 29
in each year, from September 29, 2000, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, at the rate of 11%
per annum, until the principal hereof is paid or duly provided for.
Notwithstanding anything contained herein, the rate of interest on the
Securities shall not exceed the highest rate permitted by law. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
September 14 or March 14 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for shall forthwith cease to be payable to the Holder on
such Regular Record Date, and such defaulted interest may be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Payment of the principal
of (and premium, if any, on) and interest on this Security will be made at the
office or agency of the Company maintained for that purpose in The City of New
York, or at such other office or agency of the Company as may be maintained for
such purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of the
Company (a) by check mailed to the address of the Person entitled thereto as
such address shall appear on the Security Register or (b) by transfer to an
account maintained by the payee located in the United States.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place. Unless the certificate of
authentication hereon has been duly executed by the Trustee referred to on the
reverse hereof by manual signature, this Security shall not be entitled to any
benefit under the Indenture, or be valid or obligatory for any purpose.
F-A-12
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: GB HOLDINGS INC.
By
----------------------------
Attest:
-----------------------------
Authorized Signature
SECTION 203. Form of Reverse of Notes.
This Security is one of a duly authorized issue of securities of the
Company designated as its 11% Notes Due 2005 (herein called the "Securities"),
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $110 million, which may be issued under an
indenture (herein called the "Indenture"), dated as of September 29, 2000
between the GB Property Funding Corp., GB Holdings, Inc. and Greate Bay Hotel
and Casino, Inc. and Wells Fargo Bank Minnesota, National Association, trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. Interest on the
Securities shall be computed on the basis of a 360-day year of twelve 30-day
months.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice, at any time after January 1, 2001, as a whole or in part,
at the election of the Company, at a Redemption Price equal to 100% of the
principal amount, together in the case of any such redemption with accrued,
unpaid interest, if any, to the Redemption Date, all as provided in the
Indenture.
Each of the provisions of this Security is subject to and shall be
enforced in compliance with the provisions of the Casino Control Act and the
regulations promulgated thereunder, to the extent applicable.
Each Holder by accepting a Security agrees that all Holders, whether
initial holders or subsequent transferees, shall be subject to the qualification
provisions of the Casino Control Act. As set forth more fully in the Indenture,
in the event that the Casino Control Commission determines that a Holder is not
qualified under the Casino Control Act, the Company shall have the absolute
right and obligation to purchase from such Holder (the "Disqualified Holder")
the Securities the Disqualified Holder may then possess, no later than
forty-five days after the date that the Company serves notice on any
Disqualified Holder of such determination. Immediately upon such determination,
the Disqualified Holder shall have (a) no further right to exercise, directly or
through any trustee or nominee, any right conferred by its Securities or (b) no
further right to receive any dividends, interest, or other distribution or
payment with respect to any such Securities. In the event a Disqualified Holder
fails to so sell its Securities within 30 days after the determination by the
Casino Control Commission, the Company shall purchase such Securities within 15
days after the end of such 30 day period at the lowest of (i) the principal
amount thereof; (ii) the amount which the Disqualified Holder paid for the
Securities, together with accrued interest up to the date of the determination
of disqualification; or (c) the market value of such Securities.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities, of record
at the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
F-A-13
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of the Company on this Security and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such amendment,
modification, consent or waiver by or on behalf of the Holder of this Security,
or otherwise in accordance with the terms of the Indenture, shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation thereof is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amounts will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
Each Guarantor (which term includes any successor Person under the
Indenture) has unconditionally guaranteed, to the extent set forth in the
Indenture and subject to the provisions in the Indenture, (a) the due and
punctual payment of the principal of and interest on the Securities, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on overdue principal, and, to the extent permitted by law, interest, and the due
and punctual performance of all other obligations of the Company to the Holders
or the Trustee all in accordance with the terms set forth in the Indenture and
(b) in case of any extension of time of payment or renewal of any Securities or
any of such other obligations, that the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at Stated Maturity, by acceleration or otherwise.
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially
the following form:
F-A-14
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned Indenture.
Wells Fargo Bank Minnesota, National
Association, as Trustee
By:
----------------------------------
Authorized Officer
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
(a) The aggregate principal amount of securities which may be
authenticated and delivered under this Indenture is limited to $110 million
(reduced by the Exchanged Amount), except for securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other securities.
(b) The Notes shall be known and designated as the "11% Notes Due 2005"
of the Company. Their Stated Maturity shall be September 29, 2005, and they
shall bear interest at the rate of 11% per annum from September 29, 2000, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, payable on March 29, 2001 and semiannually thereafter on
September 29 and March 29 in each year and at said Stated Maturity, until the
principal thereof is paid or duly provided for.
(c) The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
(d) The Securities shall be redeemable as provided in Article Eleven.
(e) If the Company is served with notice of the disqualification of any
Holder under Section 105(d) of the Casino Control Act by the Casino Control
Commission, such Holder will be prohibited under Section 105(e) of the Casino
Control Act from (i) receiving interest on the Securities held by such Holder;
(ii) exercising, directly or through any trustee or nominee, any right conferred
on such Securities; and (iii) receiving any remuneration in any form from any
Person licensed or qualified by the Casino Control Commission (including the
Company, the Guarantors and the Trustee) for services rendered or otherwise.
Notwithstanding the foregoing, the Trustee shall be entitled to exercise all
rights with respect to the Securities held by such Holder including, but not
limited to, accelerating the Securities (any monies or securities received by
the Trustee on behalf of such Holder to be held in trust for such Holder
pursuant to Section 605 hereof). If the Trustee exercises voting rights with
respect to such Securities, such votes shall be cast in the same proportion as
the votes of the other Outstanding Securities are cast on such issue. A copy of
any notice served upon the Company as described above shall be promptly
delivered by the Company to the Trustee. Any such notice to the Trustee shall be
effective against the Trustee on the second Business Day after receipt thereof
by a Responsible Officer of the Trustee.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman, its President, a Vice President, or the Chief Financial Officer. The
signature of any officer on the Securities may be manual or
F-A-15
facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being
F-A-16
herein sometimes referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Securities and of transfers of Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times, the
Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as security registrar (the "Security Registrar") for
the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount
and like terms.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount and like terms, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges not involving any transfer.
The Company shall not be required (a) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption or (b) to register the transfer of or exchange any Security
so selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
F-A-17
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
option be paid by (a) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of such Person as it appears in the Security Register or (b) transfer to
an account maintained by the payee located in the United States.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest ("Defaulted Interest") may be paid by
the Company, at its election in each case, as provided in clause (i) or (ii)
below:
(i) the Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (ii); or
(ii) the Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Sections 305 and 307) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
F-A-18
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. Maximum Interest Rate.
Regardless of any provision contained herein or in the Securities, the
Holders shall not be entitled to receive, collect or apply as interest (whether
termed interest in the documents or deemed to be interest by judicial
determination or operation of law) on the Securities, any amount in excess of
the maximum amount allowed by applicable law, and, if any Holder ever receives,
collects or applies as interest any such excess, the amount that would be
excessive interest shall be deemed to be a partial prepayment of principal and
treated hereunder as such; and, if the principal amount of the Securities is
paid in full, any remaining excess shall forthwith be paid to the Company. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the maximum amount of interest allowed by applicable law,
the Company and the Holders shall, to the maximum extent permitted under
applicable law, (a) characterize any nonprincipal payment as an expense fee, or
premium rather than interest; (b) exclude voluntary prepayments and the effects
thereof; and (c) amortize, prorate, allocate and spread, in equal parts, the
total amount of interest throughout the entire contemplated term of the
Securities.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities herein expressly provided for) and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when:
(i) either
(A) all Securities theretofore authenticated and delivered (other
than (1) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (2)
Securities for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(1) have become due and payable, or
F-A-19
(2) will become due and payable at their Stated Maturity within
one year, or
(3) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (1), (2) or (3) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(ii) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(iii) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for in this Section 401 relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003, shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money and property deposited with the Trustee pursuant to Section 401 shall be
held in trust and, at the direction of the Company, be invested prior to
Maturity in United States Government Obligations, and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for whose
payment such money has been deposited with the Trustee; but such money need not
be segregated from other funds except to the extent required by law. Any funds
remaining following payment of all Securities and all other obligations of the
Company hereunder shall be the property of the Company.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(ii) default in the payment of any principal of (or premium, if any,
on) any Security at its Maturity; or
(iii) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in this Section), and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or
F-A-20
to the Company and the Trustee by the Holders of a majority in principal
amount of the Outstanding Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder, unless the Company, is
proceeding, and continues to proceed, diligently to cure any such default;
or
(iv) [intentionally omitted]; or
(v) [intentionally omitted]; or
(vi) [intentionally omitted]; or
(vii) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition or in respect of the Company under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of their respective affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 90 consecutive days; or
(viii) the institution by the Company of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other applicable federal or state law or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due; or
(ix) [intentionally omitted]; or
(x) [intentionally omitted]; or
(xi) [intentionally omitted].
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(vii) or 501(viii)) occurs and is continuing, then and in every such
case, the Trustee and the Holders of not less than a majority in principal
amount of the Securities Outstanding may declare the principal amount of all the
Securities to be due and payable immediately, by a notice in writing to the
Company, and upon any such declaration such principal amount shall become
immediately due and payable. If an Event of Default specified in Section
501(vii) or 501(viii) occurs and is continuing, then the principal amount of all
the Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee and any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Securities Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(i) the Company has paid or deposited with the Trustee a sum sufficient
to pay,
(A) all Defaulted Interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Securities; and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
F-A-21
(ii) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(i) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(ii) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any), and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in any Security
Document or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, or the property of the Company, the
Trustee (irrespective of whether the principal of the Securities shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding; and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition
F-A-22
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money and property collected by the Trustee pursuant to this
Article or in connection with the exercise of remedies under any Security
Document shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 606;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if any, on,) and interest on the Securities in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Securities for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) the Holders of a majority in principal amount of the Outstanding
Securities shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(ii) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(iii) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(iv) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Section 507 to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any of the Securities shall have the right, which is absolute and unconditional,
to receive payment, as provided herein (including, if applicable, Article
Thirteen) and in the terms of each note representing such Securities of the
principal of (and premium, if any, on) and (subject to Section 307) interest on,
such Securities on the respective Stated Maturities
F-A-23
expressed in such Securities (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Security Document and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or any
Security Document or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
SECTION 512. Control by Holders.
Notwithstanding anything to the contrary set forth in Section 316(a) of
the TIA (the provisions of which are hereby excluded), the Holders of not less
than a majority in principal amount of the Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee under this Indenture, provided that
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(iii) the Trustee need not take any action which might involve it in
personal liability unless it has obtained appropriate indemnity.
SECTION 513. Waiver of Defaults and Compliance.
Notwithstanding anything to the contrary set forth in Section 316(a) of
the TIA (the provisions of which are hereby excluded) the Holders of not less
than a majority in principal amount of the Outstanding Securities may on behalf
of the Holders of all the Securities:
(i) waive any past default hereunder and its consequences, except a
default in respect of the payment of the principal of (or premium, if any, on)
or interest on any Security, and upon any such waiver, such default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured and released, for every purpose of this Indenture; but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any right consequent thereon; and
(ii) waive future compliance with any term, provision or condition of
this Indenture or any related instruments, agreements or documents (but no such
waiver shall extend to or affect such term, provision or
F-A-24
condition except to the extent so expressly waived), in which event the Company
may omit to comply with any such term, provision or condition of this Indenture
or any related instrument, agreement or document.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any, on) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders. The Trustee shall not be deemed to have knowledge of any Default or
Event of Default hereunder unless a Responsible Officer in its Corporate Trust
Department shall have actual knowledge thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(i) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(ii) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(iii) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(iv) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(v) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(vi) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(vii) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
F-A-25
(viii) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
The Trustee and its directors, officers, employees and Affiliates shall
cooperate with the Casino Control Commission and the Division of Gaming
Enforcement and provide such information and documentation as may from time to
time be requested by such agencies.
The Trustee may rely on, and shall be protected with respect to any
action taken or omitted to be taken in good faith in accordance with, the
direction of the Holders of not less than a majority in principal amount of
Outstanding Securities.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in a Statement of Eligibility and Qualification of Form T-1 supplied to the
Company are true and accurate, subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Securities or the proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to TIA Sections
310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 605. Money Held in Trust.
Except as otherwise provided herein, money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise provided herein or agreed with the
Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(i) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust); and
(ii) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(iii) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against
F-A-26
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder or thereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any, on) or interest
on particular Securities.
SECTION 607. Corporate Trustee Required: Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) Subject to the provisions of the Casino Control Act, the Trustee
may resign at any time by giving written notice thereof to the Company, the
Casino Control Commission and the Division of Gaming Enforcement. If the
instrument of acceptance by a successor Trustee required by Section 609 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) Subject to the provisions of the Casino Control Act, the Trustee
may be removed at any time by Act of the Holders of not less than a majority in
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of TIA Section
310(b) after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six months; or
(ii) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months; or
(iii) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, subject to the provisions of the Casino Control Act, (A)
the Company, by a Board Resolution, may remove the Trustee or (B) subject to TIA
Section 315(e), any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such
F-A-27
vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee. Notwithstanding the foregoing, any
successor Trustee may be appointed only with the prior, express approval of the
Casino Control Commission, in consultation with the Division of Gaming
Enforcement, provided that such successor Trustee must first be qualified as a
financial source by and cooperate with the Casino Control Commission and the
Division of Gaming Enforcement.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall take all necessary
steps to be approved by the Casino Control Commission and shall execute,
acknowledge and deliver to the Company, and to the retiring Trustee an
instrument accepting such appointment, and the successor Trustee and the Company
shall enter into a supplemental indenture evidencing the appointment of the
successor Trustee. Thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture provided that the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTORS
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
F-A-28
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report, dated as of such May 15 if required by TIA Section 313(a).
The Trustee shall transmit to the Holders, within the times hereinafter
specified a brief report with respect to the following:
(i) [intentionally omitted]; and
(ii) the character and amount of any advances made by it as such since
the date of the last report transmitted pursuant to the provisions of TIA
Section 313(a) (or if no such report has yet been so transmitted, since the date
of execution of the Indenture), for the reimbursement of which it claims or may
claim a Lien or charge, prior to that of the Indenture Securities, on the trust
estate or on property or funds held or collected by it as such Trustee, and
which it has not previously reported pursuant to this clause (2), if such
advances remaining unpaid at any time aggregate more than 10 per centum of the
aggregate principal amount of the Securities Outstanding at such time, such
report to be so transmitted within 90 days after such time.
To the extent required by applicable laws, rules and regulations, a
copy of each such report shall, at the time of such transmission to the Holders,
be filed with each stock exchange, if any, upon which the Securities are listed,
and also with the Commission.
(b) The Trustee shall transmit by mail to the Casino Control Commission
and the Division of Gaming Enforcement (i) an initial list of the beneficial
Holders of the Securities promptly after the issuance of the Securities; (ii)
current lists of the Holders appearing in the Security Register on a
twice-per-year basis, no later than March 1 and September 1 of each year; and
(iii) upon request by the Casino Control Commission or the Division of Gaming
Enforcement, such additional information with respect to the beneficial Holders
of the Securities as the Trustee may obtain through its good faith efforts.
(c) The Trustee shall notify the Casino Control Commission and the
Division of Gaming Enforcement, simultaneously with any notice given to the
Holders, of any default or acceleration under the Securities, this Indenture or
any other documents, instrument, agreement, covenant, or condition related to
the issuance of the Securities, whether declared or effectuated by the Trustee
or the Holders. The Trustee shall notify the Casino Control Commission and the
Division of Gaming Enforcement on a continuing basis and in writing, of any
actions taken by the Trustee or the Holders with regard to such default,
acceleration or similar matters related thereto.
(d) The Trustee shall notify the Casino Control Commission and the
Division of Gaming Enforcement of the removal or resignation of the Trustee
promptly after such removal or resignation.
(e) The Trustee shall provide to the Casino Control Commission and the
Division of Gaming Enforcement, promptly after the execution by the Trustee of
the same, copies of any and all amendments or modifications to this Indenture,
the Securities or any other documents, instrument, agreement, covenant or
condition related to the issuance of the Securities.
SECTION 703. Reports by Company.
The Company shall, to the extent required by the TIA:
(i) file with the Trustee, within 15 days after the Company is required
to file the same with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it may, if it determines to do so, file with the Trustee and the
Commission, in accordance with rules and regulations
F-A-29
prescribed from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of
a security listed and registered on a national securities exchange as may
be prescribed from time to time in such rules and regulations;
(ii) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations;
(iii) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company, as the case may be, pursuant to
paragraphs (i) and (ii) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission; and
(iv) comply in all material respects with all requirements and
provisions of the Casino Control Act and notify the Trustee by mail of all
formal hearings and formal proceedings materially relating to the Company
before the Casino Control Commission relating to the plenary casino
licenses for the Company, as the same are scheduled. Such notice shall be
in writing and given at least seven days prior to the hearing to which such
notice relates, unless a shorter notice is given to the Company in which
event the Company shall notify the Trustee promptly upon receiving such
definite information as shall be contained in such notice. The Company
hereby agrees that the Trustee may, but shall have no obligation to, attend
such hearings and other proceedings if permitted to do so by the Casino
Control Commission.
ARTICLE EIGHT
CONSOLIDATION AND MERGER
SECTION 801. Company May Merge and Consolidate.
The Company shall not consolidate with or merge with or into any Person
or group of Persons in a single transaction or through a series of transactions,
except that:
(i) The Company may consolidate with or merge with or into any Person
or group of Persons in a single transaction or through a series of
transactions if (A) the Company shall be the continuing Person, or the
resulting or surviving Person (the "surviving entity") shall be a Person
organized and existing under the laws of the United States or any State
thereof or the District of Columbia; (B) the surviving entity (other the
Company) shall expressly assume, by a supplemental indenture executed and
delivered to the Trustee, in form and substance reasonably satisfactory to
the Trustee, all of the obligations of the Company under the Securities,
and this Indenture; and (C) immediately before and immediately after giving
effect to such transaction, or series of transactions (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of, such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing;
(ii) [intentionally omitted]; and
(iii) the Company or such Person shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation or merger and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with
this covenant and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into any other Person in accordance with Section 801, the successor
Person formed by such consolidation or merger shall
F-A-30
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures and Amendments Without Consent of
Holders.
Without the consent of any Holders, the Company, when it is so
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(i) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company, contained
herein and in the Securities; or
(ii) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(iii) to add any additional Events of Default; or
(iv) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(v) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
the interests of the Holders in any material respect; or
(vi) [intentionally omitted]; or
(vii) to add any guarantor; or
(viii) to make any other change that does not adversely affect the
rights of any Holder; or
(ix) to secure the Securities.
SECTION 902. Supplemental Indentures and Amendments with Consent of
Holders.
Upon the request of the Company, by a Board Resolution authorizing the
execution thereof, together with the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by Act of said
Holders delivered to the Trustee, the Trustee shall join the Company in an
indenture or indentures supplemental hereto, for any purpose, including, without
limitation, for the purpose of adding any provisions to or changing, modifying
or amending in any manner or eliminating any of the provisions of this Indenture
or making additions to, changing, modifying, amending or eliminating in any
manner the rights of the Holders hereunder; provided, however, that no such
supplemental indenture, or addition, change, amendment or modification to, or
elimination of any provision of, shall, without the consent of the Holder of
each Outstanding Security affected thereby:
(i) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the coin or currency in which any Security or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date); or
(ii) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
or
F-A-31
(iii) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures and Amendments.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture and all conditions precedent herein provided for relating to such
supplemental indenture have been complied with. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures and Amendments.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture or amendment pursuant to the provisions of Section 902,
the Company shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture or amendment.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or
F-A-32
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Corporate Trust Office of the
Trustee shall be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before each due date of the principal of (and
premium, if any, on), or interest on, any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of (and
premium, if any on) or interest on Securities in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any, on) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be
F-A-33
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company;
provided, however, that the Company shall not be required to preserve any such
right or franchise if the Board of Directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and that the loss thereof is not disadvantageous in any material
respect to the Company.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or upon the income,
profits or property of the Company and (b) all lawful claims for labor,
materials and supplies, which, if unpaid, might by law become a lien upon the
property of the Company; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
Subject to and as permitted by the terms of this Indenture the Company
will cause all properties owned by the Company or used or held for use in the
conduct of its business to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business and not disadvantageous in any material respect to the Holders.
SECTION 1007. [Intentionally Omitted.]
SECTION 1008. Statement by Officer as to Compliance.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year, a brief certificate, which may be in the form attached as
Exhibit A, from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1008, such compliance shall be determined without regard to any
period of grace or requirement of notice under this Indenture.
SECTION 1009. Statement by Officers of Certain Defaults.
When any Default has occurred and is continuing under this Indenture,
or if the trustee for or the holder of any other evidence of Indebtedness of the
Company gives any notice or takes any other action with respect to a claimed
default (other than with respect to Indebtedness in the principal amount of less
than $5 million), the Company shall deliver to the Trustee by registered or
certified mail or by telegram, telex or facsimile transmission an Officers'
Certificate specifying such event, notice or other action within five Business
Days of its occurrence.
SECTION 1010. [Intentionally Omitted.]
SECTION 1011. [Intentionally Omitted.]
SECTION 1012. [Intentionally Omitted.]
SECTION 1013. Limitation on Restricted Payments.
F-A-34
The Company shall not make any Restricted Payment if an Event of
Default shall have occurred and be continuing at the time of such Restricted
Payment.
SECTION 1014. [Intentionally Omitted.]
SECTION 1015. [Intentionally Omitted.]
SECTION 1016. [Intentionally Omitted.]
SECTION 1017. Limitation on Asset Sales.
Subject to and as permitted by the terms of this Indenture the Company
shall not make any Asset Sale of its properties unless (a) the consideration
received in the Asset Sale is equal to Fair Market Value; (b) the proceeds
therefrom consist of at least 85% cash and/or Cash Equivalents; and (c) unless
otherwise expressly provided herein, the Net Cash Proceeds of such Asset Sale
shall be: (i) applied in the manner described in the following paragraph; or
(ii) retained by the Company to apply to the payment on its Securities when due.
On or before the 180th day after the date on which the Company
consummates the relevant Asset Sale and subject to and as permitted by the terms
of this Indenture, the Company shall use all of the Net Cash Proceeds from such
Asset Sale (other than amounts that the Company has determined to retain
pursuant to clause (ii) of the preceding paragraph) to make either (a) an offer
to purchase (the "Asset Sale Offer") from all holders of Securities up to a
maximum principal amount (expressed as a multiple of $1,000) of Securities equal
to such Net Cash Proceeds at a purchase price equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase or (b) a Permitted Investment; provided, that the Company shall not be
required to make any Asset Sale Offer if the Net Cash Proceeds of all Asset
Sales that are not used to make a Permitted Investment within 180 days, do not
exceed $5 million. Each Asset Sale Offer shall remain open for a period of at
least 20 business days. If the Asset Sale Offer is more than fully subscribed to
by the Holders of the Securities, the particular Securities to be accepted shall
be selected by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection of portions of the principal of Securities;
provided, however, that no such partial acceptance shall reduce the portion of
the principal amount of a Security not redeemed to less than, $1,000; and
provided further that so long as the Securities are listed on any national
securities exchange (as such term is defined in the Exchange Act), such
selection shall be made by the Trustee in accordance with the provisions of such
exchange.
SECTION 1018. [Intentionally Omitted.]
SECTION 1019. [Intentionally Omitted.]
SECTION 1020. [Intentionally Omitted.]
SECTION 1021. [Intentionally Omitted.]
SECTION 1022. [Intentionally Omitted.]
SECTION 1023. [Intentionally Omitted.]
SECTION 1024. [Intentionally Omitted.]
SECTION 1025. [Intentionally Omitted.]
SECTION 1026. [Intentionally Omitted.]
SECTION 1027. [Intentionally Omitted.]
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Optional Redemption.
F-A-35
The Securities may be redeemed, at the election of the Company, as a
whole or from time to time in part, at the times, subject to the conditions and
at the Redemption Price specified in the form of Security, together with accrued
interest to the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article, other than repurchases made
from time to time in the open market.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Securities; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000 and, provided further that, so long as the
Securities are listed on any national securities exchange (as such term is
defined in the Exchange Act), any such redemption shall be made by the Trustee
in accordance with the provisions of such exchange.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed; provided, however, that in the case
of an optional redemption in which the Company has called for redemption all
outstanding Securities in connection with a refinancing of such Securities, the
Company shall be permitted to (a) specify a proposed redemption date; (b) change
the proposed redemption date once to a final redemption date by notice mailed to
Holders not later than five business days prior to the final redemption date;
(c) establish the final redemption date as a date not more than 90 days after
the first notice from the Company calling the Securities for optional redemption
was mailed to Holders; and (d) rescind the redemption offer at any time prior to
the final redemption date, which rescission shall not cause the maturity of the
Securities to have changed.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Securities to be redeemed;
(iv) that on the Redemption Date the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon
F-A-36
each such Security, or the portion thereof, to be redeemed, and that
interest thereon will cease to accrue on and after said date; and
(v) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) in immediately
available funds an amount of money sufficient to pay the Redemption Price of,
and accrued interest on, all the Securities which are to be redeemed on that
date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 1109. Redemption Pursuant to Gaming Laws.
(a) If required to qualify by the Casino Control Commission, all
Holders, whether initial Holders or subsequent transferees, shall be subject to
the qualification provisions of the Casino Control Act relating to financial
sources and/or security holders. In the event that the Casino Control Commission
determines that a Holder is not qualified under the Casino Control Act and/or
such Holder fails to submit for qualification as required by the Casino Control
Commission in its sole discretion, the Company shall have the absolute right and
obligation to purchase from such Holder (the "Disqualified Holder") the
Securities the Disqualified Holder may then possess, either directly, indirectly
or beneficially, no later than forty-five days after the date the Company serves
notice on any Disqualified Holder of such determination. Immediately upon such
determination, the Disqualified Holder shall have no further right (i) to
exercise, directly or indirectly, through any trustee or nominee or any other
person or entity, any right conferred by any Securities and (ii) to receive any
dividends, interest, or any other distribution or payment with respect to any
such Securities or any remuneration in any form from the Company or the Trustee;
provided, however, that after such disqualification, interest on any such
Securities shall continue to accrue for the benefit of any subsequent Holder
thereof. The Company shall promptly provide to the Trustee a copy of each notice
served to a Disqualified Holder.
F-A-37
(b) Upon receipt of the notice referred to in clause (a) above, the
Disqualified Holder may sell its Securities either directly to any Person then
qualified or previously qualified (and not subsequently disqualified) or through
a bona fide brokerage transaction, conducted at arm's-length, to a Person not an
Affiliate of the Disqualified Holder. In the event the Disqualified Holder fails
to so sell its Securities within thirty (30) days after the determination by the
Casino Control Commission, the Company shall purchase such Securities within
fifteen (15) days after the end of such thirty (30) day time period, at a time
and place as designated by the Company, at the lowest of (i) the principal
amount thereof; (ii) the amount which the Disqualified Holder or beneficial
owner paid for the Securities, together with accrued interest up to the date of
the determination of disqualification; or (iii) the market value of such
Securities. The right of the Company to purchase such Security may be assigned
by the Company to any Person approved by the Casino Control Commission.
(c) The provisions of this Section shall be construed in accordance
with the applicable provisions of the Casino Control Act.
ARTICLE TWELVE
[INTENTIONALLY OMITTED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option applicable
to this Section 1302, the Company shall be deemed to have been discharged from
its obligations with respect to all Outstanding Securities on the date the
conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Outstanding
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1305 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following, which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
Outstanding Securities to receive, solely from the trust fund described in
Section 1304 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any, on) and interest on such Securities when
such payments are due; (b) the Company's obligations with respect to such
Securities under Sections 304, 305, 306, 1002 and 1003; (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder; and (d) this Article
Thirteen. Subject to compliance with this Article Thirteen, the Company may
exercise its option under this Section 1302 notwithstanding the prior exercise
of its option under Section 1303 with respect to the Securities.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option applicable
to this Section 1303, the Company shall be released from its obligations under
any covenant contained in Section 801 and in Sections 1005 through 1026 with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein
F-A-38
to any such covenant or by reason of any reference in any such covenant to
any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(3) or otherwise, but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Securities:
(i) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds, for a period of at least
123 days prior to the date of such defeasance, in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount; or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount; or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of (and premium, if any, on) and interest on the Outstanding
Securities on the Stated Maturity (or Redemption Date, if applicable) of
such principal (and premium, if any) or installment of interest and (ii)
any mandatory sinking fund payments or analogous payments applicable to the
Outstanding Securities on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such
Securities; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities. Before such a
deposit the Company may give to the Trustee, in accordance with Section
1103 hereof, a notice of its election to redeem all of the Outstanding
Securities at a future date in accordance with Article Eleven hereof, which
notice shall be irrevocable. Such irrevocable redemption notice, if given,
shall be given effect in applying the foregoing. For this purpose, "U.S.
Government Obligations" 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 the
issuer thereof, and shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such U.S. Government Obligation
or a specific payment of principal of or interest on any such U.S.
Government Obligation 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 U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
(ii) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (7) and (8) of Section 501 hereof are concerned, at
any time during the period ending on the 123rd day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(iii) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(iv) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm
F-A-39
that, the Holders of the Outstanding Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred.
(v) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(vi) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations To Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
F-A-40
ARTICLE FOURTEEN
[INTENTIONALLY OMITTED]
ARTICLE FIFTEEN
MISCELLANEOUS
SECTION 1501. Counterparts.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
F-A-41
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
GB PROPERTY FUNDING CORP.
By
----------------------------------
Title:
Attest:
-----------------------------------
Title:
GB HOLDINGS, INC.
By
----------------------------------
Title:
Attest:
-----------------------------------
Title
GREATE BAY HOTEL AND CASINO, INC.
By
----------------------------------
Title:
Attest:
-----------------------------------
Title:
WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION
By
----------------------------------
Title:
F-A-42
Exhibit A
- --------------------------------------------------------------------------------
OFFICERS' CERTIFICATE
OF
GB HOLDINGS, INC.
- --------------------------------------------------------------------------------
Reference is made to that certain Indenture, dated as of
____________________ (the "Indenture") among GB Holdings, Inc. (the "Company")
and Wells Fargo Bank Minnesota, National Association, as Trustee (the
"Trustee"). Except as otherwise defined herein, capitalized terms used herein
shall have the meanings set forth in the Indenture.
Pursuant to Section 1008 of the Indenture, the undersigned officer of
the Company hereby certifies to the Trustee as follows:
He is now, and at the times mentioned herein has been, the duly
elected, qualified and acting officer of the Company as specified
below.
To his knowledge, and without regard to any period of grace or
requirements of notice under the Indenture, the Company is in
compliance with all conditions and covenants under the Indenture.
IN WITNESS WHEREOF, I have set my hand this ____ day of _____________.
GB HOLDINGS, INC.
By:
--------------------------------
F-A-43
ANNEX G
================================================================================
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.,
as Issuer,
ACE GAMING, LLC,
as Guarantor,
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
--------------
INDENTURE
Dated as of [___________ __, 2004]
--------------
$[110] Million
3% Notes Due September 29, 2008
================================================================================
G-i
Atlantic Coast Entertainment Holdings, Inc.
Reconciliation and tie Between Trust Indenture Act
of 1939 and Indenture, dated as of ________
TIA INDENTURE
SECTION SECTION
- ----------------------------------------------------- -----------------------
310(a)(1)............................................ 607
(a)(2)............................................ 607
(a)(3)............................................ N.A.
(a)(4)............................................ N.A.
(a)(5)............................................ 607
(b)............................................... 604, 608
(c)............................................... N.A.
311.................................................. 604
312.................................................. 701
313.................................................. 601, 702
314(a)............................................... 703, 1008
(b)............................................... 1401(d)
(c)(1)............................................ 102
(c)(2)............................................ 102
(c)(3)............................................ N.A.
(d)............................................... 702
(e)............................................... 102
(f)............................................... N.A.
315(a)............................................... 602
(b)............................................... 601
(c)............................................... 602
(d)............................................... N.A.
(e)............................................... N.A.
316(a)(last sentence)................................ 101("Outstanding")
(a)(1)(A)......................................... 512
(a)(1)(B)......................................... 513
(a)(2)............................................ N.A.
(b)............................................... 508
(c)............................................... 104(d)
317(a)(1)............................................ 503
(a)(2)............................................ 504
(b)............................................... 1003
318(a)............................................... 111
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
G-ii
TABLE OF CONTENTS(1)
PARTIES..................................................................... 1
RECITALS.................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions............................................... 1
Section 102. Compliance Certificates and Opinions...................... 13
Section 103. Form of Documents Delivered to Trustee.................... 14
Section 104. Acts of Holders........................................... 14
Section 105. Notices, etc., to Trustee, Company and Guarantor.......... 15
Section 106. Notice to Holders; Waiver................................. 15
Section 107. Effect of Headings and Table of Contents.................. 16
Section 108. Successors and Assigns.................................... 16
Section 109. Separability Clause....................................... 16
Section 110. Benefits of Indenture..................................... 16
Section 111. Governing Law............................................. 16
Section 112. Legal Holidays............................................ 16
Section 113. Casino Control Act........................................ 16
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally........................................... 17
Section 202. Form of Face of Notes..................................... 17
Section 203. Form of Reverse of Notes.................................. 18
Section 204. Form of Trustee's Certificate of Authentication........... 20
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms........................................... 21
Section 302. Denominations............................................. 22
Section 303. Execution, Authentication, Delivery and Dating............ 22
Section 304. Temporary Securities...................................... 22
Section 305. Registration, Registration of Transfer and Exchange....... 23
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.......... 23
Section 307. Payment of Interest; Interest Rights Preserved............ 24
Section 308. Persons Deemed Owners..................................... 24
Section 309. Cancellation.............................................. 24
Section 310. Computation of Interest................................... 24
Section 311. Maximum Interest Rate..................................... 24
- --------------
(1) This table of contents shall not, for any purpose, be deemed to be a part of
this Indenture.
G-iii
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture................... 25
Section 402. Application of Trust Money................................ 25
ARTICLE FIVE
REMEDIES
Section 501. Events of Default......................................... 26
Section 502. Acceleration of Maturity; Rescission and Annulment........ 27
Section 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.................................... 28
Section 504. Trustee May File Proofs of Claim........................ 28
Section 505. Trustee May Enforce Claims Without
Possession of Securities................................ 29
Section 506. Application of Money Collected............................ 29
Section 507. Limitation on Suits....................................... 29
Section 508. Unconditional Right of Holders to Receive Principal
Premium and Interest.................................... 29
Section 509. Restoration of Rights and Remedies........................ 30
Section 510. Rights and Remedies Cumulative............................ 30
Section 511. Delay or Omission Not Waiver.............................. 30
Section 512. Control by Holders........................................ 30
Section 513. Waiver of Defaults and Compliance......................... 30
ARTICLE SIX
THE TRUSTEE
Section 601. Notice of Defaults........................................ 31
Section 602. Certain Rights of Trustee................................. 31
Section 603. Trustee Not Responsible for Recitals or
Issuance of Securities.................................. 32
Section 604. May Hold Securities....................................... 32
Section 605. Money Held in Trust....................................... 32
Section 606. Compensation and Reimbursement............................ 32
Section 607. Corporate Trustee Required; Eligibility................... 33
Section 608. Resignation and Removal; Appointment of Successor......... 33
Section 609. Acceptance of Appointment by Successor.................... 34
Section 610. Merger, Conversion, Consolidation or
Succession to Business.................................. 34
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTOR
Section 701. Disclosure of Names and Addresses of Holders.............. 35
Section 702. Reports by Trustee........................................ 35
Section 703. Reports by Company and Guarantor.......................... 36
G-iv
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company and Subsidiaries May Consolidate, etc.,
Only on Certain Terms................................... 36
Section 802. Successor Substituted..................................... 37
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Amendments to Security
Documents Without Consent of Holders.................... 38
Section 902. Supplemental Indentures and Amendments to Security
Documents with Consent of Holders....................... 38
Section 903. Execution of Supplemental Indentures and Amendments
to Security Documents................................... 39
Section 904. Effect of Supplemental Indentures......................... 39
Section 905. Conformity with Trust Indenture Act....................... 39
Section 906. Reference in Securities to Supplemental Indentures........ 39
Section 907. Notice of Supplemental Indentures and Amendments to
Security Documents...................................... 39
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium, if any, and Interest....... 40
Section 1002. Maintenance of Office or Agency........................... 40
Section 1003. Money for Security Payments to Be Held in Trust........... 40
Section 1004. Corporate Existence....................................... 41
Section 1005. Payment of Taxes and Other Claims......................... 41
Section 1006. Maintenance of Properties................................. 41
Section 1007. Insurance................................................. 42
Section 1008. Statement by Officers as to Compliance.................... 42
Section 1009. Statement by Officer of Certain Defaults.................. 42
Section 1010. Assumption of Obligations upon Change of Control.......... 42
Section 1011. Limitation on Company Indebtedness........................ 42
Section 1012. Limitation on Subsidiary Indebtedness and
Preferred Stock......................................... 43
Section 1013. Limitation on Restricted Payments......................... 43
Section 1014. Limitation on Liens....................................... 43
Section 1015. [Intentionally Omitted.].................................. 44
Section 1016. Limitation on Sale-Leaseback Transactions................. 44
Section 1017. Limitation on Asset Sales................................. 44
Section 1018. Application of Net Cash Proceeds in Event of Loss......... 45
Section 1019. Ownership of Stock of Subsidiaries........................ 45
Section 1020. Limitation on Transactions with Affiliates................ 45
Section 1021. Change in Nature of Business.............................. 46
Section 1022. Additional Collateral..................................... 46
Section 1023. CRDA Investments.......................................... 46
Section 1024. Subsidiaries.............................................. 46
G-v
Section 1025. Security Documents........................................ 46
Section 1026. Validity of Security Interest............................. 47
Section 1027. Duty of Cooperation....................................... 47
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Redemption................................................ 47
Section 1102. Applicability of Article.................................. 47
Section 1103. Election to Redeem; Notice to Trustee..................... 47
Section 1104. Selection by Trustee of Securities to Be Redeemed......... 47
Section 1105. Notice of Redemption...................................... 48
Section 1106. Deposit of Redemption Price............................... 48
Section 1107. Securities Payable on Redemption Date..................... 48
Section 1108. Securities Redeemed in Part............................... 49
Section 1109. Redemption Pursuant to Gaming Laws........................ 49
ARTICLE TWELVE
GUARANTEE ARRANGEMENTS
Section 1201. Guarantee................................................. 49
Section 1202. Execution and Delivery of Guarantee....................... 51
Section 1203. Additional Guarantors..................................... 51
Section 1204. Termination of Guarantee.................................. 51
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1301. Company's Option to Effect Defeasance or
Covenant Defeasa........................................ 51
Section 1302. Defeasance and Discharge.................................. 51
Section 1303. Covenant Defeasance....................................... 52
Section 1304. Conditions to Defeasance or Covenant Defeasance........... 52
Section 1305. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous Provisions..... 53
Section 1306. Reinstatement............................................. 53
ARTICLE FOURTEEN
SECURITY INTEREST
Section 1401. Assignment of Security Interest........................... 54
Section 1402. Suits to Protect the Collateral........................... 54
Section 1403. Further Assurances and Security........................... 55
Section 1404. Release of Collateral..................................... 55
Section 1405. Release Notice; Subordination Request, Permitted Liens.... 56
Section 1406. Reliance on Opinion of Counsel............................ 57
Section 1407. Purchaser May Rely........................................ 57
Section 1408. Payment of Expenses....................................... 57
G-vi
ARTICLE FIFTEEN
CONVERSION AND DEMAND PAYMENT
Section 1501. Conversion Following Election of Requisite Lenders........ 57
Section 1502. Exercise of Conversion Privilege; Demand Payment;
Issuance of Common Stock; No Adjustment for
Interest or Dividends.................................. 58
Section 1503. Stated Ratio.............................................. 59
Section 1504. Additional Issuances...................................... 59
Section 1505. Mergers................................................... 59
Section 1506. Verification of Computations.............................. 60
Section 1507. Notice of Additional Issuances or Other Property.......... 60
Section 1508. Fractional Shares......................................... 60
Section 1509. Taxes on Shares Issued.................................... 61
Section 1510. Reservation of Shares; Shares to Be Fully Paid;
Compliance with Governmental Requirements;
Listing of Company Common Stock........................ 61
Section 1511. Responsibility of Trustee................................. 61
ARTICLE SIXTEEN
MISCELLANEOUS
Section 1601. Counterparts.............................................. 61
TESTIMONIUM.................................................................
SIGNATURE AND SEALS.........................................................
SCHEDULES
1.01 Permitted Indebtedness
G-vii
INDENTURE, dated as of [___________, 2004] between Atlantic Coast
Entertainment Holdings, Inc. (the "Company"), a corporation duly organized and
existing under the laws of the State of Delaware, ACE Gaming, LLC (herein called
"Guarantor"), a limited liability company duly organized and existing under the
laws of the State of New Jersey and each having its principal office c/o Sands
Hotel and Casino at Indiana Avenue & Brighton Park, Atlantic City, New Jersey
08401, and Wells Fargo Bank, National Association, as Trustee (herein called the
"Trustee").
The Company has duly authorized the creation of an issue of 3% Notes
Due 2008 (herein called "Notes" or the "Securities"), of substantially the tenor
and amount hereinafter set forth, and to provide therefore the Company has duly
authorized the execution and delivery of this Indenture. The Company has duly
authorized the creation of Liens to secure the Securities, and to provide
therefor the Company has duly authorized the execution and delivery of the
Security Documents to which it is a party.
The Guarantor has duly authorized its guarantee of the Securities, and
to provide therefor it has duly authorized the execution and delivery of this
Indenture. The Guarantor has duly authorized the creation of Liens to secure its
guarantee of the Securities, and to provide therefor it has duly authorized the
execution and delivery of the Security Documents to which it is a party.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when
executed by the Company and the Guarantor and authenticated by the Trustee and
delivered hereunder and duly issued by the Company, the valid obligations of the
Company, to make the Guarantee the valid obligation of Guarantor and to make
this Indenture a valid agreement of each of the Company and the Guarantor, in
accordance with their and its terms.
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(i) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(ii) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper," as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(iii) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of
such computation;
(iv) any reference herein to any "first priority lien," "first
priority security interest" or words of similar import or otherwise
regarding the priority of any Lien, shall apply and refer, and shall be
deemed to apply and refer, only to the Collateral and all such Liens
shall, and shall be deemed to be: (A) subject and inferior to any Lien
to secure Working Capital Indebtedness whether incurred prior to,
G-1
on or after the Issue Date and (B) subject to any release or
subordination contemplated in Section 1405 hereof. Any reference herein
to the "terms of any release or subordination contemplated in Section
1405 hereof" or "any release or subordination" or words of similar
import shall be deemed to refer to and include, without limitation, any
and all terms, provisions and conditions of any such release or
subordination and of all agreements, documents and instruments related
thereto, associated therewith or arising from or in connection with any
such release or subordination or any related or associated transaction;
and
(v) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or is combined or acquired
through an asset acquisition, merger or otherwise, with the Company or a
Subsidiary of the Company, including, without limitation, Indebtedness incurred
by such Person in connection with, or in anticipation of, such Person becoming a
Subsidiary of the Company or of such acquisition, in each case which, if
secured, is not secured by Collateral.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any Person means any other Person that, directly or
indirectly, controls, is controlled by or is under direct or indirect common
control with, such Person and with respect to any natural Person, any other
Person having a relationship by blood, marriage or adoption, not more remote
than first cousins with such natural Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock or other equity interests, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Allowed Indebtedness" means any Indebtedness or Preferred Stock the
incurrence or issuance of which either (x) is consented to by the Requisite
Lenders or (y) that: (i) is not secured by a Lien; (ii) is (or to the extent
that it is) secured by a Lien on assets other than the Collateral; (iii) is
secured by a Lien on Collateral which, except for and subject to any release or
subordination contemplated by Section 1405 hereof, is inferior to the Liens of
the Trustee on such Collateral; (iv) is secured by a Permitted Lien; (v)
constitutes Acquired Indebtedness; or (vi) is incurred between or among the
Company and its Subsidiaries.
"Amortization Expense" means, for any Person for any period, the amount
of the amortization expense (including, without limitation, the write-down of
non-current assets, including CRDA Investments) that is reflected on the
financial statements of such Person and its Subsidiaries consolidated in such
financial statements for such period in accordance with GAAP.
"Applicable Common Stock" has the meaning set forth in Section 301(f)
of this Indenture.
"Asset Acquisition" means (a) any capital contribution (including,
without limitation, transfers of cash or other property to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of Capital Stock or other similar ownership or profit
interest, by the Company or any of its Subsidiaries in any other Person, in
either case pursuant to which such Person shall become a Subsidiary of the
Company or any of its Subsidiaries or shall be merged with or into the Company
or any of its Subsidiaries or (b) any acquisition by the Company or any of its
Subsidiaries of the assets of any Person which constitute substantially all of
an operating unit or business of such Person.
"Asset Sale" means, as applied to any Person, any direct or indirect
sale, conveyance, transfer, lease or other disposition (including, without
limitation, by means of a Sale-Leaseback Transaction) by such Person or any
Subsidiary of such Person to any Person other than such Person or a wholly-owned
Subsidiary of such Person, in one transaction or a series of related
transactions, of any Capital Stock of any Subsidiary of such Person or other
similar equity interest of such Subsidiary or any other property or asset of
such Person or any Subsidiary of such Person (provided that the term "Asset
Sale" shall not include (a) sales, conveyances, transfers, leases or other
dispositions in the ordinary course of business; (b) all other dispositions
pursuant to which such Person receives, directly or indirectly, Net Cash
Proceeds or fair market value of less than or equal to $5,000,000 in the
aggregate in any twelve month period; (c) sales, conveyances, transfers, leases,
or other dispositions of CRDA Investments); (d) sales, conveyances, transfers,
leases or other transactions or dispositions made in accordance with the
provisions of
G-2
Section 1405 of this Indenture; (e) sales, conveyances, transfers, leases or
other transactions or dispositions made pursuant to the terms of any agreement,
document or instrument entered into in connection with any release or
subordination that has occurred in accordance with the provisions of Section
1405 of this Indenture, including, without limitation, any sale or other
disposition resulting from any default or foreclosure; or (f) any transaction
(whether or not such transaction has already occurred) that the Requisite
Lenders consent and agree shall not be deemed to constitute an "Asset Sale" ).
"Assets" means, as applied to any Person, any tangible or intangible
assets, or rights or real or personal properties of such Person or any of its
Subsidiaries including capital stock of Subsidiaries.
"Board of Directors" means either the board of directors of a Person or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of a Person to have been duly adopted by the
Board of Directors of such Person and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or the State of New Jersey are authorized or obligated by law or executive order
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after such date, and any and all rights,
warrants or options exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the purpose
hereof, the amount of such obligation at any date of determination shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means any of the following, to the extent owned by
the Company or any of its Subsidiaries free and clear of all Liens (other than
Liens in favor of the Trustee or the Holders) and having a maturity of not
greater than 270 days from the date of acquisition: (a) any evidence of
Indebtedness issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (b) insured certificates of deposit or acceptances of any commercial
bank that is a member of the Federal Reserve System, that issues (or the parent
of which issues) commercial paper rated as described in clause (c) below and
that has combined capital and surplus and undivided profits of not less than
$100,000,000; (c) commercial paper issued by a corporation (except an Affiliate
of the Company) organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 (or the then equivalent grade)
by Standard & Poor's Corporation or at least Prime-1 (or the then equivalent
grade) by Moody's Investors Service, Inc.; and (d) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the United States government or issued by any
agency thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency.
"Casino Control Act" means the New Jersey Casino Control Act, N.J.
Stat. Ann. 5:12-1 et seq. (New Jersey Public Law 1977, C.110), and the
regulations promulgated thereunder, N.J.A.C. 19:40-1.1 et seq., as from time to
time amended, or any successor provision of law.
"Casino Control Commission" means the New Jersey Casino Control
Commission as established by Section 50 of the Casino Control Act or any
successor agency appointed pursuant to the Casino Control Act.
"Change of Control" means, after the Issue Date, an event or series of
events by which any "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than Carl C. Icahn and his Affiliates, or Parent and
its Subsidiaries, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the
G-3
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly (including through ownership of Voting Stock of a Person
owning, directly or indirectly, Voting Stock of the Company or Parent) of
securities representing 50% or more of the combined voting power of the Voting
Stock of the Company.
"Collateral" has the meaning attributed to it in the Security Agreement
and the Mortgage and includes all of the assets of the Company and its
Subsidiaries (other than CRDA Investments and gaming receivables and revenues)
as of the Issue Date and assets contemplated in Section 1404 of this Indenture;
provided that for purposes of this Indenture and the Security Documents, the
Collateral shall not include any asset to the extent that it has ceased to be
subject to the Security Interest pursuant to Section 1405 hereof.
"Collateral Account" shall have the meaning ascribed to such term in
the Security Agreement.
"Collateral Assignment of Leases" means the Assignment, dated as of
[_____________ __], 2004, by Licensee in favor of the Trustee for its own
benefit and the benefit of the Holders as the same may be amended from time to
time.
"Collateral Proceeds" means, subject to and as permitted by the terms
of this Indenture and the terms of any release or subordination contemplated by
Section 1405 hereof, (a) any Net Cash Proceeds received or receivable by the
Company or the Guarantor as a result of an Asset Sale or Event of Loss that
involves all or a portion of the Collateral and (b) all interest or other
earnings on amounts in deposit in the Collateral Account.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or, if
at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Company" means Atlantic Coast Entertainment Holdings, Inc., until a
successor Person shall have assumed the obligations of the Company pursuant to
the applicable provisions of Sections 801 and 802 of this Indenture, and
thereafter "Company" shall mean such successor Person.
"Company Common Stock" means the common stock, [$.01] par value per
share, of the Company.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated" or "consolidated" refers to the consolidation of
accounts in accordance with GAAP, and each reference to any such consolidation
in this Indenture including, without limitation, "Consolidated Cash Flow,"
"Consolidated Coverage Ratio," "Consolidated Fixed Charges," "Consolidated
Income Tax Expense," and "Consolidated Net Income" shall include and be deemed
to include, if, prior to the calculation date, one or more acquisitions have
been engaged in by the Company or any of its Subsidiaries (including through
mergers or consolidations or other asset or business acquisitions or combination
transactions), the accounts of such acquired person or business for the entire
applicable reference period, and such acquisition shall be deemed to have
occurred on the first day of the applicable reference period and shall be given
pro forma effect, in all events exclusive of all obligations or charges: (x) of
a non-recurring nature; (y) attributable to discontinued operations; and (z)
otherwise attributable to operations or businesses disposed of prior to the
Transaction Date.
"Consolidated Cash Flow" means, for any Person for any period, the
sum of:
(i) the Consolidated Net Income of such Person and its Subsidiaries for
such period, plus
G-4
(ii) the sum of the following items (to the extent deducted in
determining Consolidated Net Income and without duplication): (A) all
Consolidated Fixed Charges; (B) Amortization Expense; (C) Depreciation
Expense; and (D) Consolidated Income Tax Expense.
"Consolidated Coverage Ratio" means for any Person the ratio of (a)
Consolidated Cash Flow of such Person and its Subsidiaries for the four full
fiscal quarters for which financial statements are available that immediately
precede the date of the transaction or other circumstances giving rise to the
need to calculate the Consolidated Coverage Ratio (the "Transaction Date") (or,
for purposes of clause (b) of the definition of the term "Permitted
Indebtedness," projected as contemplated therein) to (b) the Consolidated Fixed
Charges for the fiscal quarter in which the Transaction Date occurs and to be
accrued during any balance of such quarter and during the three fiscal quarters
immediately following such fiscal quarter (based upon the pro forma amount of
Indebtedness of such Person and its Subsidiaries outstanding on the Transaction
Date and after giving effect to the transaction in question) (or, for purposes
of clause (b) of the definition of the term "Permitted Indebtedness," projected
as contemplated therein). For purposes of this definition, if the Transaction
Date occurs before the date on which such Person's consolidated financial
statements for the four full fiscal quarters after the Issue Date are first
available, "Consolidated Cash Flow" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis as if the Securities
outstanding on the Transaction Date were issued on the first day of such four
full fiscal quarter period. In addition, "Consolidated Cash Flow" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
retirement of any Indebtedness of such Person and its Subsidiaries at any time
during the period (the "Reference Period") (A) commencing on the first day of
the four full fiscal quarters ended before the Transaction Date for which
financial statements are available and (B) to, and including, the Transaction
Date, including, without limitation, the incurrence of the Indebtedness giving
rise to the need to make such calculation, as if such Indebtedness were incurred
or retired on the first day of the Reference Period; provided that if such
Person or any of its Subsidiaries directly or indirectly guarantees Indebtedness
of a third Person, the above clause shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or such Subsidiary had directly
incurred such guaranteed Indebtedness and (ii) any Asset Sale, Event of Loss or
Asset Acquisition (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or any of
its Subsidiaries (including any Person who becomes a Subsidiary as result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
Reference Period and any retirement of Indebtedness in connection with such
Asset Acquisition, as if such Asset Sale, Event of Loss or Asset Acquisition
and/or retirement occurred on the first day of the Reference Period.
Furthermore, in calculating the denominator (but not the numerator) of this
"Consolidated Coverage Ratio," interest on Indebtedness determined on a
fluctuating basis that cannot be determined in advance shall be deemed to accrue
at the rate in effect on the Transaction Date for such entire period.
"Consolidated Fixed Charges" means as applied to any Person for any
period (a) the sum of the following items (without duplication): (i) the
aggregate amount of interest reflected in the financial statements by such
Person and its Subsidiaries in respect of their consolidated Indebtedness
(including, without limitation, all interest capitalized by such Person and its
Subsidiaries during such period, any amortization of debt discount and all
commissions, discounts and other similar fees and charges owed by such Person or
any of its Subsidiaries for letters of credit and bankers' acceptance financing
and the net costs associated with Interest and Currency Rate Protection
Obligations of such Person and its Subsidiaries); (ii) the aggregate amount of
the interest component of rentals in respect of Capitalized Lease Obligations
recognized by such Person and its Subsidiaries; (iii) to the extent any
Indebtedness of any other Person is guaranteed by such Person or any of its
Subsidiaries, the aggregate amount of interest paid or accrued by such other
Person during such period attributable to any such guaranteed Indebtedness; (iv)
dividends on Preferred Stock of any Subsidiary that is held by a Person other
than such Person or a wholly-owned Subsidiary; (v) the interest portion of any
deferred payment obligation and less (b) to the extent included in clause (a)
above, amortization or write-off of deferred financing costs of such Person and
its Subsidiaries and any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness before its stated
maturity, with the foregoing amounts in the case of both clauses (a) and (b)
above, as determined in accordance with GAAP.
"Consolidated Income Tax Expense" means, as applied to any Person for
any period, federal, state, local and foreign income taxes of such Person and
its Subsidiaries for such period, determined in accordance with GAAP; provided
that, for purposes hereof, "income taxes" shall specifically exclude any taxes
paid to or imposed by a Gaming Authority.
G-5
"Consolidated Net Income" means, as applied to any Person for any
period, the aggregate of the consolidated Net Income (or net loss) of such
Person and its Subsidiaries (determined in accordance with GAAP) less (to the
extent included in such Consolidated Net Income): (a) the Net Income of any
other Person in which such Person and any of its Subsidiaries has a joint
interest with a third party (which interest does not cause the Net Income of
such other Person to be consolidated into the Net Income of such Person and its
Subsidiaries in accordance with GAAP) except to the extent of the amount of cash
dividends or other cash distributions in respect of Capital Stock actually paid
(out of funds legally available therefrom) to and received by such Person or a
Subsidiary, net of any taxes applicable thereto; (b) items (other than the tax
benefit of the utilization of net operating loss carryforwards or alternative
minimum tax credits) classified as extraordinary; (c) the net income of any
Subsidiary (other than a Guarantor) to the extent that the declaration of
dividends or similar distributions by such Subsidiary of that income is not at
the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, law,
rule or governmental regulations applicable to that Subsidiary or its
stockholders; (d) any net gain or loss resulting from an Asset Sale or Event of
Loss or reserves relating thereto by such Person or any of its Subsidiaries; (e)
any gain (but not loss), net of taxes, realized upon the termination of any
employee pension benefit plan; and (f) all income taxes of such Person and its
Subsidiaries accrued according to GAAP for such period attributable to
extraordinary gains or losses.
"Convertibility Notice" has the meaning set forth in Section 1501(a)
hereof.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at [_________________________], except that with respect to presentation
of Securities for payment or for registration of transfer or exchange, such term
shall mean the office or agency of the Trustee at which, at any particular time,
its corporate agency business shall be conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"CRDA Investments" means Investments in securities issued by, and
monies deposited with, the Casino Reinvestment Development Authority of the
State of New Jersey.
"Default" means any Event of Default, or an event that would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both.
"Demand Payment" has the meaning set forth in Section 301 hereof.
"Demand Payment Date" means the date specified by the Requisite Lenders
in the Demand Payment Notice.
"Demand Payment Notice" has the meaning set forth in Section 301
hereof.
"Depreciation Expense" means, as applied to any Person for any period,
the provision for depreciation that is reflected on the consolidated financial
statements of such Person and its Subsidiaries in accordance with GAAP.
"Disqualified Holders" shall have the meaning provided in Section 1109.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock or other similar ownership or profit interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
exchangeable for Indebtedness, or is redeemable at the option of the holder
thereof, in whole or in part, on or before the Maturity Date of the Securities.
"Division of Gaming Enforcement" means the Division of Gaming
Enforcement of the New Jersey Department of Law and Public Safety as established
by Section 55 of the Casino Control Act or any successor division or agency.
"Event of Default" has the meaning specified in Section 501.
"Event of Loss" means, with respect to any property or asset (tangible
or intangible, real or personal), any of the following: (a) any loss,
destruction or damage of such property or asset; (b) the condemnation or seizure
G-6
of such property or asset or the exercise of any right of eminent domain or
navigational servitude; or (c) 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; provided, that in any such case the Net Cash Proceeds
relating thereto are in excess of $5 million; provided that an "Event of Loss"
shall not include any event or occurrence (whether or not such event or
occurrence has already occurred) that the Requisite Lenders consent and agree
shall not be deemed to constitute and "Event of Loss."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Notes" means the 11% Notes due 2005 of Parent from time to
time outstanding.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined by the Board of Directors of the Company acting
in good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"Federal Bankruptcy Code" means the 1978 Bankruptcy Act of Title 11 of
the United States Code, as amended from time to time.
"FF&E Financing" means Indebtedness, the proceeds of which will be used
solely to finance the acquisition or lease of furniture, fixtures or equipment
("FF&E") used by the Person incurring such Indebtedness in the ordinary course
in the operation of a Permitted Line of Business and secured by a Lien on such
FF&E.
"GAAP" means generally accepted accounting principles 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 that are applicable as of the Issue
Date.
"Gaming Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States federal government or foreign government, any state, province
or any city or other political subdivision or otherwise and whether now or
hereafter in existence, or any officer or official thereof with authority to
regulate any gaming operation (or proposed gaming operation) owned, managed, or
operated by the Company or any of its Subsidiaries.
"Gaming Laws" means each gaming law of any applicable Gaming Authority
as amended from time to time, and the regulations promulgated and rulings issued
thereunder applicable to the Company or any of its Subsidiaries or shareholders.
"Grantor" means (a) any "Grantor" as defined in the Security Agreement;
(b) any "Mortgagor" as defined in the Mortgage; and (c) any other Person that
grants a security interest in its assets in favor of the Trustee for its benefit
and the benefit of the Holders.
"Guarantee" means the guarantee of the Guarantor set forth in Article
Twelve.
"Guarantor" means Licensee, until a successor Person shall have assumed
the obligations of Licensee pursuant to the applicable provisions of Section 801
or 802 of this Indenture, and thereafter "Guarantor" shall mean such successor
Person.
"Holder" means a Person in whose name a Security is registered in the
Security Register. A person shall cease to be a Holder for all purposes upon
conversion of such Security into Company Common Stock pursuant to Article
Fifteen of this Indenture.
"incur" means to directly or indirectly create, assume, suffer to
exist, guarantee in any manner, or in any manner become liable for the payment
of.
"Indebtedness" of any Person means (a) any liability, contingent or
otherwise, of such Person (whether or not the recourse of the lender is to the
whole of the assets of such Person, or only to a portion thereof), (i) for
borrowed money; (ii) evidenced by a note, bond, debenture or similar instrument,
letters of credit, acceptances or other similar facilities (other than a trade
payable or a current liability incurred in the ordinary course of business); or
(iii) for the payment of money relating to a Capitalized Lease Obligation or
other obligation relating to the
G-7
deferred purchase price of property or services (including a purchase money
obligation); (b) any liability of others of the kind described in the preceding
clause (a) which such Person has guaranteed including, without limitation, (i)
to pay or purchase such liability, (ii) to supply funds to or in any other
manner invest in the debtor (including an agreement to pay for property or
services irrespective of whether such property is received or such services are
rendered; and (iii) to purchase, sell or lease (as lessee or lessor) property or
to purchase or sell services, primarily for the purpose of enabling a debtor to
make a payment of such Indebtedness or to assure the holder of such Indebtedness
against loss; (c) any obligation secured by a Lien to which the property or
assets of such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such Person's legal
liability; (d) all obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any Capital Stock of or
other ownership or profit interest in such Person or any of its Affiliates or
any warrants, rights or options to acquire such Capital Stock, valued, in the
case of Disqualified Stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends; (e) all Interest and
Currency Rate Protection Obligations; and (f) any and all deferrals, renewals,
extensions and refundings of any liability of the kind described in any of the
preceding clauses.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented, changed, modified or amended (by any addition
to or elimination of, the provisions hereof, or otherwise) by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof.
"Independent," when used with respect to any Person, means such other
Person who (a) does not have any material financial interest in the Company or
in any Affiliate of the Company and (b) is not an officer, employee, promoter,
underwriter, trustee, partner or person performing similar functions for the
Company or a spouse, family member or other relative of any such Person;
provided, that with respect to any director of any corporation, such director
shall also be deemed to be "Independent" if such director meets the requirements
for independence established by any "national securities exchange" (as
contemplated in the Securities Exchange Act of 1934) for audit committee
membership. Whenever it is provided in this Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by the Company.
"Interest and Currency Rate Protection Obligations" means the
obligations of any Person pursuant to any interest rate swap, cap or collar
agreement, interest rate future or option contract, currency swap agreement,
currency future or option contract and other similar agreement designed to hedge
against fluctuations in interest rates or foreign exchange rates.
"Investment" in any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (including,
without limitation, transfers of cash or other property to others or payments
for property or services for the account or use of others (excluding unbilled or
uncollected receivables), or otherwise), or purchase or acquisition of Capital
Stock, warrants, rights, options, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person or Indebtedness of any
other Person secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.
"Issue Date" means the date of original issuance of the Securities.
"Licensee" means ACE Gaming, LLC, a New Jersey limited liability
company.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security, or other security
agreement of any kind or nature whatsoever. For purposes of this Indenture, a
Person shall be deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, or other title retention agreement relating to such
Person.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Maturity Date," when used with respect to any Security, means the date
specified in such Security as the fixed date on which the final installment of
principal of such Security is due and payable.
G-8
"Mortgage" means the [Mortgage and Fixture Security Agreement], dated
as of ______________, duly executed by Guarantor in favor of the Trustee for the
benefit of the Holders.
"Net Cash Proceeds" means, with respect to any Asset Sale or Event of
Loss, as the case may be, the proceeds thereof in the form of cash or Cash
Equivalents received by the Company or any of its Subsidiaries (whether as
initial consideration, through the payment or disposition of deferred
compensation or the release of reserves), after deducting therefrom (without
duplication): (a) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finders fees and other similar fees and expenses
incurred in connection with such Asset Sale or Event of Loss; (b) provisions for
all taxes payable as a result of such Asset Sale or Event of Loss; (c) payments
made to retire Indebtedness (other than payments on the Securities) secured by
the assets subject to such Asset Sale or Event of Loss to the extent required
pursuant to the terms of such Indebtedness; and (d) appropriate amounts to be
provided by the Company or any of its Subsidiaries, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale or Event of Loss and retained by the Company or any of its
Subsidiaries, as the case may be, after such Asset Sale or Event of Loss,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale or Event of
Loss, in each case to the extent, but only to the extent, that the amounts so
deducted are, at or around the time of receipt of such cash or Cash Equivalents,
actually paid to a Person that is not an Affiliate of the Company or, in the
case of reserves, are actually established and, in each case, are properly
attributable to such Asset Sale or Event of Loss.
"Net Income" means, with respect to any Person for any period, the net
income (or loss) of such Person determined in accordance with GAAP.
"Officers' Certificate" for any Person means a certificate signed by
the Chairman, the President, Executive Vice President or a Vice President, and
by the Chief Financial Officer or the Secretary of such Person, and delivered to
the Trustee.
"Opinion of Counsel" means a written opinion of counsel for the Company
or any of its Affiliates, including an employee of any such Person, or any other
counsel reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment, redemption or
conversion money or Company Common Stock in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if
the Company shall act as its own Paying Agent in accordance with the
applicable terms of this Indenture) for the Holders of such Securities;
provided that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Thirteen; and
(iv) Securities in respect of which, pursuant to Section 306, other
Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands the Securities
are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder or taken any other
action, Securities owned by the Company or its Subsidiaries shall be disregarded
and deemed not to be Outstanding (but the Securities of any other Affiliates or
other Persons shall be deemed for all such purposes to be Outstanding). In
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver or other action, only Securities owned by the Company or its
Subsidiaries which the Trustee knows to be so owned shall be so disregarded.
Securities owned by the Company or its Subsidiaries which have been pledged in
good faith may be regarded as Outstanding if
G-9
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company, the Guarantor, or a Subsidiary of the Company.
"Parent" means [name of GBH successor entity].
"Parent Indenture" means the [Second Amended and Restated Indenture,
dated as of ______________, 2004], between Parent and _____________, as the same
may be amended from time to time.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any,
on) or interest on any Securities on behalf of the Company.
"Permitted Indebtedness" means any of the following Indebtedness to the
extent incurred by the Company:
(i) Indebtedness under the Notes, the Indenture or any Security
Document;
(ii) Indebtedness if, immediately after giving pro forma effect to the
incurrence thereof, the projected Consolidated Coverage Ratio of the
Company for the next full fiscal quarter, as determined by the Board of
Directors of the Company based upon its projections, would be no less than
1.5:1;
(iii) Indebtedness having a maturity at the time of its incurrence of
one year or less incurred solely to provide funds for working capital
purposes; provided that such Indebtedness (A) does not exceed $15 million
outstanding in the aggregate at any one time and (B) for a period of 60
consecutive days during any calendar year, does not exceed in the aggregate
$5 million;
(iv) FF&E Financing and/or Capitalized Lease Obligations so long as the
sum of (x) the aggregate principal amount of such FF&E Financing and (y)
the aggregate amount of such Capitalized Lease Obligations does not exceed
$50 million in the aggregate at any time;
(v) Indebtedness of the Company that is outstanding on the Issue Date
and the items listed on Schedule 1.01 hereof on the Issue Date; and
(vi) purchase money mortgage notes or other Indebtedness to acquire
Block 47, Lot 8 on the Tax Map of the City of Atlantic City, and to acquire
Block 156, Lots 28, 40 and 41 on the Tax Map of the City of Atlantic City
in fee simple or by long-term lease, which purchase money mortgage note or
similar indebtedness encumbers only such Block and Lot numbers on the Tax
Map of the City of Atlantic City, or any other Indebtedness for the purpose
of engaging in any transaction in which the value of the assets acquired,
for GAAP purposes (including applicable goodwill) is equal to or greater
than the financing undertaken in connection with such transaction.
"Permitted Liens" means:
(i) Liens on property acquired after the Issue Date by way of a merger
or other business combination of a Person with or into the Company or any
Subsidiary or the acquisition of a Person or its assets by the Company or
any Subsidiary or otherwise and provided that except as permitted in this
Indenture such Liens do not extend to any Collateral;
(ii) statutory Liens to secure the performance of obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations in
respect of the payment of borrowed money), or for taxes, assessments or
governmental charges or claims, provided that in each case the obligations
are not yet delinquent or are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded and any reserve or
other adequate provision as shall be required in conformity with GAAP shall
have been made therefor;
(iii) licenses, leases or subleases granted in the ordinary course of
business to others not interfering in any material respect with the
business of the Company or any Subsidiary;
(iv) easement granted to the City of Atlantic City, New Jersey,
pursuant to municipal ordinance to extend Mt. Vernon Avenue right-of-way
upon part of Block 48, Lot 8 on the Tax Map of the City of Atlantic City;
G-10
(v) with respect to the property involved, easements, rights-of-way,
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 the Company
and its Subsidiaries as now conducted or as contemplated herein;
(vi) Liens granting a security interest in CRDA Investments to the
Casino Redevelopment Authority of New Jersey or any other entity as
required by applicable law;
(vii) Liens permitted by the Security Documents, including, without
limitation, Liens granted under or to secure Permitted Indebtedness;
(viii) Liens (a) on Assets or property of any kind other than
Collateral and (b) on Collateral (including, without limitation, any such
Liens incurred to secure Allowed Indebtedness) which, except for and
subject to any release or subordination contemplated in Section 1405
hereof, shall be inferior to the Liens of the Trustee on such Collateral;
(ix) Liens (which shall for all purposes be and be deemed to be
superior to the Liens of the Trustee under the Security Documents) to
secure Working Capital Indebtedness; and
(x) Liens consented to by the Requisite Lenders.
"Permitted Line of Business" means the casino gaming business and any
business that is related to, ancillary or supportive of, connected with or
arising out of the gaming business (including, without limitation, developing
and operating lodging, dining, sports or entertainment facilities,
transportation services, software development or other related activities or
enterprises and any additions or improvements thereto) and any other business
that the Requisite Lenders consent and agree shall be deemed to constitute a
"Permitted Line of Business."
"Permitted Payment" means the payment of (a) current scheduled interest
due on the Existing Notes; (b) Parent's normal, ordinary course operating
expenses (including legal and accounting costs, directors' and officers'
insurance premiums and fees for Commission filings) not to exceed in the
aggregate $250,000 in any twelve month period without the consent of the
Requisite Lenders; and (c) any amount required to be paid or reimbursed to the
trustee under the second amended and restated indenture, dated as of [
___________, 2004], governing the Existing Notes; provided however that with
respect to payments pursuant to clauses (a) and (b) the following conditions
should be satisfied unless consented to by the requisite Lenders: (i) such
payment is required to be made prior to the maturity date of the Existing Notes
and (ii) at the time of such payment and after giving effect thereto, no Event
of Default exists and no event that could result in an Event of Default has
occurred or is incipient.
"Permitted Related Investment" means the direct or indirect
acquisition, repair or restoration (including, without limitation, as permitted
in Article [9] of the Mortgage) of property or other Assets (including, without
limitation, Securities of any person possessing any such Asset or with rights
to, any Assets) to be used in connection with a Permitted Line of Business.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends on or to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
G-11
"Redemption Price," when used with respect to any Security to be
redeemed, means 100% of the principal amount of such Security, together with
accrued, unpaid interest.
"Release Notice" means a written notice of the Company or any of its
Subsidiaries in the form of a Company Order delivered pursuant to Section
1405(a).
"Requisite Lenders" means the holders of a majority in principal amount
of the Outstanding Securities.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Payment" means any of the following: (a) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary or any payment made to the direct or indirect holders
(in their capacities as such) of Capital Stock of the Company or any Subsidiary
in respect of that stock (other than (i) dividends or distributions payable
solely in Capital Stock (other than Disqualified Stock) and (ii) in the case of
a Subsidiary, dividends or distributions payable to the Company or to a
wholly-owned Subsidiary); (b) the purchase, defeasance, redemption or other
acquisition or retirement for value of any Capital Stock of the Company or any
Subsidiary (other than Capital Stock of such Subsidiary held by the Company or
any of its wholly-owned Subsidiaries); and (c) the making of any principal
payment on, or the purchase, defeasance, repurchase, redemption or other
acquisition or retirement for value (in each case before any scheduled payment
date, scheduled maturity, scheduled repayment or scheduled sinking fund payment)
of, any Indebtedness (other than Securities) which is subordinated in any manner
in right of payment to the Securities (other than: (i) Indebtedness acquired in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition or
(ii) Allowed Indebtedness); provided that the term "Restricted Payment" shall
not include any payment, transaction or occurrence that the Requisite Lenders
consent and agree shall not be deemed to constitute a "Restricted Payment."
"Sale-Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of any real or
tangible personal property, which property has been or is to be sold or
transferred by the Company or any such Subsidiary to such Person or its
Affiliates in contemplation of such leasing.
"Sands" means the Sands Hotel and Casino located in Atlantic City, New
Jersey.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Agreement" means the Security Agreement contemporaneously
herewith made by each of Guarantor and the Company to the Trustee for its
benefit and the benefit of the Holders, as the same may be amended from time to
time.
"Security Documents" means this Indenture, the Security Agreement, the
[Collateral Assignment of Leases], and the Mortgage and any other mortgage, deed
of trust, security agreement or similar instrument securing the Company's or the
Guarantor's obligations with respect to the Securities or under this Indenture
or any of the other Security Documents.
"Security Interest" has the meaning specified in Section 1401(a).
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security, means the
earlier of (a) the date specified in such Security as the fixed date on which
the principal of such Security is due and payable, including pursuant to any
G-12
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof) and (b) the
Demand Payment Date.
"Stated Ratio" has the meaning specified in Section 1503.
"Subordination Determination" has the meaning specified in Section
1405(b).
"Subordination Request" means a written request of the Company or any
of its Subsidiaries in the form of a Company Order delivered pursuant to Section
1405(b).
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate of which (or in which) more than 50% of (a) the issued
and outstanding Capital Stock having ordinary voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency); (b) the
interest in the capital or profits of such partnership or joint venture; or (c)
the beneficial interest in such trust or estate, is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States Government Obligations" means securities which are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only as long as no
senior class of securities has such voting power by reason of any contingency.
"Working Capital Indebtedness" means Indebtedness designated as such by
the Board of Directors of the Company, the proceeds of which are to be held or
applied for working capital purposes, not to exceed, at any one time
outstanding, in the aggregate, principal of $25 million (plus interest accrued
for not more than 365 days) for all such Indebtedness of the Company and its
Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company or the Guarantor to the
Trustee to take any action under any provision of this Indenture, the Company or
the Guarantor shall furnish to the Trustee an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture (including any
covenant compliance with which constitutes a condition precedent) relating to
the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008) shall include:
(i) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
G-13
(iii) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or the
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company or the Guarantor stating that the information with respect to such
factual matters is in the possession of the Company or the Guarantor, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture or otherwise to be given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company or the
Guarantor. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the Company
or the Guarantor, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company or the Guarantor shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company or the Guarantor may, at its option, by or
pursuant to Board Resolution, fix in advance a record date for the determination
of Holders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other Act, but the Company or the Guarantor shall
have no obligation to do so. Notwithstanding TIA Section 316(c), such record
date shall be the record date specified in or pursuant to such Board Resolution,
which shall be a date not earlier than the date 30 days prior to the first
solicitation of Holders generally in connection therewith and not later than the
date such solicitation is
G-14
completed. If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Outstanding Securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for that purpose the
Outstanding Securities shall be computed as of such record date; provided that
no such authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefore or in lieu thereof
including, without limitation, in respect of anything done, omitted or suffered
to be done by the Trustee or the Company or the Guarantor in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) For the purpose of the Company or the Guarantor complying with any
requirement of the Casino Control Commission, or the Division of Gaming
Enforcement or of the Casino Control Act, every holder, intermediary holder,
intermediary beneficial holder and beneficial holder of a Security shall be
deemed to authorize any Holder and any other holder, intermediary holder,
intermediary beneficial holder and beneficial holder of a Security, upon written
request of an Officer of the Company, the Guarantor, or the Trustee expressing
reliance on this Section and enclosing a copy of this Section, to release, and
any such holder, intermediary holder, intermediary beneficial holder and
beneficial holder shall be required to release, to the Company, the Guarantor,
or the Trustee, as the case may be, the name, address, telephone number,
principal contact person, and amount of such holdings, intermediary holdings,
intermediary beneficial holdings and beneficial holdings of Securities of each
such holder, intermediary holder, intermediary beneficial holder and beneficial
holder of a Security.
SECTION 105. Notices, etc., to Trustee, Company and Guarantor.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(i) the Trustee by any Holder, the Company or the Guarantor shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Administration, or
(ii) the Company or the Guarantor by the Trustee or by any Holder shall
be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to the Company or the Guarantor, as the case may be, addressed to it at the
address of its principal office specified in the first paragraph of this
Indenture, with a copy to: Sands Hotel and Casino, Indiana Avenue and
Brighton Park, Atlantic City, N.J. 08401, or at any other address
previously furnished in writing to the Trustee by the Company or the
Guarantor, as the case may be.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given
G-15
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
Any notices hereunder that are required to be given to the Casino
Control Commission shall be addressed to: Document Control Unit, Casino Control
Commission, Tennessee Avenue and the Boardwalk, Arcade Building, Atlantic City,
New Jersey 08401, Attention: Chief of Administrative Operations. Any notices
hereunder that are required to be given to the Division of Gaming Enforcement
shall be addressed to: Division of Gaming Enforcement, 140 East Front Street,
CN-047, Trenton, New Jersey 08625, Attention: Deputy Director for the Division
of Gaming Enforcement.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture and in the Security
Documents by each of the Company or the Guarantor shall bind its successors and
assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York. This Indenture is subject to
the provisions of the Trust Indenture Act of 1939, as amended, that are required
to be part of this Indenture and shall, to the extent applicable, be governed by
such provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, sinking
fund payment date or Stated Maturity or Maturity of any Security shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Securities) payment of interest or principal (and premium, if any) need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date, Redemption
Date or sinking fund payment date, or at the Stated Maturity or Maturity;
provided that no interest shall accrue on such payment for the period from and
after such Interest Payment Date, Redemption Date, sinking fund payment date,
Stated Maturity or Maturity, as the case may be.
SECTION 113. Casino Control Act.
Notwithstanding the provisions of Section 111 hereof, each of the
provisions of this Indenture is subject to and shall be enforced in compliance
with the provisions of the Casino Control Act, to the extent applicable, and the
regulations promulgated thereunder, unless such provisions are in conflict with
the TIA, in which case the TIA shall control. The Securities are to be held
subject to the condition that if a holder thereof is found to be disqualified by
the Casino Control Commission pursuant to the provisions of the Casino Control
Act, such holder shall dispose of the Securities in accordance with the
provisions of Section 1109 hereof. The Company shall have the right to
repurchase the Securities at the lowest of (a) the principal amount thereof; (b)
the amount which the Disqualified Holder or beneficial owner paid for the
Securities, together with accrued interest up to the date of the determination
of disqualification; or (c) the market value of such Securities.
G-16
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. Form of Face of Notes.
Atlantic Coast Entertainment Holdings, Inc.
3% Note Due 2008
No. $
--------------------- -------------------------
Atlantic Coast Entertainment Holdings, Inc., a Delaware corporation
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to __________ or registered assigns in full satisfaction of the principal sum of
__________ U.S. Dollars, and interest which shall accrue thereon at a rate of 3%
per annum compounded annually on each [__________], (a) on the Demand Payment
Date, the Applicable Common Stock or (b) if the Demand Payment Date does not
occur on or prior to September 29, 2008, then on September 29, 2008 cash in the
amount of such principal plus accrued interest. The obligations under this
Security shall be deemed fully paid, satisfied, discharged and extinguished as
contemplated in the Indenture. Notwithstanding anything contained herein, the
rate of interest on the Securities shall not exceed the highest rate permitted
by law. Payment of this Security will be made at the office or agency of the
Company maintained for that purpose in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose either (i)
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts in the case of
payment pursuant to clause (b) above or (ii) in Applicable Common Stock in the
case of payment pursuant to clause (a) above.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place. Unless the certificate of
authentication hereon has been duly executed by the Trustee referred to on the
reverse hereof by manual signature, this Security shall not be entitled to any
benefit under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: [__________] Atlantic Coast Entertainment Holdings, Inc.
By:
--------------------------
Attest:
----------------------------
Authorized Signature
G-17
SECTION 203. Form of Reverse of Notes.
This Security is one of a duly authorized issue of securities of the
Company designated as its 3% Notes Due 2008 (herein called the "Securities"),
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $[110] million, which may be issued under an
indenture (herein called the "Indenture"), dated as of [____________] between
the Company, [Name of Guarantor] (the "Guarantor") and [___________________],
trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. Interest on the
Securities shall be computed on the basis of a 360-day year of twelve 30-day
months.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice, at any time prior to the Company's receipt of a Demand
Payment Notice (or, with respect to a particular Note, a notice of payment in
accordance with Section 1502 of the Indenture), as a whole or in part, at the
election of the Company but only if such election is consented to by the
Requisite Lenders, at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued, unpaid interest to the
Redemption Date, all as provided in the Indenture.
Each of the provisions of this Security is subject to and shall be
enforced in compliance with the provisions of the Casino Control Act and the
regulations promulgated thereunder, to the extent applicable.
Each Holder by accepting a Security or becoming the beneficial owner
thereof shall for all purposes be deemed to agree and consent (a) to all of the
terms and provisions of the Indenture and (b) that all Holders, whether initial
holders or subsequent transferees, shall be subject to the qualification
provisions of the Casino Control Act. As set forth more fully in the Indenture,
in the event that the Casino Control Commission determines that a Holder is not
qualified under the Casino Control Act, the Company shall have the absolute
right and obligation to purchase from such Holder (the "Disqualified Holder")
the Securities the Disqualified Holder may then possess, no later than
forty-five days after the date that the Company serves notice on any
Disqualified Holder of such determination. Immediately upon such determination,
the Disqualified Holder shall have (i) no further right to exercise, directly or
through any trustee or nominee, any right conferred by its Securities or (ii) no
further right to receive any dividends, interest, or other distribution or
payment with respect to any such Securities. In the event a Disqualified Holder
fails to so sell its Securities within 30 days after the determination by the
Casino Control Commission, the Company shall purchase such Securities within 15
days after the end of such 30 day period (A) at the lowest of (1) the principal
amount thereof; (2) the amount which the Disqualified Holder paid for the
Securities, together with accrued interest up to the date of the determination
of disqualification; or (3) the market value of such Securities or (B) in lieu
of a purchase pursuant to clause (A), at the election of the Company if the same
is consented to by the Requisite Lenders, in exchange for the number of shares
of Applicable Common Stock that would apply to such Securities in the event of a
Demand Payment.
In the case of any redemption of Securities in accordance with Article
Eleven of the Indenture, interest that has accrued on or prior to the Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Date referred to on the face hereof. Securities (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of the Company on this Security and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon
G-18
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security. Any Lien that may from time to time secure
the Securities is subject to subordination or termination.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the Guarantor and the rights of the Holders under the Indenture at
any time by the Company, the Guarantor and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such amendment,
modification, consent or waiver by or on behalf of the Holder of this Security,
or otherwise in accordance with the terms of the Indenture, shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange here
for or in lieu hereof whether or not notation thereof is made upon this
Security.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amounts will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Securities are entitled to the benefit of the Guarantee by the
Guarantor to the extent provided in the Guarantee.
Subject to the provisions of the Indenture, the Requisite Lenders may
elect, upon delivery of notice to the Trustee, at their sole discretion, at any
time after the original issuance of any Notes through the close of business on
the final maturity date of the Notes, to cause all (but not less than all)
outstanding Notes to be convertible at the option of the Holder, in whole or in
part, into that number of shares of Company Common Stock (as such shares shall
be constituted at the date of conversion) obtained by multiplying the principal
amount of this Note by the Stated Ratio in effect at such time, by surrender of
the Note so to be converted, together with any required funds as provided in
Section 1502 of the Indenture.
All fractions will be rounded down to the nearest whole number of
shares, and no fractional shares will be issued upon any conversion or Demand
Payment referred to above and no payment will be made in respect of any fraction
of a share which would otherwise be issuable upon the surrender of any Note or
Notes for conversion or payment in shares upon a Demand Payment.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Guarantor (which term includes any successor Person under the
Indenture) has unconditionally guaranteed, to the extent set forth in the
Indenture and subject to the provisions in the Indenture, (a) the due and
punctual payment of the principal of and interest on the Securities, whether at
maturity, by acceleration or otherwise,
G-19
the due and punctual payment of interest on overdue principal, and, to the
extent permitted by law, interest, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee all in accordance
with the terms set forth in the Indenture and (b) in case of any extension of
time of payment or renewal of any Securities or any of such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at Stated Maturity, by
acceleration or otherwise.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth
in the Indenture and reference is hereby made to the Indenture for the precise
terms of the Guarantee.
Guarantor:
ACE GAMING, LLC
By:
-----------------------------------
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
WELLS FARGO BANK, NATIONAL ASSOCIATION,
AS TRUSTEE
By:
-----------------------------------
Authorized Officer
G-20
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
(a) The aggregate principal amount of securities which may be
authenticated and delivered under this Indenture is limited to $[110 million],
except for securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other securities.
(b) The Notes shall be known and designated as the "3% Notes Due 2008"
of the Company. Their Stated Maturity shall be September 29, 2008, and they
shall accrue interest (which shall be payable only at the Stated Maturity of the
Notes) at the rate of 3% per annum from [Issue Date], accruing and compounding
on each [__________________] and annually thereafter and at said Stated
Maturity, until the principal thereof is paid or duly provided for.
(c) The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
(d) The Securities shall be redeemable as provided in Article Eleven.
(e) The Securities shall be payable or convertible into Company Common
Stock as provided in Article Fifteen.
(f) At any time after the Issue Date, the Requisite Lenders shall be
entitled (in their sole and absolute discretion) to demand payment (a "Demand
Payment") of all of the Notes by delivering a notice (a "Demand Payment Notice")
to the Company demanding payment pursuant to this Section 301(f). Upon receipt
of a Demand Payment Notice, the Notes shall thereafter be satisfied (and such
Notes thereby extinguished) through the delivery by the Company to the Holder
thereof of such number of shares of Company Common Stock (as such shares shall
be constituted at the date of such payment) obtained by multiplying the
principal amount of each Note by the Stated Ratio in effect at such time, plus
any other securities or property that would be required to be issued in respect
of such Note, as contemplated in Article Fifteen, in the case of Demand Payment
(collectively, the "Applicable Common Stock"). All fractions will be rounded
down to the nearest whole number of shares, and no fractional shares will be
issued upon any Demand Payment and no payment will be made in respect of any
fraction of a share which would otherwise be issuable upon the surrender of any
Note or Notes in connection therewith. On the Demand Payment Date the Notes
shall for all purposes cease to be (and shall be deemed to cease to be)
outstanding and shall be discharged and all principal and accrued interest
thereon extinguished and shall thereafter represent solely the right of the
Holder to receive the Applicable Common Stock contemplated herein by surrender
of such Notes in the manner provided in Article Fifteen hereof.
(g) If the Company is served with notice of the disqualification of any
Holder under Section 105(d) of the Casino Control Act by the Casino Control
Commission, such Holder will be prohibited under Section 105(e) of the Casino
Control Act from (i) receiving interest on the Securities held by such Holder;
(ii) exercising, directly or through any trustee or nominee, any right conferred
on such Securities; and (iii) receiving any remuneration in any form from any
Person licensed or qualified by the Casino Control Commission (including the
Company, the Guarantor and the Trustee) for services rendered or otherwise.
Notwithstanding the foregoing, the Trustee shall be entitled to exercise all
rights with respect to the Securities held by such Holder including, but not
limited to, accelerating the Securities (any monies or securities received by
the Trustee on behalf of such Holder to be held in trust for such Holder
pursuant to Section 605 hereof). If the Trustee exercises voting rights with
respect to such Securities, such votes shall be cast in the same proportion as
the votes of the other Outstanding Securities are cast on such issue. A copy of
any notice served upon the Company as described above shall be promptly
delivered by the Company to the Trustee. Any such notice to the Trustee shall be
effective against the Trustee on the second Business Day after receipt thereof
by a Responsible Officer of the Trustee.
G-21
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman, its President, a Vice President, or the Chief Financial Officer. The
signature of any officer on the Securities may be manual or facsimile signatures
of the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one
G-22
or more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount
and like terms.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount and like terms, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges not involving any transfer.
The Company shall not be required (a) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption; (b) to register the transfer of or exchange any Security
so selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part; or (c) to register a transfer of any
Security surrendered for conversion or in respect of any Demand Payment pursuant
to Article Fifteen.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
G-23
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security shall be paid to the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close of
business on the Stated Maturity Date at the office or agency of the Company
maintained for such purpose pursuant to Section 1002.
SECTION 308. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Sections 305 and 307) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, conversion,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. Maximum Interest Rate.
Regardless of any provision contained herein, in the Securities or in
any of the Security Documents, the Holders shall not be entitled to receive,
collect or apply as interest (whether termed interest in the documents or deemed
to be interest by judicial determination or operation of law) on the Securities,
any amount in excess of the maximum amount allowed by applicable law, and, if
any Holder ever receives, collects or applies as interest any such excess, the
amount that would be excessive interest shall be deemed to be a partial
prepayment of principal and treated hereunder as such; and, if the principal
amount of the Securities is paid in full, any remaining excess shall forthwith
be paid to the Company. In determining whether or not the interest paid or
payable under any specific contingency exceeds the maximum amount of interest
allowed by applicable law, the Company and the Holders shall, to the maximum
extent permitted under applicable law, (a) characterize any nonprincipal payment
as an expense fee, or premium rather than interest; (b) exclude voluntary
prepayments and the effects thereof; and (c) amortize, prorate, allocate and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of the Securities.
G-24
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities herein expressly provided for) and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture and releasing all liens and security interests in
the Collateral when
(i) either
(A) all Securities theretofore authenticated and delivered
(other than (1) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306, (2)
Securities for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003 and (3) securities that
have been duly delivered to the Trustee for conversion or payment
pursuant to Article Fifteen hereof) have been delivered to the Trustee
for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(1) have become due and payable as the result of a
Demand Payment, or
(2) have become due and payable at their Stated
Maturity, or
(3) are to be called for redemption (with the consent
of the Requisite Lenders having been obtained) within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (1), (2) or (3) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount (including any shares of Company Common
Stock) sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation,
for principal (and premium, if any) and interest to the date of such
deposit (in the case of Securities which have become due and payable)
or to the Stated Maturity or Redemption Date, or to satisfy the rights
of holders of Securities under this Indenture to obtain Applicable
Common Stock in respect of any Demand Payment;
(ii) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(iii) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for in this Section 401 relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (i) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003, shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money and property deposited with the Trustee pursuant to Section 401 shall be
held in trust and, at the direction of the Company, be invested prior to
Maturity in United States Government Obligations, and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for whose
payment such money has been deposited with the Trustee; but such money need not
be segregated from other funds except to the extent required by law. Any funds
remaining following payment of all Securities and all other obligations of the
Company hereunder shall be the property of the Company.
G-25
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) default in the payment of any principal of (or premium, if any, on)
any Security, or interest thereon, at its Maturity; or
(ii) default in the performance, or breach, of any covenant or warranty
of the Company or any of its Subsidiaries in this Indenture or of the
Company or Guarantor in the Security Documents (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in this Section), and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company and the Guarantor by the Trustee or to the
Company and the Guarantor and the Trustee by the Requisite Lenders a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder,
unless the Company or any of its Subsidiaries is proceeding, and continues
to proceed, diligently to cure any such default; or
(iii) (A) there shall have occurred one or more defaults by the Company
or any of its Subsidiaries in the payment of the principal of or premium,
if any, on Indebtedness aggregating $5 million or more, when the same
becomes due and payable at the stated maturity thereof, and such default or
defaults shall have continued after any applicable grace period and shall
not have been cured or waived or (B) in accordance with the terms of an
agreement or instrument binding upon the Company or any of its
Subsidiaries, Indebtedness of the Company or any of its Subsidiaries
aggregating $5 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment), prior to the stated
maturity thereof; or
(iv) any Person entitled to take the actions described in this Section
501(4), after the occurrence of any event of default under any agreement or
instrument evidencing any Indebtedness in excess of $5 million in the
aggregate of the Company or any of its Subsidiaries, shall notify the
Trustee of the intended sale or disposition of any assets of the Company or
any of its Subsidiaries that have been pledged to or for the benefit of
such Person to secure such Indebtedness or shall commence proceedings, or
take any action (including by way of set-off) to retain in satisfaction of
any Indebtedness, or to collect on, seize, dispose of or apply, any such
assets of the Company or any of its Subsidiaries (including funds on
deposit or held pursuant to lock-box and other similar arrangements),
pursuant to the terms of any agreement or instrument evidencing any such
Indebtedness of the Company or any of its Subsidiaries or in accordance
with applicable law; or
(v) final judgments or orders rendered against the Company or any of
its Subsidiaries which require the payment in money, either individually or
in an aggregate amount, that is more than $10 million and (A) an
enforcement proceeding shall have been commenced by any creditor upon such
judgment or order and (B) there shall have been a period of 60 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of pending appea1 or otherwise, was not in effect; or
(vi) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any of its Subsidiaries a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition or in respect of the
Company or any such Subsidiary under the Federal Bankruptcy Code or any
other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any such Subsidiary or of any substantial part of their
respective property, or ordering the winding up or liquidation of their
respective affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 90 consecutive days; or
G-26
(vii) the institution by the Company or any of its Subsidiaries of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any such Subsidiary or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due; or
(viii) any of the Security Documents ceases to be in full force and
effect in any material respect or any of the Security Documents ceases to
create in favor of the Trustee, with respect to any material amount of
Collateral, a valid and perfected first priority Lien on the Collateral
purported to be covered thereby, except for any cessation, release or
subordination contemplated or permitted (or resulting from any act
contemplated or permitted) by Section 1405 or as may be otherwise
contemplated by this Indenture; or
(ix) the cessation of substantially all gaming operations at The Sands
for more than 60 consecutive days, except as a result of an Event of Loss;
or
(x) the loss by Guarantor or its successor or assigns of its legal
right to own or operate The Sands and such loss continues for more than 60
consecutive days.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(6) or 501(7)) occurs and is continuing, then and in every such case,
the Trustee and the Requisite Lenders, may declare the principal amount of all
the Securities to be due and payable immediately, by a notice in writing to the
Company and the Guarantor, and upon any such declaration such principal amount
shall become immediately due and payable. If an Event of Default specified in
Section 501(6) or 501(7) occurs and is continuing, then the principal amount of
all the Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee and any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Requisite Lenders, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(i) the Company has paid or deposited with the Trustee a sum sufficient
to pay,
(A) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Securities, and
(B) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(ii) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Securities because of an Event of Default
specified in Section 501(3) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness or the same has been waived or stayed, and written notice of such
discharge, rescission, waiver or stay, as the case may be, shall have been given
to the Trustee by the Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Securities, and no
other Event of Default has occurred during such 30-day period which has not been
cured or waived during such period.
G-27
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(i) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(ii) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any), and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in any Security
Document or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, the Guarantor or any other obligor
upon the Securities or the property of the Company, the Guarantor or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Company for the payment of overdue principal,
premium, if any, or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
G-28
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money and property collected by the Trustee pursuant to this
Article or in connection with the exercise of remedies under any Security
Document shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any, on,) and interest on the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) the Requisite Lenders shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(ii) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(iii) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(iv) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Section 507 to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal
Premium and Interest.
The Holder of any of the Securities shall have the right, which is
absolute and unconditional, to receive payment, as provided herein (including,
if applicable, Article Thirteen) and in the terms of each note representing such
Securities of the principal of (and premium, if any, on) and interest on, such
Securities on the respective Stated Maturities expressed in such Securities (or,
in the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder; provided, however, that by a Holder's acquisition of
any of the Securities, such Holder or the beneficial owner thereof shall be
deemed to have consented to each and every provision of the Indenture including,
without limitation, the provisions of Sections 301, 1405 and Articles Two,
Thirteen and Fifteen hereof.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Security Document and such
proceeding has been discontinued or abandoned for any reason, or has
G-29
been determined adversely to the Trustee or to such Holder, then and in every
such case, subject to any determination in such proceeding, the Company, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or any
Security Document or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
SECTION 512. Control by Holders.
Notwithstanding anything to the contrary set forth in Section 316(a) of
the TIA (the provisions of which are hereby excluded), the Requisite Lenders
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee under this Indenture or the Security Documents,
provided that
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(iii) the Trustee need not take any action which might involve it in
personal liability unless it has obtained appropriate indemnity.
SECTION 513. Waiver of Defaults and Compliance.
Notwithstanding anything to the contrary set forth in Section 316(a) of
the TIA (the provisions of which are hereby excluded) the Requisite Lenders may
on behalf of the Holders of all the Securities:
(i) waive any past default hereunder and its consequences, except a
default in respect of the payment of the principal of (or premium, if any,
on) or interest on any Security, and upon any such waiver, such default
shall cease to exist, and any Event of Default arising therefrom shall be
deemed to have been cured and released, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon; and
(ii) waive future compliance with any term, provision or condition of
this Indenture or the Security Documents or any related instruments,
agreements or documents (but no such waiver shall extend to or affect such
term, provision or condition except to the extent so expressly waived), in
which event the Company and the Guarantor may omit to comply with any such
term, provision or condition of this Indenture, the Security Documents or
any related instrument, agreement or document.
The provisions of this Section 513 and Section 512 hereof apply to all
provisions of this Indenture and the Security Documents and the fact that
various provisions of this Indenture and the Security Documents may include
specific reference to the consent or other approval or agreement of or by the
Requisite Lenders shall not, for any purpose, be deemed to limit the application
of Section 512 or this Section 513.
G-30
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within the earlier of 90 days after the occurrence of any Default
hereunder or as soon as practicable after any such Default becomes to known to
the Trustee, the Trustee shall transmit in the manner and to the extent provided
in TIA Section 313(c), notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of (or premium,
if any, on) or interest on any Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders; and provided further that in the case of any Default of
the character specified in Section 501(4) no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. The Trustee shall not
be deemed to have knowledge of any Default or Event of Default hereunder unless
a Responsible Officer in its Corporate Trust Department shall have actual
knowledge thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(i) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(ii) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(iii) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(iv) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(v) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(vi) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(vii) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(viii) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture; and
G-31
(ix) the Trustee shall not be personally liable, in case of entry by it
upon any property subject to the liens of the Security Documents, for debts
contracted or liabilities or damages incurred in the management or
operation thereof.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
The Trustee and its directors, officers, employees and Affiliates shall
cooperate with the Casino Control Commission and the Division of Gaming
Enforcement and provide such information and documentation as may from time to
time be requested by such agencies.
The Trustee may rely on, and shall be protected with respect to any
action taken or omitted to be taken in good faith in accordance with, the
direction of the Requisite Lenders.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in a Statement of Eligibility and Qualification of Form T-1 supplied to the
Company are true and accurate, subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Securities or the proceeds thereof.
The Trustee makes no representations with respect to the effectiveness
or adequacy of any Security Document, or the validity, perfection or priority,
if any, of liens granted to it under this Indenture or the Security Documents.
The Trustee shall not be responsible for ascertaining or maintaining such
validity, perfection or priority, if any, and shall be fully protected in
relying upon certificates and opinions delivered to it in accordance with the
terms of this Indenture or the Security Documents.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to TIA Sections
310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 605. Money Held in Trust.
Except as otherwise provided herein, money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise provided herein or agreed with the
Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(i) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree for all services
rendered by it hereunder and under the Security Documents (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust); and
(ii) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture and under the Security Documents (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
G-32
(iii) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust and under the Security Documents, including
the costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or
duties hereunder or thereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any, on) or interest
on particular Securities.
SECTION 607. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) Subject to the provisions of the Casino Control Act, the Trustee
may resign at any time by giving written notice thereof to the Company, the
Casino Control Commission and the Division of Gaming Enforcement. If the
instrument of acceptance by a successor Trustee required by Section 609 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) Subject to the provisions of the Casino Control Act, the Trustee
may be removed at any time by Act of the Requisite Lenders, delivered to the
Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of TIA Section
310(b) after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(iii) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, subject to the provisions of the Casino Control Act, (A)
the Company, by a Board Resolution, may remove the Trustee or (B) subject to TIA
Section 315(e), any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor
G-33
Trustee. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Requisite Lenders delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
Notwithstanding the foregoing, any successor Trustee may be appointed only with
the prior, express approval of the Casino Control Commission, in consultation
with the Division of Gaming Enforcement, provided that such successor Trustee
must first be qualified as a financial source by and cooperate with the Casino
Control Commission and the Division of Gaming Enforcement.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall take all necessary
steps to be approved by the Casino Control Commission and shall execute,
acknowledge and deliver to the Company, to the Guarantor and to the retiring
Trustee an instrument accepting such appointment, and the successor Trustee, the
Company and the Guarantor shall enter into a supplemental indenture evidencing
the appointment of the successor Trustee and, as required, any amendment or
modification to any Security Document or any additional Security Document.
Thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture provided that the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTOR
SECTION 701. Disclosure of Names and Addresses of Holders.
G-34
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
The Trustee shall transmit to the Holders, within the times hereinafter
specified a brief report with respect to the following:
(i) the release, or release and substitution, of property subject to
any Lien of this Indenture (and the consideration therefor, if any) unless
the fair value of such property, as set forth in the Officers' Certificate
or Opinion of Counsel required by TIA Section 314(d), is less than 10 per
centum of the aggregate principal amount of the Securities Outstanding at
the time of such release, or such release and substitution, such report to
be so transmitted within 90 days after such time; and
(ii) the character and amount of any advances made by it as such since
the date of the last report transmitted pursuant to the provisions of TIA
Section 313(a) (or if no such report has yet been so transmitted, since the
date of execution of the Indenture), for the reimbursement of which it
claims or may claim a Lien or charge, prior to that of the Indenture
Securities, on the trust estate or on property or funds held or collected
by it as such Trustee, and which it has not previously reported pursuant to
this clause (2), if such advances remaining unpaid at any time aggregate
more than 10 per centum of the aggregate principal amount of the Securities
Outstanding at such time, such report to be so transmitted within 90 days
after such time.
To the extent required by applicable laws, rules and regulations, a
copy of each such report shall, at the time of such transmission to the Holders,
be filed with each stock exchange, if any, upon which the Securities are listed,
and also with the Commission.
(b) The Trustee shall transmit by mail to the Casino Control Commission
and the Division of Gaming Enforcement (i) an initial list of the beneficial
Holders of the Securities promptly after the issuance of the Securities, (ii)
current lists of the Holders appearing in the Security Register on a
twice-per-year basis, no later than March 1 and September 1 of each year, and
(iii) upon request by the Casino Control Commission or the Division of Gaming
Enforcement, such additional information with respect to the beneficial Holders
of the Securities as the Trustee may obtain through its good faith efforts.
(c) The Trustee shall notify the Casino Control Commission and the
Division of Gaming Enforcement, simultaneously with any notice given to the
Holders, of any default or acceleration under the Securities, this Indenture,
the Security Documents, or any other documents, instrument, agreement, covenant,
or condition related to the issuance of the Securities, whether declared or
effectuated by the Trustee or the Holders. The Trustee shall notify the Casino
Control Commission and the Division of Gaming Enforcement on a continuing basis
and in writing, of any actions taken by the Trustee or the Holders with regard
to such default, acceleration or similar matters related thereto.
(d) The Trustee shall notify the Casino Control Commission and the
Division of Gaming Enforcement of the removal or resignation of the Trustee
promptly after such removal or resignation.
(e) The Trustee shall provide to the Casino Control Commission and the
Division of Gaming Enforcement, promptly after the execution by the Trustee of
the same, copies of any and all amendments or modifications to this Indenture,
the Securities, the Security Documents, or any other documents, instrument,
agreement, covenant or condition related to the issuance of the Securities.
SECTION 703. Reports by Company and Guarantor.
The Company and the Guarantor shall, to the extent required by the TIA:
G-35
(i) file with the Trustee, within 15 days after the Company or the
Guarantor, as the case may be, is required to file the same with the
Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations prescribe)
which the Company may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if
the Company or the Guarantor, as the case may be, is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(ii) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company or the Guarantor, as the case may be, with the conditions and
covenants of this Indenture as may be required from time to time by such
rules and regulations;
(iii) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company or the Guarantor, as the case may be,
pursuant to paragraphs (A) and (B) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission; and
(iv) comply in all material respects with all requirements and
provisions of the Casino Control Act and notify the Trustee by mail of all
formal hearings and formal proceedings materially relating to the Company,
the Guarantor or their respective successors, before the Casino Control
Commission relating to the plenary casino licenses for the Casino, as the
same are scheduled. Such notice shall be in writing and given at least
seven days prior to the hearing to which such notice relates, unless a
shorter notice is given to the Company in which event the Company shall
notify the Trustee promptly upon receiving such definite information as
shall be contained in such notice. The Company hereby agrees that the
Trustee may, but shall have no obligation to, attend such hearings and
other proceedings if permitted to do so by the Casino Control Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company and Subsidiaries May Consolidate, etc., Only on
Certain Terms.
Neither the Company nor any of its Subsidiaries shall consolidate with
or merge with or into or sell, assign, convey, lease or transfer all or
substantially all of its properties and assets to any Person or group of
affiliated Persons in a single transaction or through a series of transactions,
except that:
(i) the Company or any of its Subsidiaries may consolidate with or
merge with or into or sell, assign, convey, lease or transfer all or
substantially all of its properties and assets (A) if consented to by the
Requisite Lenders; and (B) the following requirements are complied with,
unless otherwise consented to by the Requisite Lenders: (1) the Company or
such Subsidiary shall be the continuing Person, or the resulting, surviving
or transferee Person (the "surviving entity") shall be a Person organized
and existing under the laws of the United States or any State thereof or
the District of Columbia; (2) the surviving entity (other than an existing
Guarantor) shall expressly assume, by a supplemental indenture executed and
delivered to the Trustee, in form and substance reasonably satisfactory to
the Trustee, all of the obligations of the Company or such Subsidiary, as
applicable under the Securities, the Guarantee, this Indenture and the
Security Documents, and the Company or the surviving entity shall have
taken all steps necessary or desirable to perfect and protect the security
interests granted or purported to be granted by the Security Documents
(including, without limitation, the priority thereof) in the applicable
Collateral, including, without limitation, the execution, delivery, filing
and recordation of additional mortgages, pledges, assignments and security
agreements; (3) immediately before and immediately after giving effect to
such transaction, or series of transactions (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in
G-36
connection with or in respect of, such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (4) such transaction will not result in the loss, unless
appropriately replaced, of any gaming or other license necessary for the
continued operation of the Company or any Subsidiary as conducted
immediately prior to such consolidation, merger, conveyance, transfer or
lease; and (5) neither the Company nor any Subsidiary would thereupon
become obligated with respect to any Indebtedness, nor any of its property
subject to any Lien, unless the Company or such Subsidiary could incur such
Indebtedness or create such Lien without violation of the terms of this
Indenture;
(ii) a Subsidiary may consolidate with or merge into or sell, assign,
convey, lease or transfer all or substantially all of its properties and
assets to or with the Company or any Subsidiary of the Company: (A) if
consented to by the Requisite Lenders and (B) the following requirements
are complied with, unless otherwise consented to by the Requisite Lenders:
(1) the surviving entity (other than an existing Guarantor) shall expressly
assume, by a supplemental indenture executed and delivered to the Trustee,
in form and substance reasonably satisfactory to the Trustee, all of the
obligations of such Subsidiary under the Securities, the Guarantee, this
Indenture and the Security Documents, and such Subsidiary or surviving
entity, as the case may be, shall have taken all steps necessary or
desirable to perfect and protect the security interests granted or
purported to be granted by the Security Documents (including, without
limitation, the priority thereof), including, without limitation, the
execution, delivery, filing and recordation of additional mortgages,
pledges, assignments and security agreements; (2) such transaction will not
impair the pledge of the stock of such Subsidiary granted or purported to
be granted pursuant to the Security Documents; and (3) such transaction
will not result in the loss (unless appropriately replaced) of any gaming
or other license necessary for the continued operation of the Company and
its Subsidiaries as conducted immediately prior to such sale, assignment,
conveyance, transfer or lease; and
(iii) the Company or such Person shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment conveyance, transfer or lease and,
if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with this Section 801.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company or the Guarantor with or merger
of the Company or any Guarantor with or into any other Person or any conveyance,
transfer or lease of the properties and assets of the Company or the Guarantor
substantially as an entirety to any Person in accordance with Section 801,
unless otherwise consented to by the Requisite Lenders, the successor Person
formed by such consolidation or into which the Company or the Guarantor is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
or the Guarantor under this Indenture with the same effect as if such successor
Person had been named as the Company or the Guarantor herein, and in the event
of any such conveyance or transfer, the Company or the Guarantor (which term
shall for this purpose mean the Person named as the "Company" or the
"Guarantor," as the case may be, in the first paragraph of this Indenture or any
successor Person which shall theretofore become such in the manner described in
Section 801), except in the case of a lease, shall be discharged of all
obligations and covenants under this Indenture and the Securities and may be
dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures and Amendments to Security
Documents Without Consent of Holders.
Without the consent of any Holders, the Company and the Guarantor, when
each is authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto or
amendment to any Security Document, in form satisfactory to the Trustee, for any
of the following purposes:
G-37
(i) to evidence the succession of another Person to the Company or the
Guarantor and the assumption by any such successor of the covenants of the
Company or the Guarantor, as the case may be, contained herein, in the
Securities and in the Security Documents; or
(ii) to add to the covenants of the Company or the Guarantor for the
benefit of the Holders or to surrender any right or power herein conferred
upon the Company or the Guarantor; or
(iii) to add any additional Events of Default; or
(iv) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(v) to cure any ambiguity, to correct or supplement any provision
herein or in the Security Documents which may be inconsistent with any
other provision herein or in the Security Documents, or to make any other
provisions with respect to matters or questions arising under this
Indenture or under the Security Documents; provided that such action shall
not adversely affect the interests of the Holders in any material respect;
or
(vi) to establish or maintain the Lien of this Indenture and the other
Security Documents or to correct or amplify the description of any
Collateral subject to the Lien of this Indenture or the other Security
Documents, or to subject additional property to the Lien of this Indenture
or other Security Documents; or
(vii) to add any additional Guarantor; or
(viii) to make any other change that does not adversely affect the
rights of any Holder; or
(ix) to secure the Securities.
SECTION 902. Supplemental Indentures and Amendments to Security
Documents with Consent of Holders.
Upon the request of the Company and the Guarantor, by a Board
Resolution authorizing the execution thereof, together with the consent of the
Requisite Lenders, by Act of said Holders delivered to the Trustee, the Trustee
shall join the Company and the Guarantor in an indenture or indentures
supplemental hereto or amendments to the Security Documents, for any purpose,
including, without limitation, for the purpose of adding any provisions to or
changing, modifying or amending in any manner or eliminating any of the
provisions of this Indenture or the Security Documents or making additions to,
changing, modifying, amending or eliminating in any manner the rights of the
Holders hereunder or thereunder; provided, however, that no such supplemental
indenture, or addition, change, amendment or modification to, or elimination of
any provision of, any Security Document, shall, without the consent of the
Holder of each Outstanding Security affected thereby:
(i) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the coin or currency in which any Security or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or
(ii) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(iii) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture or amendments
to the Security Documents, but it shall be sufficient if such Act shall approve
the substance thereof.
G-38
SECTION 903. Execution of Supplemental Indentures and Amendments to
Security Documents.
In executing, or accepting the additional trusts created by, any
supplemental indenture or amendment to the Security Documents permitted by this
Article or the modifications thereby of the trusts created by this Indenture or
the Security Documents, the Trustee shall be entitled to receive, and shall be
fully protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture or amendment to the Security Documents
is authorized or permitted by this Indenture and all conditions precedent herein
provided for relating to such supplemental indenture have been complied with.
The Trustee may, but shall not be obligated to, enter into any such supplemental
indenture or amendment to the Security Documents which affects the Trustee's own
rights, duties, or immunities under this Indenture or under the Security
Documents or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures and Amendments to
Security Documents.
Promptly after the execution by the Company, the Guarantor and the
Trustee of any supplemental indenture or amendment to the Security Documents
pursuant to the provisions of Section 902, the Company shall give notice thereof
to the Holders of each Outstanding Security affected, in the manner provided for
in Section 106, setting forth in general terms the substance of such
supplemental indenture or amendment to the Security Documents.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with, and subject to, the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer, exchange, conversion or in
respect of a Demand Payment and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Corporate
Trust Office of the Trustee shall be such office or agency of the Company,
unless the Company shall designate and maintain some other office or agency for
one or more of such purposes. The Company will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
G-39
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before each due date of the principal of (and
premium, if any, on), or interest on, any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due (or in the case of a Demand Payment, shall deposit the Applicable
Common Stock), such sum (or securities) to be held in trust for the benefit of
thePersons entitled to such principal, premium or interest, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of
such action or any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of (and
premium, if any on) or interest on Securities (or in the case of a Demand
Payment, the Applicable Common Stock) in trust for the benefit of the
Persons entitled thereto until such sums (or securities) shall be paid to
such Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums (or
securities) so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums (or
securities) held in trust by the Company or such Paying Agent, such sums (or
securities) to be held by the Trustee upon the same trusts as those upon which
such sums (or securities) were held by the Company or such Paying Agent; and,
upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any, on) or interest on any Security (or securities deposited as contemplated
above) and remaining unclaimed for two years after such principal (and premium,
if any) or interest has become due and payable (or in the case of a Demand
Payment, two years after the Demand Payment Date) shall be paid to the Company
on Company Request, or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Security shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
(or securities), and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the Borough of Manhattan, The City of New York, notice that such money (or
securities) remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
G-40
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
of its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right or franchise if (a) the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries as a whole and
that the loss thereof is not disadvantageous in any material respect to the
Holders and (b) the Company and its Subsidiaries shall have taken all steps
necessary or desirable to protect or perfect the security interests granted or
purported to be granted by the Security Documents, subject to and as permitted
by the terms of this Indenture and the terms of any release or subordination
contemplated in Section 1405 hereof, including, without limitation, the
execution, delivery, filing and recordation of additional mortgages, pledges,
assignments and security agreements.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent and in accordance with applicable
provisions of the Security Documents, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any such
Subsidiary and (b) all lawful claims for labor, materials and supplies, which,
if unpaid, might by law become a lien upon the property of the Company or any
such Subsidiary; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof, the
Company will cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as required by the Security Documents and as otherwise in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the Company, desirable in the conduct of its business or
the business of any such Subsidiary and not disadvantageous in any material
respect to the Holders.
SECTION 1007. Insurance.
The Company will, and will cause its Subsidiaries to, maintain
insurance with responsible and reputable insurance companies or associations in
such amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general areas in
which the Company or such Subsidiary operates; provided that with respect to the
Collateral the Company will, and will cause its Subsidiaries to, maintain
insurance on the terms required by each of the Security Documents or, if the
Lien contemplated therein is released or subordinated as contemplated and
permitted in Section 1405, then in accordance with the requirements of the
holder of any other lien on the Collateral.
SECTION 1008. Statement by Officer as to Compliance.
The Company and the Guarantor will deliver to the Trustee, within 120
days after the end of each fiscal year, a brief certificate, which may be in the
form attached as Exhibit A, from the principal executive officer, principal
financial officer or principal accounting officer as to his or her knowledge of
the Company's or the Guarantor's compliance with all conditions and covenants
under this Indenture or the Security Documents. For purposes of this Section
1008, such compliance shall be determined without regard to any period of grace
or requirement of notice under this Indenture or the Security Documents.
G-41
SECTION 1009. Statement by Officers of Certain Defaults.
When any Default has occurred and is continuing under this Indenture,
or if the trustee for or the holder of any other evidence of Indebtedness of the
Company or any of its Subsidiaries gives any notice or takes any other action
with respect to a claimed default (other than with respect to Indebtedness in
the principal amount of less than $5 million), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
SECTION 1010. Assumption of Obligations upon Change of Control.
Upon the occurrence of a Change of Control in accordance with the
provisions of Section 801 of this Indenture, the Securities shall be assumable
by the successor to the Company.
SECTION 1011. Limitation on Company Indebtedness.
Unless otherwise consented to by the Requisite Lenders, the Company
shall not, directly or indirectly, create, incur, assume, suffer to exist,
guarantee or in any manner become liable for the payment of ("incur"), any
Indebtedness other than any or all of the following:
(i) Indebtedness in connection with the Securities, this Indenture or
any Security Document;
(ii) Indebtedness outstanding on the Issue Date and included on
Schedule 1.01 hereto;
(iii) Allowed Indebtedness and Permitted Indebtedness;
(iv) Working Capital Indebtedness; and
(v) any Indebtedness issued in exchange for or to repay, prepay,
repurchase, redeem, defease, retire or refinance ("refinance") any
Indebtedness permitted by clauses (i) through (iv) above; provided that (A)
if the principal amount of the Indebtedness so issued shall exceed the
principal amount of the Indebtedness so exchanged or refinanced, plus any
required premium, transaction costs and fees incurred in connection with
such exchange or refinancing, then such excess shall be permitted only to
the extent that such Indebtedness is otherwise permitted to be incurred
under this covenant and (B) the Indebtedness so issued either: (x) (1) has
a stated maturity not earlier than the stated maturity of the Indebtedness
so exchanged or refinanced; (2) has an average life to stated maturity
equal to or greater than the remaining average life to stated maturity of
the Indebtedness so exchanged or refinanced; and (3) is subordinated to the
obligations of the Company under this Indenture to at least the same
extent, if any, as the Indebtedness so exchanged or refinanced or (y) is
otherwise permitted to be incurred under this covenant.
SECTION 1012. Limitation on Subsidiary Indebtedness and Preferred
Stock.
The Company shall not cause or permit any Subsidiary to incur or issue,
directly or indirectly, any Indebtedness or Preferred Stock other than any or
all of the following:
(i) Indebtedness under the Guarantee or in connection with the
Securities, this Indenture and the Security Documents;
(ii) Indebtedness or Preferred Stock issued to and held by the Company
or a wholly-owned Subsidiary of the Company to the extent such Indebtedness
or Preferred Stock is subject to a first priority lien in favor of the
Trustee; provided that (A) any subsequent issuance or transfer of any
Capital Stock that results in any such wholly-owned Subsidiary ceasing to
be a wholly-owned Subsidiary or (B) any transfer of such Indebtedness or
Preferred Stock to a Person other than the Company or a wholly-owned
Subsidiary of the Company will be deemed to be the issuance of such
Indebtedness or Preferred Stock by the issuer thereof;
(iii) Allowed Indebtedness and Permitted Indebtedness;
(iv) Working Capital Indebtedness; and
(v) any Indebtedness issued in exchange for or to refinance any
Indebtedness permitted by clause (i) through (iv) above; provided that (A)
if the principal amount of the Indebtedness so issued does not exceed the
principal amount of the Indebtedness so exchanged or refinanced, plus any
required premium, transaction costs and fees incurred in connection with
such exchange or refinancing, then such excess shall be permitted
G-42
only to the extent that such Indebtedness is otherwise permitted to be
incurred under this covenant and (B) the Indebtedness so issued either (x)
(1) has a stated maturity date or an initial mandatory redemption date
later than the stated maturity date of the Indebtedness so exchanged or
refinanced, (2) has an average life to stated maturity equal to or greater
than the remaining average life to stated maturity of the Indebtedness so
exchanged or refinanced and (3) is subordinated to the Notes on the
Guarantee of Guarantor or any other subsidiary guarantee to at least the
same extent as the Indebtedness so exchanged or refinanced or (y) is
otherwise permitted to be incurred under this covenant.
SECTION 1013. Limitation on Restricted Payments.
The Company shall not make, directly or indirectly, and shall not
permit any Subsidiary to make, directly or indirectly, any Restricted Payment,
provided that the foregoing shall not limit the right or power of:
(i) the Company or any Subsidiary to make or provide for the Permitted
Payment; or
(ii) the Guarantor to make any payments or distributions to the Company
to provide for (A) the payment or performance by the Company of its
obligations under this Indenture, the Security Documents and the Securities
and (B) such other amounts as may be necessary to pay its normal, ordinary
course operating expenses (such as legal and accounting costs and fees for
Commission filings).
SECTION 1014. Limitation on Liens.
The Company shall not, and shall not permit, cause or suffer any
Subsidiary to create, incur, assume or suffer to exist any Lien of any kind upon
any of its property or assets (including, without limitation, any income or
profits) now owned or hereafter acquired by it, other than any or all of the
following:
(i) Liens existing on the Issue Date;
(ii) Liens created by this Indenture and the Security Documents or that
otherwise secure the Guaranty or the Securities;
(iii) Liens securing Permitted Indebtedness, FF&E Financing and/or
Capitalized Lease Obligations permitted pursuant to the Indenture;
(iv) Permitted Liens; and
(v) The replacement, extension or renewal of any Lien permitted by
clauses (i), (ii), (iii) or (iv) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the principal amount, except as permitted hereunder)
of the Indebtedness secured thereby, or otherwise permitted by this
Indenture.
SECTION 1015. [Intentionally Omitted.]
SECTION 1016. Limitation on Sale-Leaseback Transactions.
Unless otherwise consented to by the Requisite Lenders, the Company
shall not, directly or indirectly, and shall not permit any Subsidiary to,
directly or indirectly, enter into, guarantee or otherwise become liable with
respect to any Sale-Leaseback Transaction with respect to any Collateral unless
(a) such Sale-Leaseback Transaction is otherwise permitted pursuant to Section
1014; (b) the consideration received by the Company and/or any of its
Subsidiaries for such Sale-Leaseback Transaction is at least equal to the Fair
Market Value of such property being transferred; and (c) the Net Cash Proceeds
of the sale shall be applied in accordance with Section 1017. Notwithstanding
anything contained in this covenant, the Company shall not, and shall not permit
any Subsidiary to, directly or indirectly, enter into, guarantee or otherwise
become liable with respect to any other Sale-Leaseback Transaction involving the
Collateral
SECTION 1017. Limitation on Asset Sales.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof, the
Company shall not, directly or indirectly, and shall not permit any Subsidiary
to, directly or indirectly, make any Asset Sale of Collateral unless (a) at the
time of such Asset Sale, the Company or such Subsidiary, as the case may be,
receives consideration at least equal to the Fair Market Value of
G-43
the assets sold or otherwise disposed of (or in the case of a lease or similar
arrangement, receives an agreement for the payment pursuant to the terms of such
lease of rents from time to time at fair value); (b) the proceeds therefrom (in
the case of a lease, when paid from time to time) consist of at least 85% cash
and/or Cash Equivalents; (c) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such Asset Sale; (d)
otherwise expressly provided herein, the Net Cash Proceeds of such Asset Sale
shall be applied in connection with the offer to purchase the Securities
described below; and (e) the Company and its Subsidiaries may engage in an Asset
Sale involving Collateral only in accordance with Article Fourteen.
On or before the 180th day after the date on which the Company or any
Subsidiary consummates the relevant Asset Sale of Collateral and subject to and
as permitted by the terms of this Indenture and the terms of any release or
subordination contemplated in Section 1405 hereof, the Company shall use all of
the Net Cash Proceeds from such Asset Sale to make either (a) an offer to
purchase (the "Asset Sale Offer") from all holders of Securities up to a maximum
principal amount (expressed as a multiple of $1,000) of Securities equal to such
Net Cash Proceeds at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase or (b) a Permitted Related Investment, upon consummation of which the
Trustee shall have received a first priority fully perfected security interest
in the property on assets acquired by the Company or any of its Subsidiaries in
connection therewith, subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated in Section 1405
hereof; provided, that the Company shall not be required to make any Asset Sale
Offer if the Net Cash Proceeds of all Asset Sales and Events of Loss that are
not used to make a Permitted Related Investment within 180 days or 365 days,
respectively, do not exceed $5 million. Each Asset Sale Offer shall remain open
for a period of at least 20 business days. To the extent the Asset Sale Offer is
not fully subscribed to by the holders of the Securities, the Company or the
relevant Subsidiary may retain such unutilized portion of the Net Cash Proceeds.
If the Asset Sale Offer is more than fully subscribed to by the Holders of the
Securities, the particular Securities to be accepted shall be selected by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection of portions of the principal of Securities; provided, however,
that no such partial acceptance shall reduce the portion of the principal amount
of a Security not redeemed to less than, $1,000; and provided further that so
long as the Securities are listed on any national securities exchange (as such
term is defined in the Exchange Act), such selection shall be made by the
Trustee in accordance with the provisions of such exchange.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof, the
Company or such Subsidiary, as the case may be, shall cause such Net Cash
Proceeds derived from the sale of Collateral to be deposited in the Collateral
Account on the business day on which such Net Cash Proceeds are received by the
Company or such Subsidiary. Collateral Proceeds (including any earnings thereon)
may be released from the Collateral Account only in accordance with Section
1404.
SECTION 1018. Application of Net Cash Proceeds in Event of Loss.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof, in
the event that the Company or any Subsidiary suffers any Event of Loss to any
Collateral, on or before the 365th day after the date that the Company or such
Subsidiary receives any Net Cash Proceeds from such Event of Loss to Collateral,
the Company shall use all of the Net Cash Proceeds from such Event of Loss to
make either (a) an offer to purchase (the "Event of Loss Offer") from all
holders of Securities up to a maximum principal amount (expressed as a multiple
of $1,000) of Securities equal to the Net Cash Proceeds at a purchase price
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase or (b) a Permitted Related Investment,
upon consummation of which the Trustee shall have received a first priority
fully perfected security interest in the property on assets acquired by the
Company or any of its Subsidiaries in connection therewith, subject to and as
permitted by the terms of this Indenture and the terms of any release or
subordination contemplated by Section 1405 hereof; provided, that the Company
shall not be required to make any Event of Loss Offer if the Net Cash Proceeds
of all Events of Loss to and Asset Sales of Collateral that are not used to make
a Permitted Related Investment within 365 days or 180 days, respectively, do not
exceed $5 million. Each Event of Loss Offer shall remain open for a period of at
least 20 Business Days. To the extent the Event of Loss Offer is not fully
subscribed to by the holders of the Securities, the Company or the relevant
Subsidiary may retain such unutilized portion of the Net Cash Proceeds. If the
Event of Loss Offer is more than fully subscribed to by the Holders of the
Securities, the particular Securities to be accepted shall be selected by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection of portions of the principal of Securities; provided, however,
that no such partial acceptance shall reduce the portion of the principal
G-44
amount of a Security not redeemed to less than $1,000; and provided further that
so long as the Securities are listed on any national securities exchange (as
such term is defined in the Exchange Act), such selection shall be made by the
Trustee in accordance with the provisions of such exchange.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof, the
Company or such Subsidiary, as the case may be, shall cause such Net Cash
Proceeds derived from the loss of Collateral to be deposited in the Collateral
Account on the Business Day on which such Net Cash Proceeds are received by the
Company or such Subsidiary. Collateral Proceeds (including any earnings thereon)
may be released from the Collateral Account only in accordance with Section
1404.
SECTION 1019. Ownership of Stock of Subsidiaries.
The Company shall at all times maintain, or cause each Subsidiary to
maintain, ownership of all of each class of Voting Stock of, and all other
equity securities in, each Person that, as of the Issue Date was a Subsidiary of
the Company, to the extent the same is included in the Collateral, except any
Subsidiary that shall be disposed of in its entirety, or consolidated or merged
with or into the Company or another Subsidiary, in each case in accordance with
Article Eight. Subject to and as permitted by the terms of this Indenture and
the terms of any release or subordination contemplated by Section 1405 hereof,
such stock will be subject to a first priority fully perfected security interest
in favor of the Trustee.
SECTION 1020. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit, cause or suffer any
Subsidiary to, conduct any business or enter into any transaction or series of
transactions (including, without limitation, the sale, transfer, disposition,
purchase, exchange, lease or use of assets, property or services) or enter into
any contract, agreement, understanding, loan, advance or guarantees with any of
their respective Affiliates (each an "Affiliate Transaction") other than (a)
transactions among the Company and its Subsidiaries; (b) transactions involving
aggregate payments or other Fair Market Value, of less than $5 million in any
consecutive 365-day period; (c) transactions made available to all Holders on a
basis pro rata to their holdings of Securities; (d) the transactions described
in the Company's filings on Form S-4 filed with the Commission on [__________]
and [___________]; and (e) those that are hereafter set forth in writing and are
determined by the Board of Directors of the Company (including a majority of the
Independent members of such Board), to be on terms which are no less favorable
to the Company and its Subsidiaries than would be obtained in an arm's length
transaction with an unaffiliated third party. The Company shall deliver to the
Trustee an Officers' Certificate certifying that any such Affiliate Transaction
contemplated in clause (e) above has received the requisite approval of its
Board of Directors.
SECTION 1021. Change in Nature of Business.
Guarantor shall not, and shall not permit any of its Subsidiaries to,
own, manage or conduct any operation other than a Permitted Line of Business.
SECTION 1022. Additional Collateral.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof, the
Company will, and will cause each of its Subsidiaries that owns any Collateral
to, grant to the Trustee a valid and perfected first priority security interest
in such Collateral enforceable against all third parties, and to execute and
deliver all documents and to take all action reasonably necessary or desirable
to perfect and protect such a security interest in favor of the Trustee,
including the execution of the form of Security Agreement Supplement appended to
the Security Agreement.
SECTION 1023. CRDA Investments.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly (a) grant a security interest in its CRDA Investments to
any Person other than any grant of a security interest or other Lien (a
"Permitted Grant") to: (i) the Casino Reinvestment Development Authority of the
State of New Jersey ("CRDA"); (ii) any other entity as required by applicable
law; or (iii) any person so long as such action will not result in a violation
of applicable law or (b) sell, convey, transfer, lease or otherwise dispose of
its CRDA Investments otherwise than either (A) in accordance with the terms of a
Permitted Grant or (B) for fair value (in either cases
G-45
except to or on behalf of the CRDA for a CRDA project), which shall be
determined by, in their absolute discretion, and evidenced by a resolution of,
the Board of Directors of the Company or such Subsidiary, as the case may be.
SECTION 1024. Subsidiaries.
The Trustee will receive a pledge of the stock of any Person that is a
Subsidiary of the Company on the Issue Date in accordance with the Security
Agreement, subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof.
Except as otherwise provided in this Indenture, the Company will not, and will
not permit any Subsidiary to, take any action or enter into any transaction or
series of transactions that would result in a Person becoming a Subsidiary
(whether through an acquisition or otherwise) unless, after giving effect to
such action, transaction or series of transactions, before and immediately after
giving effect thereto no Default or Event of Default shall have occurred and be
continuing.
SECTION 1025. Security Documents.
Simultaneously herewith, the Company shall execute, and shall cause its
Subsidiaries to execute, the respective Security Documents, as appropriate,
securing its obligations under this Indenture, the Security Documents and the
Securities. Each Holder, by accepting a Security, agrees to all terms and
provisions of the Security Documents as the same may be amended or supplemented
from time to time pursuant to the provisions hereof and thereof, including,
without limitation, the terms of any release or subordination contemplated in
Section 1405 hereof. The terms of the release of the Collateral and the rights
of the Holders with respect thereto shall be governed by the Security Documents
and this Indenture, including, without limitation, the terms of any release or
subordination contemplated in Section 1405 hereof.
SECTION 1026. Validity of Security Interest.
Each of the Company and the Guarantor represents and warrants that it
has, and covenants that it shall continue to have, full power and lawful
authority to grant, release, convey, assign, transfer, mortgage, pledge,
hypothecate and otherwise create the Security Interest referred to in Article
Fourteen; and, subject to and as permitted by the terms of this Indenture and
the terms of any release or subordination contemplated by Section 1405 hereof,
each of the Company and the Guarantor shall warrant, preserve and defend the
Security Interest of the Trustee in and to the Collateral or any asset that
should constitute Collateral (other than real property with respect to matters
covered by title insurance policies obtained by the Company or its Subsidiaries)
but for the fact that the Company and/or its Subsidiaries failed to comply with
the provisions of the Indenture or the Security Documents against the claims of
all persons, and will maintain and preserve the Security Interest contemplated
by Article Fourteen. Subject to and as permitted by the terms of this Indenture
and the terms of any release or subordination contemplated by Section 1405
hereof, the Company and its Subsidiaries shall be required to execute and
deliver all documents and take all action reasonably necessary or desirable to
perfect and protect a security interest in Collateral or any asset that would
constitute Collateral but for the fact that the Company and/or its Subsidiaries
failed to comply with the provisions of the Indenture or the Security Documents,
before engaging in any sale, transfer, conveyance, or other disposition of such
assets to the Company or any of its wholly-owned Subsidiaries.
SECTION 1027. Duty of Cooperation.
The Guarantors and their respective directors, officers and Affiliates
shall cooperate with the Casino Control Commission and the Division of Gaming
Enforcement and provide such information and documentation as may from time to
time be requested by such agencies unless being contested in good faith by
appropriate proceedings.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Redemption.
With the consent of the Requisite Lenders, the Securities may be
redeemed, at the election of the Company, as a whole or from time to time in
part, at the times, subject to the conditions and at the Redemption Price
specified in the form of Security, together with accrued interest to the
Redemption Date.
G-46
SECTION 1102. Applicability of Article.
Redemption of Securities pursuant to Section 1101 or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article, other than repurchases made
from time to time in the open market.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution and a consent executed by
the Requisite Lenders. In case of any redemption at the election of the Company,
the Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities to
be redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Securities; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000 and, provided further that, so long as the
Securities are listed on any national securities exchange (as such term is
defined in the Exchange Act), any such redemption shall be made by the Trustee
in accordance with the provisions of such exchange.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed; provided, however, that in the case
of an optional redemption in which the Company has called for redemption all
outstanding Securities in connection with a refinancing of such Securities, the
Company shall be permitted to (a) specify a proposed redemption date; (b) change
the proposed redemption date once to a final redemption date by notice mailed to
Holders not later than five business days prior to the final redemption date;
(c) establish the final redemption date as a date not more than 90 days after
the first notice from the Company calling the Securities for optional redemption
was mailed to Holders; and (d) rescind the redemption offer at any time prior to
the final redemption date, which rescission shall not cause the maturity of the
Securities to have changed.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Securities to be redeemed;
(iv) that on the Redemption Date the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or the
portion thereof, to be redeemed, and that interest thereon will cease to
accrue on and after said date; and
(v) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
G-47
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) in immediately
available funds an amount of money sufficient to pay the Redemption Price of,
and accrued interest on, all the Securities which are to be redeemed on that
date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 1109. Redemption Pursuant to Gaming Laws.
(a) If required to qualify by the Casino Control Commission, all
Holders, whether initial Holders or subsequent transferees, shall be subject to
the qualification provisions of the Casino Control Act relating to financial
sources and/or security holders. In the event that the Casino Control Commission
determines that a Holder is not qualified under the Casino Control Act and/or
such Holder fails to submit for qualification as required by the Casino Control
Commission in its sole discretion, the Company shall have the absolute right and
obligation to purchase from such Holder (the "Disqualified Holder") the
Securities the Disqualified Holder may then possess, either directly, indirectly
or beneficially, no later than forty-five days after the date the Company serves
notice on any Disqualified Holder of such determination. Immediately upon such
determination, the Disqualified Holder shall have no further right (i) to
exercise, directly or indirectly, through any trustee or nominee or any other
person or entity, any right conferred by any Securities and (ii) to receive any
dividends, interest, or any other distribution or payment with respect to any
such Securities or any remuneration in any form from the Company or the Trustee;
provided, however, that after such disqualification, interest on any such
Securities shall continue to accrue for the benefit of any subsequent Holder
thereof. The Company shall promptly provide to the Trustee a copy of each notice
served to a Disqualified Holder.
(b) Upon receipt of the notice referred to in clause (a) above, the
Disqualified Holder may sell its Securities either directly to any Person then
qualified or previously qualified (and not subsequently disqualified) or through
a bona fide brokerage transaction, conducted at arm's-length, to a Person not an
Affiliate of the Disqualified Holder. In the event the Disqualified Holder fails
to so sell its Securities within thirty (30) days after the determination by the
Casino Control Commission, the Company shall purchase such Securities within
fifteen (15) days after the end of such thirty (30) day time period, at a time
and place as designated by the Company: (i) at the lowest of (A) the principal
amount thereof; (B) the amount which the Disqualified Holder or beneficial owner
paid for the Securities, together with accrued interest up to the date of the
determination of disqualification; or (C) the market value of such Securities.
The right of the Company to purchase such Security may be assigned by the
G-48
Company to any Person approved by the Casino Control Commission or (ii) in lieu
of a purchase pursuant to clause (i), at the election of the Company if the same
is consented to by the Requisite Lenders, in exchange for the number of shares
of Applicable Common Stock that would be payable in respect of such Securities
in the event of a Demand Payment.
(c) The provisions of this Section shall be construed in accordance
with the applicable provisions of the Casino Control Act.
ARTICLE TWELVE
GUARANTEE ARRANGEMENTS
SECTION 1201. Guarantee.
Guarantor hereby unconditionally guarantees (such guarantee referred to
as the "Guarantee") to each Holder of a Security authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Securities, any of the
Security Documents or the obligations of the Company to the Holders or the
Trustee hereunder or thereunder, that: (a) the principal of, any interest on the
Securities (including, without limitation, any interest that accrues after the
filing of a proceeding of the type described in Sections 501(7) and (8) hereof),
premium, fees, expenses and all other amounts will be duly and punctually paid
in full when due, whether at maturity, by acceleration or otherwise, and
interest on the overdue principal and (to the extent permitted by law) interest,
if any, on the Securities and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder including fees, expenses or other
charges whether now or hereafter existing will be promptly paid in full or
performed, all strictly in accordance with the terms hereof and thereof and (b)
in case of any extension of time of payment or renewal of any Securities or any
of such other obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
Stated Maturity, by acceleration or otherwise. Failing payment when due of any
amount so guaranteed, or failing performance of any other obligations of the
Company to the Holders, for whatever reason, Guarantor will be obligated to pay,
or to perform or cause the performance of, the same immediately. An Event of
Default under this Indenture, any Security Document or the Securities shall
constitute an event of default under this Guarantee, and shall entitle the
Holders of Securities to accelerate the obligations of the Guarantor hereunder
in the same manner and to the same extent as the obligations of the Company. The
obligations of the Guarantor are independent of any obligation of the Company.
The Guarantor hereby agrees that its obligations hereunder shall be absolute and
unconditional, irrespective of the validity, regularity or enforceability of the
Securities, any Security Document, this Indenture or any other document relating
thereto, the absence of any action to enforce the same, any waiver or consent by
any Holder with respect to any provisions hereof or thereof, any release or
non-perfection of Collateral, any delays in obtaining or realizing upon or
failure to obtain or realize upon or application of Collateral, the recovery of
any judgment against the Company or any other Person, any action to enforce the
same or any other circumstance (including, without limitation, any statute of
limitations) which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. The Guarantor hereby waives promptness, diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company or any other Person, any right to
require a proceeding first against the Company or any other Person, protest,
notice and all demands whatsoever and covenants that its Guarantee will not be
discharged except by complete performance of the obligations contained in the
Securities, this Indenture, the Security Documents and this Guarantee. If any
Holder or the Trustee is required by any court or otherwise to return to the
Company or to the Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to the Company or the Guarantor, any amount
paid by the Company or the Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. The Guarantor hereby irrevocably waives any claim or other
rights that it may now or hereafter acquire against the Company or any other
insider guarantor that arise from the existence, payment, performance or
enforcement of Guarantor's obligations under this Guarantee, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution
or indemnification and any right to participate in any claim or remedy of the
Holders or the Trustee against the Company or any other insider guarantor or any
Collateral, whether or not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation, the right to
take or receive from the Company or any other insider guarantor, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim, remedy or right. If any amount
shall be paid to the Guarantor in violation of the preceding sentence at any
time prior to the later of the payment in full of the Securities
G-49
and all other amounts payable under this Guarantee and the Maturity Date, such
amount shall be held in trust for the benefit of the Holders and the Trustee and
shall forthwith be paid to the Trustee to be credited and applied to the
Securities and all other amounts payable under this Guarantee, whether matured
or unmatured, in accordance with the terms of this Indenture, or to be held as
Collateral for any obligations or other amounts payable under this Guarantee
thereafter arising. The Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that the waiver set forth in this subsection is knowingly made in
contemplation of such benefits. The Guarantor further agrees that, as between
it, on the one hand, and the Holders and the Trustee, on the other hand, (x)
subject to this Article Twelve, the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Five hereof for the purposes of
this Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby and
(y) in the event of any acceleration of such obligations as provided in Article
Five hereof, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantor for the purpose of this Guarantee.
SECTION 1202. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 1201, the
Guarantor hereby agrees that notation of such Guarantee shall be endorsed on
each security authenticated and delivered by the Trustee and executed by either
manual or facsimile signature of an authorized Officer of the Guarantor.
The Guarantor hereby agrees that its Guarantee set forth in Section
1201 shall remain in full force and effect notwithstanding any failure to
endorse on each Security a notation of such Guarantee.
If an Officer of Guarantor whose signature is on this Indenture or a
Security no longer holds that office at the time the Trustee authenticates such
Security or at any time thereafter, Guarantor's Guarantee of such Security shall
be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Guarantor.
SECTION 1203. Additional Guarantors.
Any Person that was not a Guarantor on the date of this Indenture may
become a Guarantor by executing and delivering to the Trustee (a) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
Person to the provisions (including the representations and warranties) of the
Indenture as a Guarantor and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning creditors' rights and equitable
principles as may be acceptable to the Trustee in its discretion).
SECTION 1204. Termination of Guarantee.
This Guarantee and all of the obligations of the Guarantor under this
Indenture, the Security Documents, and the Securities and any other related
documents or agreements may be amended, modified or terminated by the Company
with the consent of the Requisite Lenders.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option applicable
to this Section 1302, the Company shall be deemed to have been discharged from
its obligations with respect to all Outstanding Securities on
G-50
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same) and releasing the liens and security
interests created by the Security Documents, except for the following, which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1304 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any, on) and interest on such
Securities when such payments are due; (b) the Company's obligations with
respect to such Securities under Sections 304, 305, 306, 1002 and 1003; (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder; and (d)
this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Securities.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option applicable
to this Section 1303, the Company shall be released from its obligations under
any covenant contained in Section 801 and in Sections 1005 through 1026 with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 501(3) or
otherwise, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Securities:
(i) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds, for a period of at least
123 days prior to the date of such defeasance, in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the principal
of (and premium, if any, on) and interest on the Outstanding Securities on
the Stated Maturity (or Redemption Date, if applicable) of such principal
(and premium, if any) or installment of interest; provided that the Trustee
shall have been irrevocably instructed to apply such money or the proceeds
of such U.S. Government Obligations to said payments with respect to the
Securities. Before such a deposit the Company may give to the Trustee, in
accordance with Section 1103 hereof, a notice of its election to redeem all
of the Outstanding Securities at a future date in accordance with Article
Eleven hereof, which notice shall be irrevocable. Such irrevocable
redemption notice, if given, shall be given effect in applying the
foregoing. For this purpose, "U.S. Government Obligations" 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 the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of
G-51
1933, as amended), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such
U.S. Government Obligation 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 U.S. Government Obligation or the
specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
(ii) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (7) and (8) of Section 501 hereof are concerned, at
any time during the period ending on the 123rd day after the date of such
deposit(it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(iii) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(iv) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (B) there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred.
(v) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(vi) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations To Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
G-52
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE FOURTEEN
SECURITY INTEREST
SECTION 1401. Assignment of Security Interest.
(a) In order to secure the performance of the Company's and the
Guarantor's obligations to the Holders and the Trustee under this Indenture and
the Securities, according to the terms hereunder or thereunder, any Grantor
pursuant to the Security Documents has unconditionally and absolutely assigned
to the Trustee for the benefit of itself and all Holders, a first priority
security interest in the Collateral, subject to the limitations set forth in
this Indenture, including, without limitation, Section 1405 hereof (the
"Security Interest").
(b) The Security Interest as now or hereafter in effect shall be held
for the Trustee and for the equal and ratable benefit and security of the
Securities without preference, priority or distinction of any thereof over any
other by reason, or difference in time, of issuance, sale or otherwise, and for
the enforcement of the payment of principal of, premium, if any, and interest on
the Securities in accordance with their terms.
(c) Each of the Company and Guarantor has executed and delivered, filed
and recorded and/or will execute and deliver, file and record, all instruments
and documents, and has done or will do or cause to be done all such acts and
other things as are necessary or desirable, subject to and as permitted by the
terms of this Indenture and the terms of any release or subordination
contemplated in Section 1405 hereof, to subject the Collateral to the Lien of
the Security Documents. Each of the Company and Guarantor will execute and
deliver, file and record all instruments and do all acts and other things as may
be reasonably necessary or advisable to perfect, maintain and protect the
Security Interest (including, without limitation, the first priority nature
thereof) and shall pay all filing, recording, mortgage or other taxes or fees
incidental thereto.
(d) Each of the Company and Guarantor shall furnish to the Trustee (i)
promptly after the recording or filing, or re-recording or re-filing of the
Security Documents and other security filings, an Opinion of Counsel (who may be
counsel for the Company or the Guarantor) stating that in the opinion of such
counsel the Security Documents and other security filings have been properly
recorded, filed, re-recorded or re-filed so as to make effective and perfect the
Security Interest intended to be created thereby and reciting the details of
such action and (ii) except for Collateral released as contemplated in Section
1405 hereof at least annually on the anniversary of the Issue Date, an Opinion
of Counsel (who may be counsel for the Company or the Guarantor) either stating
that in the opinion of such counsel such action with respect to the recording,
filing, re-recording or re-filing of the Security Documents and other security
filings has been taken as is necessary to maintain the Lien and Security
Interest of the Security Documents and other security filings, subject to any
subordination contemplated in Section 1405 hereof, and reciting the details of
such action, or stating that in the opinion of such counsel no such action is
necessary to maintain such Lien and Security Interest. In giving the opinions
required by this Section 1401(d) above, such counsel may rely, to the extent
recited in such opinions, on (i) certificates of relevant public officials; (ii)
certificates of an officer or officers of the Company, the Guarantors or any
other Grantor; (iii) photocopies of filed and recorded documents certified by
public officials as being accurate copies of such documents; (iv) the opinions
of other counsel acceptable to the Trustee with respect to matters governed by
law of any jurisdiction other than the state in which such counsel is licensed
to practice law; and (v) title insurance policies and commitments. In addition,
such opinions may contain such qualifications, exceptions and limitations as are
appropriate for similar opinions relating to the nature of the Collateral.
G-53
SECTION 1402. Suits to Protect the Collateral.
To the extent permitted under the Security Documents and this
Indenture, the Trustee shall have power, but not be obliged, to institute and
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any acts which may be unlawful or in violation
of this Indenture or the Security Documents and such suits and proceedings as
the Trustee may deem expedient to preserve or protect its interests and the
interest of the Holders in the Collateral and in the profits, rents, revenues
and other income arising therefrom (including power to institute and maintain
suits or proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the Security Interest thereunder or
be prejudicial to the interest of the Holders or of the Trustee).
SECTION 1403. Further Assurances and Security.
Each of the Company and the Guarantor represents and warrants that at
the time the Security Documents and this Indenture are executed, the Company
and/or its Subsidiaries (i) will have full right, power and lawful authority to
grant, bargain, sell, release, convey, hypothecate, assign, mortgage, pledge,
transfer and confirm, absolutely, the Collateral, in the manner and form done,
or intended to be done, in the Security Documents, free and clear of all Liens,
except for the Liens created by the Security Documents or otherwise permitted by
the Indenture or the Security Documents, and will forever warrant and defend the
title to the same against the claims of all Persons whatsoever; (ii) will
execute, acknowledge and deliver to the Trustee, at the Company's and/or its
Subsidiaries' expense, at any time and from time to time such further
assignments, transfer, assurances or other instruments as may be required to
effectuate the terms of this Indenture or the Security Documents; and (iii) will
at any time and from time to time do or cause to be done all such acts and
things as may be necessary or proper, or as may be required by the Trustee, to
assure and confirm to the Trustee the Security Interest in the Collateral
contemplated hereby and by the Security Documents in each case, subject to and
as permitted by the terms of this Indenture and the terms of any release or
subordination contemplated by Section 1405 hereof.
SECTION 1404. Release of Collateral.
Subject to and as permitted by the terms of this Indenture and the
terms of any release or subordination contemplated by Section 1405 hereof and
unless otherwise consented to by the Requisite Lenders, the Company or any
Subsidiary, as the case may be, shall cause such Net Cash Proceeds of any Asset
Sale pursuant to Section 1017 that involves the sale of Collateral or any Event
of Loss pursuant to Section 1018 that involves a loss of Collateral to be
deposited in the Collateral Account on the business day on which such Net Cash
Proceeds are received by the Company or such Subsidiary. Subject to and as
permitted by the terms of this Indenture and the terms of any release or
subordination contemplated by Section 1405 hereof, Collateral Proceeds
(including any earnings thereon) may be released from the Collateral Account in
order to, and in only such amount as is required to, (x) pay the principal
amount of Securities tendered pursuant to an Asset Sale Offer or Event of Loss
Offer or (y) make a Permitted Related Investment; provided that upon
consummation of such Permitted Related Investment the Trustee shall subject to
and as permitted by the terms of this Indenture and the terms of any release or
subordination contemplated by Section 1405 hereof, have received a first
priority security interest in the property or assets acquired by the Company or
any of its Subsidiaries in connection therewith and the Company delivers to the
Trustee each of the following:
(i) An Officers' Certificate, dated the date on which Collateral
Proceeds shall be released from the Collateral Account (the "Collateral
Proceeds Release Date"), stating in substance as to the following matters
(which statements shall, on the Collateral Proceeds Release Date, be true):
(A) the reason the Company is requesting a release of the
Collateral Proceeds and a description of the use to be made of the
Collateral Proceeds to be released;
(B) in the case of clause (x) above, the aggregate principal
amount of Securities purchased on the Collateral Proceeds Release Date
and, in the case of clause (y) above, a description of the property or
assets being acquired and the Fair Market Value and the purchase price
of each such property or asset to be acquired by the Company and/or its
Subsidiaries (if more than one);
(C) that the amount to be released from the Collateral Account
does not exceed the aggregate principal amount of Securities to be
purchased on the Collateral Proceeds Release Date or the purchase
G-54
price of the property or assets to be acquired by the Company or any of
its Subsidiaries, as the case may be;
(D) that, in the case of clause (y) above, the Company and/or
its Subsidiaries, as the case may be, have taken all steps necessary or
desirable so that upon consummation of such Permitted Related
Investment the Trustee shall, subject to the terms of any release or
subordination contemplated in Section 1405 hereof, receive a first
priority security interest in such property or assets; and
(E) that no Default or Event of Default has occurred and is
continuing at the time of or after giving effect to such release of
Collateral Proceeds.
(ii) An Opinion of Counsel stating that the certificate, opinions,
other instruments or cash which have been or are therewith delivered to and
deposited with the Trustee conform to the requirements of this Indenture
and that the property to be released may be lawfully released from the Lien
of the Security Documents and that all conditions precedent in this
Indenture and the Security Documents relating to such release have been
complied with.
In connection with any release of any lien in favor of the Trustee
granted pursuant to the Security Documents on Collateral, the Company and the
Guarantor shall comply, to the extent required thereby, with the applicable
provisions of the TIA, including Section 314 thereof.
SECTION 1405. Release Notice; Subordination Request; Permitted Liens.
(a) With the consent or approval or at the request of the Requisite
Lenders, the Company shall deliver a Release Notice to the Trustee. A Release
Notice may only be delivered by the Company from time to time with the consent
of the Requisite Lenders. A Release Notice shall request that the Trustee
execute one or more specifically described release instruments, documents and
agreements (which release instruments, documents and agreements shall accompany
such Release Notice) and shall (i) include a certified copy of the Board
Resolution of the Company or any of its Subsidiaries in which such Board of
Directors approved the delivery of the Release Notice; (ii) include a copy of
the written consent of the Requisite Lenders to the Release Notice; (iii) be
accompanied by an Officers' Certificate, including a certification that no Event
of Default, or no default which with the passage of time or giving of notice
would become an Event of Default, has occurred or is continuing, in each case
unless waived in accordance with the terms of this Indenture; (iv) be
accompanied by an Opinion of Counsel stating that the action contemplated by
this Section 1405(a) is authorized and permitted by the Indenture and that all
conditions precedent herein relating to such action have been complied with; and
(v) if required by the TIA, certificates in accordance with Section 314 of the
TIA. Upon receipt of a Release Notice the Trustee, at the Company's expense,
shall execute and deliver, within seven Business Days from the receipt of such
Release Notice, any instruments, documents and agreements specified by the
Company or any of its Subsidiaries to release all or any part of the Collateral
from the Security Interests or any other Liens created by the Security Documents
or the Indenture including, without limitation, all instruments, documents and
agreements necessary to release any and all Liens of record and to terminate the
Security Documents together with any intercreditor agreements specified in such
Release Notice.
(b) With the consent or approval or at the request of the Requisite
Lenders, the Company shall deliver a Subordination Request to the Trustee. A
Subordination Request may only be delivered by the Company from time to time
with the consent of the Requisite Lenders. A Subordination Request shall request
that the Trustee execute one or more specifically described instruments,
documents and agreements of subordination (which instruments of subordination
shall accompany such Subordination Request) and shall (i) include a certified
copy of the Board Resolution of the Company or any of its Subsidiaries in which
such Board of Directors approved the delivery of the Subordination Request; (ii)
include a copy of the written consent of the Requisite Lenders to the
Subordination Request; (iii) certify that the subordination requested effects a
subordination of the Security Interests only to the extent, and only with
respect to the Collateral as to which such subordination is, contemplated by the
Subordination Determination; (iv) be accompanied by an Officers' Certificate,
including a certification that no Event of Default, and no default which with
the passage of time or giving of notice would become an Event of Default, has
occurred or is continuing, in each case unless waived in accordance with the
terms of this Indenture; (v) be accompanied by an Opinion of Counsel stating
that the action contemplated by this Section 1405(b) is authorized and permitted
by the Indenture and that all conditions precedent herein relating to such
action have been complied with; and (vi) if required by the TIA, certificates in
accordance with Section 314 of the TIA. Upon receipt of a Subordination Request,
the Trustee, at the Company's expense, will execute and deliver, within seven
Business Days from the
G-55
receipt of such Subordination Request, any instruments, documents and agreements
specified by the Company or any of its Subsidiaries to subordinate the Security
Interests or any other Liens created by the Security Documents or the Indenture
to any Lien that the Board of Directors of the Company or any of its
Subsidiaries determines (each such determination, a "Subordination
Determination") to accord priority over the Security Interests together with any
intercreditor agreements specified in such Subordination Request.
(c) In connection with any release of any lien pursuant to a Release
Notice or the subordination of any lien pursuant to a Subordination Request, the
Company and the Guarantor shall comply, to the extent required thereby, with the
applicable provisions of the TIA, including Section 314 thereof.
(d) Any release or subordination of Collateral made in compliance with
the provisions of this Section 1405 shall be deemed for all purposes: (i) not to
impair the Security Interests or impair the security under the Indenture in
contravention of the terms or provisions of this Indenture or the Security
Documents and (ii) not to constitute in any respect or for any purpose a breach,
default or violation of any term or provision of this Indenture or the Security
Documents and to the extent that any such breach, default or violation would
otherwise result the same are hereby waived in all respects.
(e) In addition to, and not in limitation of, any other rights, powers
or privileges of the Company and its Subsidiaries, the Company and its
Subsidiaries may incur Permitted Liens as and to the extent such action is in
compliance with the terms of this Indenture and the Security Documents.
(f) To the extent set forth in any Release Notice or Subordination
Request or in the terms, provisions or conditions of any such release or
subordination or any agreements, documents or instruments related thereto,
associated therewith or arising from or in connection with any such release or
subordination or any related or associated transaction, the terms of Section
1017, 1018 and 1404 hereof shall (i) cease to apply to the Assets that are the
subject of such Release Notice or Subordination Request, and to any proceeds
thereof or (ii) continue to apply to such Assets and proceeds only to the extent
set forth in the terms, provisions or conditions of any such release or
subordination or of any such agreements, documents or instruments.
SECTION 1406. Reliance on Opinion of Counsel.
The Trustee shall be fully protected in taking any action under this
Article Fourteen or omitting to take any action, in reliance upon an Opinion of
Counsel.
SECTION 1407. Purchaser May Rely.
Any person that acquires, obtains a Lien on or otherwise obtains any
interest in good faith in the Collateral or any part thereof or interest therein
which is purported to be transferred, granted or released by the Trustee as
provided in this Article Fourteen shall not be bound to ascertain, and may rely
on the authority of the Trustee to execute, transfer, grant or release, or to
inquire as to the satisfaction of any conditions precedent to the exercise of
such authority, or to see to the application of the purchase price therefor or
any loan proceeds or other consideration relating thereto.
SECTION 1408. Payment of Expenses.
On demand of the Trustee, the Company forthwith shall pay or
satisfactorily provide for the payment of all reasonable expenditures incurred
by the Trustee under this Article Fourteen, including, without limitation, the
costs of title insurance, surveys, attorneys' fees and expenses, recording fees
and taxes, transfer taxes, taxes on indebtedness and other expenses incidental
thereto and all such sums shall be a Lien upon the Collateral prior to the
Securities and shall be secured thereby.
ARTICLE FIFTEEN
CONVERSION AND DEMAND PAYMENT
SECTION 1501. Conversion Following Election of Requisite Lenders.
(a) Following delivery of written notice from the Requisite Lenders
(which notice shall be deliverable in their sole and absolute discretion) to the
Company and the Trustee stating that the Securities shall thereafter be
G-56
convertible under this Section 1501(a) (the "Convertibility Election"), the
Holder of any Note shall have the right, at its option, at any time following
the date the Convertibility Notice was received by the Trustee, through the
close of business on the final maturity date of the Notes (except that, with
respect to any Note or portion of a Note that shall be called for redemption,
such right shall terminate, except as provided in Section 1502, Section 1104 or
Section 1105, at the close of business on the Business Day next preceding the
date fixed for redemption of such Note or portion of a Note unless the Company
shall default in payment due upon redemption thereof) to convert any such Note
into that number of fully paid and non-assessable shares of Company Common Stock
(as such shares shall then be constituted) obtained by multiplying the principal
amount of the Note or portion thereof surrendered for conversion by the Stated
Ratio (and shall also be entitled to receive any other securities required to be
issued in respect of such Note as contemplated in Section 1504 below), by
surrender of the Note so to be converted in whole or in part in the manner
provided in Section 1502.
(b) A holder of Notes is not entitled to any rights of a holder of
Company Common Stock or other securities deliverable hereunder until such Notes
are surrendered as provided in Section 1502.
(c) For the avoidance of doubt, this Section 1501 shall not limit the
power of the Requisite Lenders to provide the Demand Payment Notice at any time,
either prior to or after the occurrence of the Convertibility Election and in
such event the Notes shall be discharged and shall thereafter represent solely
the right of the Holder to receive the Applicable Common Stock, all as more
fully set forth in this Indenture.
SECTION 1502. Exercise of Conversion Privilege; Demand Payment;
Issuance of Common Stock; No Adjustment for Interest or Dividends.
In order to exercise the conversion privilege or obtain Applicable
Common Stock in connection with a Demand Payment with respect to any Note in
certificated form, the Holder of any such Note to be converted or so paid shall
surrender such Note, duly endorsed, at an office or agency maintained by the
Company pursuant to Section 1002, and, with respect to a conversion under
Section 1501(a), shall give written notice of conversion (in the form of Exhibit
B hereto or another form acceptable to the Company) to the office or agency that
the Holder elects to convert such Note or the portion thereof specified in said
notice. In connection with such surrender, the Holder shall also state the name
or names (with address or addresses) in which certificates for securities which
shall be issuable on such conversion or payment shall be issued, and such
surrender shall be accompanied by transfer taxes, if required pursuant to
Section 1509. Each such Note surrendered for conversion or Demand Payment shall,
unless the shares issuable on conversion or such payment are to be issued in the
same name as the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the Holder or his duly authorized attorney.
As promptly as practicable after satisfaction of the requirements for
conversion or in respect of a Demand Payment in the form of the Applicable
Common Stock, subject to compliance with any restrictions on transfer if shares
issuable on conversion are to be issued in a name other than that of the
Noteholder (as if such transfer were a transfer of the Note or Notes (or portion
thereof) so converted or paid), the Company shall issue and shall deliver to
such Noteholder a certificate or certificates for the securities issuable upon
the conversion or payment in respect of a Demand Payment in the form of the
Applicable Common Stock, of such Note or (in the case of a conversion) portion
thereof as determined by the Company in accordance with the provisions of this
Article Fifteen, calculated by the Company as provided in Section 1503. In case
any Note of a denomination greater than $1,000 shall be surrendered for partial
conversion, and subject to Section 302, the Company shall execute and the
Trustee shall authenticate and deliver to the holder of the Note so surrendered,
without charge to him, a new Note or Notes in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the surrendered
Note.
If a Note is surrendered for conversion in part, then a new Note will
be issued but any such issuance will only be made in multiples of $1,000.
Each conversion or payment in respect of a Demand Payment in the form
of the Applicable Common Stock shall be deemed to have been effected so as to
result in any Holder becoming a holder of Company Common Stock (or other
securities issuable in respect of such conversion or Demand Payment as
contemplated in Section 1504) on the date on which the requirements set forth
above in this Section 1502 have been satisfied as to such Note (or portion
thereof), and the Person in whose name any certificate or certificates for
shares of Company Common Stock (or other securities issuable in respect of such
conversion or payment as contemplated in Section 1504) shall
G-57
be issuable upon such conversion or payment shall be deemed to have become on
said date the holder of record of the shares represented thereby and such Holder
shall be entitled to all of the rights of a record holder of Company Common
Stock or other securities deliverable hereunder (all of which shall be and be
deemed to be issued to such person) and such person shall be deemed to be the
owner of such shares of Company Common Stock or other securities, whether or not
certificates representing the same have been issued to such person. In the case
of any conversion pursuant to Section 1501(a) any Note (or portion thereof) so
surrendered shall cease to be outstanding and shall be discharged and all
principal and accrued interest thereon extinguished in all respects as of the
date of such surrender. In the case of any Demand Payment, each Note shall be
discharged and extinguished as contemplated in Section 301(f).
No adjustment in respect of accrued interest on any Note converted or
paid, or dividends on any shares issued upon conversion or payment of such Note
will be made upon any conversion or payment.
SECTION 1503. Stated Ratio.
The "Stated Ratio" shall equal [ ______ ] shares of Company Common
Stock per $1,000 principal amount of Notes. In the event of any transaction or
occurrence not contemplated in Section 1504 in which it is equitable that the
Stated Ratio be adjusted, then, upon the request and with the consent of the
Requisite Lenders, and with the approval of the Board of Directors of the
Company acting in good faith, the Stated Ratio shall be equitably adjusted. Any
such adjustment shall be made by and set forth in a supplemental indenture
between the Company, or any successor thereto, and the Trustee and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment.
SECTION 1504. Additional Issuances.
In the Event of Occurrence of Certain Events. In addition to or instead
of the shares of Company Common Stock otherwise issuable upon conversion
pursuant to this Article Fifteen or payment in respect of a Demand Payment in
the form of Applicable Common Stock:
(i) In case the Company shall, at any time after the date hereof and on
or prior to (A) the date of such conversion as contemplated in Section
1501(a) in respect of any conversion or (B) the Demand Payment Date in
respect of any Demand Payment (1) declare a dividend or make a distribution
on the Company Common Stock in shares of Company Common Stock; (2)
subdivide the outstanding shares of Company Common Stock into a greater
number of shares; (3) combine the outstanding shares of its Company Common
Stock into a smaller number of shares; or (4) issue any shares of its
capital stock by reclassification of the Company Common Stock (including
any such reclassification in connection with a consolidation or merger in
which the Company is the continuing corporation), then upon conversion or
payment of a Note in respect of a Demand Payment in the form of Applicable
Common Stock the Holder of such Note shall be entitled to receive the
aggregate number and kind of shares which, if such Note had been converted
or so paid immediately prior to such time, such Holder would have owned
upon such conversion or payment, as applicable, and by virtue of such
dividend, subdivision, combination, or reclassification.
(ii) In case the Company shall, at any time after the date hereof and
on or prior to (A) the date of such conversion as contemplated in Section
1501(a) in respect of any conversion or (B) the Demand Payment Date in
respect of any Demand Payment, issue to all holders of Company Common Stock
rights, options, or warrants to subscribe for or purchase Company Common
Stock (or securities convertible into or exchangeable for Company Common
Stock), and if the same are not issued or otherwise provided to the Holders
of Notes at such time pro rata on a fully-diluted basis as if such Notes
were then convertible or payable as contemplated herein, together with all
warrants, other rights, options or convertible securities in respect of
Company Common Stock, and as if all such securities were exercised or
converted, then upon conversion or Demand Payment of a Note in the form of
Applicable Common Stock the Holder of such Note so converted or so paid
shall be entitled to receive the aggregate number and kind of rights,
options, or warrants to subscribe for or purchase Company Common Stock (or
securities convertible into or exchangeable for Company Common Stock such
holder would have received by virtue of such issuance of rights, options,
or warrants to subscribe for or purchase Company Common Stock (or
securities convertible into or exchangeable for Company Common Stock)), if
such Note had been converted or paid in the form of Applicable Common Stock
immediately prior to such time.
G-58
(iii) For the avoidance of doubt, the exercise or conversion of
any option, warrant or other convertible or similar security shall not
be deemed to constitute a distribution, subdividion or issuance
contemplated by Section 1504(i) and (ii) or otherwise require the
issuance of any additional securities under Section 1504(i) or (ii) or
otherwise in respect of, or upon, conversion of Notes or a Demand
Payment.
SECTION 1505. Mergers.
In case of any consolidation or merger of the Company with or into
another Person (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding shares of Company Common Stock or the conversion of such outstanding
shares of Company Common Stock into shares of other stock or other securities or
property) (such actions being hereinafter collectively referred to as a
"Merger"), there shall thereafter be deliverable upon conversion or Demand
Payment of any Note (in lieu of the securities otherwise deliverable as
contemplated in this Article Fifteen and Section 301(f)), the number of shares
of stock or other securities or property to which a holder of the number of
shares of Company Common Stock which would otherwise have been deliverable upon
the conversion or such payment of such Note would have been entitled upon such
Merger if such Note had been converted or so paid in full immediately prior to
such Merger. In case of any Merger, appropriate adjustment, as determined in
good faith by the Board of Directors of the Company and consented to by the
Requisite Lenders, shall be made in the application of the provisions herein set
forth with respect to the rights and interests of Note holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon conversion or Demand Payment of Notes. Any such adjustment shall be made by
and set forth in a supplemental indenture between the Company, or any successor
thereto, and the Trustee and shall for all purposes hereof conclusively be
deemed to be an appropriate adjustment. The Company shall not effect any such
Merger unless upon or prior to the consummation thereof the successor
corporation, or if the Company shall be the surviving corporation in any such
Merger and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Company Common Stock
outstanding at the effective time thereof, then such issuer, shall assume by
written instrument the obligation to deliver to the registered holder of any
Note such shares of stock, securities, cash, or other property as such holder
shall be entitled to purchase in accordance with the foregoing provisions.
SECTION 1506. Verification of Computations.
Whenever the Stated Ratio is adjusted as provided pursuant to Section
1504 hereof, the Company will promptly obtain a certificate of the chief
financial officer of the Company setting forth the Stated Ratio as so adjusted
and a brief statement of the facts accounting for such adjustment, and the
Company will make available a brief summary thereof to the holders of the Notes,
at their addresses listed on the register maintained for that purpose by the
Trustee.
SECTION 1507. Notice of Additional Issuances or Other Property.
Whenever Holders of Notes become entitled to an additional issuance of
securities or other property pursuant to this Article Fifteen, the Company shall
cause notice of such matter to be mailed to the Trustee within 15 days
thereafter, such notice to include in reasonable detail (a) the events
precipitating such occurrence and (b) the computation of any such additional
consideration, which computation shall include the number of shares or the
securities or other property purchasable upon conversion or Demand Payment of
each Note after giving effect thereto. The Trustee shall within 15 days after
receipt of such notice from the Company cause a similar notice to be mailed to
each registered holder of a Note.
SECTION 1508. Fractional Shares.
Upon the conversion or Demand Payment of any Note, all fractions will
be rounded down to the nearest whole number of shares, and the Company shall not
be required to issue fractional shares of Company Common Stock. If more than one
Note is converted or paid in respect of any Demand Payment at one time by the
same registered holder, the number of full shares of Company Common Stock which
shall be deliverable shall be computed based on the number of shares deliverable
in exchange for the aggregate principal amount of Notes converted or so paid.
The Company shall not make any cash payments to holders of Notes with respect to
any final fraction of a share called for upon the conversion or such payment of
any Note.
SECTION 1509. Taxes on Shares Issued.
G-59
The issue of stock certificates on conversions or Demand Payment of
Notes shall be made without charge to the Holder for any tax in respect of the
issue thereof. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
stock in any name other than that of the holder of any Note converted or so
paid, and the Company shall not be required to issue or deliver any such stock
certificate unless and until the Person or Persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
SECTION 1510. Reservation of Shares; Shares to Be Fully Paid;
Compliance with Governmental Requirements; Listing of Company Common Stock.
The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient shares of
Company Common Stock to provide for the conversion or Demand Payment of the
Notes from time to time as such Notes are presented for conversion or such
payment.
The Company covenants that, if any shares of Company Common Stock to be
provided for the purpose of conversion or Demand Payment of Notes hereunder
require registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued upon conversion or
Demand Payment, the Company will in good faith and as expeditiously as possible,
to the extent then permitted by the rules and interpretations of the Securities
and Exchange Commission (or any successor thereto), endeavor to secure such
registration or approval, as the case may be.
The Company shall have no obligation to cause any securities to be
listed on any national securities exchange or automated quotation system.
SECTION 1511. Responsibility of Trustee.
The Trustee and any other conversion agent shall not at any time be
under any duty or responsibility to any holder of Notes to determine the Stated
Ratio or whether any facts exist which may require any adjustment of the Stated
Ratio, or with respect to the nature or extent or calculation of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same. The
Trustee and any other conversion or payment agent shall not be accountable with
respect to the validity or value (or the kind or amount) of any shares of
Company Common Stock, or of any securities or property, which may at any time be
issued or delivered upon the conversion or Demand Payment of any Note; and the
Trustee and any other conversion or payment agent make no representations with
respect thereto. Neither the Trustee nor any conversion or payment agent shall
be responsible for any failure of the Company to issue, transfer or deliver any
shares of Company Common Stock or stock certificates or other securities or
property or cash upon the surrender of any Note for the purpose of conversion or
Demand Payment or to comply with any of the duties, responsibilities or
covenants of the Company contained in this Article Fifteen.
Without limiting the generality of the foregoing, neither the Trustee
nor any conversion or payment agent shall be under any responsibility to
determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant hereto relating either to the kind or amount of
shares of stock or securities or property (including cash) receivable by
Noteholders upon the conversion or Demand Payment of their Notes, but, subject
to the provisions of Article Six, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, the
Officers' Certificate (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.
ARTICLE SIXTEEN
MISCELLANEOUS
SECTION 1601. Counterparts.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
G-60
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ATLANTIC COAST ENTERTAINMENT
HOLDINGS, INC.
By
-------------------------
Title:
Attest:
-----------------------------
Title:
ACE GAMING, LLC
By
-------------------------
Title:
Attest:
-----------------------------
Title:
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By
-------------------------
Title:
G-61
EXHIBIT A
- --------------------------------------------------------------------------------
OFFICER'S CERTIFICATE
OF
ACE GAMING, LLC
- --------------------------------------------------------------------------------
Reference is made to that certain Indenture, dated as of
_________________ (the "Indenture") among Atlantic Coast Entertainment Holdings,
Inc. (the "Company"), as Issuer, ACE Gaming, LLC, as guarantor, and Wells Fargo
Bank, National Association, as Trustee (the "Trustee"). Except as otherwise
defined herein, capitalized terms used herein shall have the meanings set forth
in the Indenture.
Pursuant to Section 1008 of the Indenture, the undersigned officer of
Licensee hereby certifies to the Trustee as follows:
He is now, and at the times mentioned herein has been, the
duly elected, qualified and acting officer of Licensee as
specified below.
To his knowledge, and without regard to any period of grace or
requirements of notice under the Indenture or the Security
Documents, Licensee is in compliance with all conditions and
covenants under the Indenture or the Security Documents.
IN WITNESS WHEREOF, I have set my hand this ____ day of _____________.
ACE GAMING, LLC
t/a "Sands Hotel & Casino"
By:
-----------------------
G-62
SCHEDULE 1.01
PERMITTED INDEBTEDNESS
[Mortgage in the amount of $700,000 and interest, made by Lieber Check Cashing
L.L.C., to Andermatt Corp., dated July 22, 1996.
Mortgage in the amount of $525,000 and interest made by GBHC to Ruth M. Lubin,
dated January 1, 1983.
Amendment, dated April 5, 2000, to Brighton Park Improvements Agreement, dated
November 5, 1987, by and between Claridge at Park Place, Inc. and GBHC.
Lease Agreement, dated April 17, 2000 between Claridge at Park Place, Inc. and
GBHC for Lot 11 on Block 47 Tax Map of the City of Atlantic City.
Such liens or interests as are set forth in that certain Commitment No.
102134032 for Title Insurance of Stewart Title Guaranty Company.
The lease, license or management agreement (s) with an energy management
company(s), supplier(s), or intermediary(s) related thereto now or hereafter
entered into concerning or with respect to the supply and/or management of
utility services and/or the operation of existing or newly supplied equipment at
the property, including, but not limited to heating, ventilation, and
air-conditioning and energy production related equipment.]
G-63
EXHIBIT B
CONVERSION NOTICE
TO: ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC. AND [NAME OF AGENT]
The undersigned registered owner of this Note hereby irrevocably exercises the
option to convert this Note, or the portion thereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of
Atlantic Coast Entertainment Holdings, Inc.in accordance with the terms of the
Indenture referred to in the Note below, and directs that the shares issuable
and deliverable upon such conversion, and any Notes representing any unconverted
principal amount hereof, be issued and delivered to the registered holder hereof
unless a different name has been indicated below. If shares or any portion of
this Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned will provide the appropriate information below and
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.
Dated:
------------------
Fill in the registration of shares of Common Stock if to be issued, and Notes if
to be delivered, other than to and in the name of the registered holder:
(Name)
(Street Address)
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less than all):
$
-------------------------
Social Security or Other Taxpayer
Identification Number:
Name of Registered Owner of Note being Converted:
---------------------------
Principal Amount of Note being Converted: $
---------------------------------
Certificate Number of Note being Converted:
---------------------------------
G-64
[BACK COVER]
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the Delaware General Corporation
Law, our Certificate of Incorporation provides that directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of their
duty of loyalty to us or our 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 Delaware General Corporation Law, relating
to prohibited dividends or distributions or the repurchase or redemption of
stock, or (iv) for any transaction from which our director derives an improper
personal benefit. In addition, our by-laws provide for indemnification of our
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons who control us, we have
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
We maintain directors' and officers' liability insurance against any
actual or alleged error, misstatement, misleading statement, act, omission,
neglect or breach of duty by any director or officer, excluding certain matters
including fraudulent, dishonest or criminal acts or self-dealing.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
Exhibit
Number DESCRIPTION OF DOCUMENT
- ------ -----------------------
3.1 Certificate of Incorporation of Atlantic Coast Entertainment
Holdings, Inc., filed October 31, 2003 (Incorporated herein by
reference to Annex A to the solicitation statement and prospectus,
which is a part of this registration statement).
3.2** Certificate of Formation of ACE Gaming, LLC, filed November 5, 2003.
3.3 By-Laws of Atlantic Holdings (Incorporated herein by reference to
Annex B to the solicitation statement and prospectus, which is a
part of this registration statement).
4.1** Specimen form of Atlantic Holdings' Common Stock certificate.
4.2** Operating Agreement of ACE Gaming, dated November 5, by Atlantic
Holdings.
4.3 Amended and Restated Indenture, dated as of October 12, 2001, among
GB Property Funding Corp., as issuer, GB Holdings, Inc. and Greate
Bay Hotel and Casino, Inc., as guarantors, and Wells Fargo Bank
Minnesota, National Association, as trustee (Incorporated herein by
reference to Annex E to the solicitation statement and prospectus,
which is a part of this registration statement).
4.4 Form of Amendment to the Amended and Restated Indenture among GB
Property, as issuer, GB Holdings and Greate Bay Hotel, as
guarantors, and Wells Fargo Bank Minnesota, National Association, as
trustee, and Form of Second Amended and Restated Indenture among GB
Holdings, as obligor, and Wells Fargo Bank Minnesota, National
Association, as trustee (Incorporated herein by reference to Annex F
to the solicitation statement and prospectus, which is a part of
this registration statement).
4.5 Form of Indenture among Atlantic Holdings, as issuer, ACE Gaming, as
guarantor, and Wells Fargo Bank, National Association, as trustee
(Incorporated herein by reference to Annex G to the solicitation
statement and prospectus, which is a part of this registration
statement).
4.6 Form of Warrant Agreement (Incorporated herein by reference to Annex
D to the solicitation statement and prospectus, which is a part of
this registration statement).
4.7 Form of Registration Rights Agreement, between Atlantic Holdings and
the Signatories listed therein.
5.1 Opinion of Katten Muchin Zavis Rosenman.
8.1 Form of Tax Opinion of Katten Muchin Zavis Rosenman.
II-1
10.1* Form of Merger Agreement by and between GB Property and Greate Bay
Hotel.
10.2 Form of Contribution Agreement by and among GB Holdings, Greate Bay
Hotel, Atlantic Holdings and ACE Gaming (Incorporated herein by
reference to Annex C to the solicitation statement and prospectus,
which is a part of this registration statement).
10.3* Form of Security Agreement, by and among Atlantic Holdings, ACE
Gaming and Trustee.
10.4* Form of Collateral Assignment of Leases, between ACE Gaming and
Trustee.
10.5* Form of Mortgage and Fixture Security Agreement, between ACE Gaming
and Trustee.
10.6* Solicitation Agent Agreement with ____________, dated ____________ .
10.7* Information Agent Agreement with ____________, dated ____________ .
10.8* Exchange Agent Agreement with _____________, dated _____________ .
10.9** Commitment Letter from Ealing Corp. to GB Holdings dated as of
January 30, 2004.
10.10** Letter from GB Holdings to Ealing Corp., dated as of March 23, 2004.
10.11** Letter from GB Holdings to Ealing Corp., dated as of April 20, 2004.
12.1 Statement regarding computation of ratios.
21.1** List of Subsidiaries of Atlantic Holdings.
23.1 Consent of Independent Registered Public Accounting Firm.
23.2 Opinion of Katten Muchin Zavis Rosenman (included in Exhibit 5.1).
24.1** Powers of Attorney.
25.1** Statement of Eligibility under the Trust Indenture Act of 1939 on
Form T-1 of Wells Fargo Bank, National Association.
99.1 Form of Consent and Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
- --------------
* To be filed by amendment.
** Previously filed.
b. Financial Statement Schedules
All financial statement schedules are omitted because the information
is not required, is not material or is otherwise included in the financial
statements or related notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants, pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
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 registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlantic City, New Jersey, on May 27,
2004.
ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
By: /s/ RICHARD P. BROWN
---------------------------------------
Name: RICHARD P. BROWN
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on May 27, 2004.
SIGNATURE TITLE
--------- -----
/s/ RICHARD P. BROWN
- -------------------------------------- Chief Executive Officer (Principal
RICHARD P. BROWN Executive Officer)
/s/ DOUGLAS S. NIETHOLD
- -------------------------------------- Interim Vice President, Finance and
DOUGLAS S. NIETHOLD Chief Financial Officer (Principal
Accounting Officer)
/s/ MARTIN HIRSCH*
- -------------------------------------- Director
MARTIN HIRSCH
/s/ JOHN P. SALDARELLI*
- -------------------------------------- Director
JOHN P. SALDARELLI
/s/ MICHAEL L. ASHNER*
- -------------------------------------- Director
MICHAEL L. ASHNER
/s/ HAROLD FIRST*
- -------------------------------------- Director
HAROLD FIRST
/s/ AUGUSTE E. RIMPEL, JR.*
- -------------------------------------- Director
AUGUSTE E. RIMPEL, JR
- ------------------------------------------------
*By: /s/ RICHARD P. BROWN
------------------------------------------
RICHARD P. BROWN, as Attorney-in-Fact
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlantic City, New Jersey, on May
27, 2004.
ACE GAMING, LLC
By /s/ RICHARD P. BROWN
---------------------------------------
Name: RICHARD P. BROWN
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on May 27, 2004.
SIGNATURE TITLE
/s/ RICHARD P. BROWN
- ------------------------------------ Chief Executive Officer (Principal
RICHARD P. BROWN Executive Officer)
/s/ DOUGLAS S. NIETHOLD
- ------------------------------------ Interim Vice President, Finance and
DOUGLAS S. NIETHOLD Chief Financial Officer (Principal
Accounting Officer)
/s/ MARTIN HIRSCH*
- ------------------------------------ Director
MARTIN HIRSCH
/s/ JOHN P. SALDARELLI*
- ------------------------------------ Director
JOHN P. SALDARELLI
/s/ MICHAEL L. ASHNER*
- ------------------------------------ Director
MICHAEL L. ASHNER
/s/ HAROLD FIRST*
- ------------------------------------ Director
HAROLD FIRST
/s/ AUGUSTE E. RIMPEL, JR.*
- ------------------------------------ Director
AUGUSTE E. RIMPEL, JR.
- ----------------------------------------------
*By: /s/ RICHARD P. BROWN
-----------------------------------------
RICHARD P. BROWN, as Attorney-in-Fact
II-4
41303951.04
Exhibit
Number DESCRIPTION OF DOCUMENT
------ -----------------------
3.1 Certificate of Incorporation of Atlantic Coast Entertainment
Holdings, Inc., filed October 31, 2003 (Incorporated herein by
reference to Annex A to the solicitation statement and
prospectus, which is a part of this registration statement).
3.2** Certificate of Formation of ACE Gaming, LLC, filed November 5,
2003.
3.3 By-Laws of Atlantic Holdings (Incorporated herein by reference to
Annex B to the solicitation statement and prospectus, which is a
part of this registration statement).
4.1** Specimen form of Atlantic Holdings' Common Stock certificate.
4.2** Operating Agreement of ACE Gaming, dated November 5, by Atlantic
Holdings.
4.3 Amended and Restated Indenture, dated as of October 12, 2001,
among GB Property Funding Corp., as issuer, GB Holdings, Inc. and
Greate Bay Hotel and Casino, Inc., as guarantors, and Wells Fargo
Bank Minnesota, National Association, as trustee (Incorporated
herein by reference to Annex E to the solicitation statement and
prospectus, which is a part of this registration statement).
4.4 Form of Amendment to the Amended and Restated Indenture among GB
Property, as issuer, GB Holdings and Greate Bay Hotel, as
guarantors, and Wells Fargo Bank Minnesota, National Association,
as trustee, and Form of Second Amended and Restated Indenture
among GB Holdings, as obligor, and Wells Fargo Bank Minnesota,
National Association, as trustee (Incorporated herein by
reference to Annex F to the solicitation statement and
prospectus, which is a part of this registration statement).
4.5 Form of Indenture among Atlantic Holdings, as issuer, ACE Gaming,
as guarantor, and Wells Fargo Bank, National Association, as
trustee(Incorporated herein by reference to Annex G to the
solicitation statement and prospectus, which is a part of this
registration statement).
4.6 Form of Warrant Agreement (Incorporated herein by reference to
Annex D to the solicitation statement and prospectus, which is a
part of this registration statement).
4.7 Form of Registration Rights Agreement, between Atlantic Holdings
and the Signatories listed therein.
5.1 Opinion of Katten Muchin Zavis Rosenman.
8.1 Form of Tax Opinion of Katten Muchin Zavis Rosenman.
10.1* Form of Merger Agreement by and between GB Property and Greate
Bay Hotel.
10.2 Form of Contribution Agreement by and among GB Holdings, Greate
Bay Hotel, Atlantic Holdings and ACE Gaming (Incorporated herein
by reference to Annex C to the solicitation statement and
prospectus, which is a part of this registration statement).
10.3* Form of Security Agreement, by and among Atlantic Holdings, ACE
Gaming and Trustee.
10.4* Form of Collateral Assignment of Leases, between ACE Gaming and
Trustee.
10.5* Form of Mortgage and Fixture Security Agreement, between ACE
Gaming and Trustee.
10.6* Solicitation Agent Agreement with ____________, dated .
10.7* Information Agent Agreement with ____________, dated .
10.8* Exchange Agent Agreement with _____________, dated .
10.9** Commitment Letter from Ealing Corp. to GB Holdings dated as of
January 30, 2004.
10.10** Letter from GB Holdings to Ealing Corp., dated as of
March 23, 2004.
10.11** Letter from GB Holdings to Ealing Corp., dated as of
April 20, 2004.
12.1 Statement regarding computation of ratios.
21.1** List of Subsidiaries of Atlantic Holdings.
23.1 Consents of Independent Registered Public Accounting Firm.
23.2 Opinion of Katten Muchin Zavis Rosenman (included in Exhibit
5.1).
24.1** Powers of Attorney.
25.1** Statement of Eligibility under the Trust Indenture Act of 1939 on
Form T-1 of Wells Fargo Bank, National Association.
99.1 Form of Consent and Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
- --------------
* To be filed by amendment.
** Previously filed.